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JU N E 1 9 5 6 business review 1 FEDERAL RESERVE BANK OF PHILADELPHIA ERCIAL BANKING IN A DYNAMIC ECONOMY Our eco^brny has grown substantially in the past few decades, banking kept pace? In industry, tfere is continued change— new products and new techniques, ■■1 services extended by commercial banks? questions dealt with in this article. TRENDS IN OFFICE-BUILDING SPACE AND OCCUPANCY IN PHILADELPHIA A substantial office-building program brings new commercial space on the Philadelphia market. Thus far occupancy has held up well, reflecting needed expansion and a desire for modern quarters. CO M M ERCIA L B A N K IN G IN A D YN A M IC EC O N O M Y We are living in a world of rapid change. On 3. Have the terms on which credit is extended the economic front there are new industries, new been adapted to meet the changing needs products, and new techniques of production. The of borrowers? emphasis on change is reflected in the advertis ing slogan of one of our large manufacturers, LO NG-TERM G RO W TH A First, let us take a look at the long-term growth pertinent question for bankers to ponder is, of commercial banks. Has commercial banking “ What about our business; are we keeping up kept pace with the growth of the economy and “ Progress is our most important product.” with the times?” This is the question toward which this review of the trends in bank earning assets is directed. This article deals with three major questions: 1. How does the long-term growth in com other financial institutions? This is a question of particular concern to bankers. Resource grow th sim ila r to the econom y Total assets of all commercial banks at the end of 1955 were nearly ten times larger than in mercial banking compare with that of the 1914. The chart, which is on a semi-logarithmic economy and with other financial institu scale, shows not only the amount but also the tions? rate of change in bank assets. There was a sharp 2. Have commercial banks broadened their rise in World War I as banks extended credit in services over the years, or are they still helping to finance heavy war expenditures. After supplying the same old product? a short interruption during the post-war reces- 2 b usiness re v ie w sion, bank assets continued to expand during the services. This is not surprising, as commercial twenties. The only serious interruption in asset banks provide the bulk of our money supply. growth occurred during the severe depression of The volume of money, except when there is a the early thirties. Following that depression, growth was resumed. It was more rapid during change in velocity, tends to vary with total ex penditures. the war as banks bought large quantities of Gov The total value of goods and services pro ernment securities. The rate of growth has been duced contracted more sharply during the great slower in the post-war period despite the sharp depression. upward trend in loans because banks have liqui nounced tendency to hoard currency and to hold dated a substantial amount of Governments. idle deposits. Since World War II the divergence An important reason was the pro Growth in absolute terms is not too significant. in rates of growth has been in the opposite direc As all of us know, our economy has been ex tion. G.N.P. has risen somewhat more rapidly panding rapidly. The important question is, has than commercial-bank assets, particularly in the banking kept pace with the economy? The rate early post-war period. Here again a significant of expansion in commercial-bank assets over the part of the explanation appears to he an increase years has been quite similar to the rate of in the velocity of deposits. The annual rate of growth of G.N.P.— our total output of goods and turnover of demand deposits for reporting banks outside of New York and six other large cities rose from 14 in 1946 to 20 in 1955. COMMERCIAL BANK ASSETS AND GROSS NATIONAL PRODUCT Grow th pattern sim ila r to other financial institutions How does the growth in commercial banking compare with that of other financial institutions such as mutual savings banks, life insurance companies, and savings and loan associations? It is apparent that commercial banking is more susceptible to short-term business fluctuations than the other financial institutions, particularly life insurance companies and mutual savings banks. This reflects the relatively wide fluctua tions in demand for short-term credit as the volume of business activity expands and con tracts. The inflow of savings and therefore the net increase in life insurance company and mutual savings bank assets has been more stable. Assets of savings and loan associations have grown rapidly in periods of active home con struction— in the twenties and in the post-war period. 3 business re v ie w and loan associations were more sensitive to bus iness fluctuations during the past four decades than savings deposits in mutual savings banks. The most significant development here for com mercial bankers is the relative gain of savings and loan associations in the post-war period, particularly from 1945 to 1950. A plausible ex planation is that people used savings deposits built up in commercial banks during the war to purchase durable goods as they became avail able. Other possible reasons are the higher return usually paid by savings and loan associations, and more active advertising and promotion di rected especially toward attracting savings. The rate of growth of savings deposits in commercial banks during the past few years compares more favorably with that of savings banks and sav ings and loan associations than in the early post war period. Commercial banks fell behind in the twenties and particularly during the great depression. The relative decline in the twenties reflected mainly the more rapid rate of growth of savings and loan associations. The resources of savings and loan associations expanded quite rapidly during the housing boom of the twenties. During the decade following the great depression, commer cial banks expanded more rapidly than either mutual savings banks or savings and loan asso ciations. In the post-war decade, commercial banks have grown less rapidly than savings and loan associations. The more rapid rate of growth of savings and loan associations reflects the un usually strong demand for home-mortgage credit and the fact that the expansion in bank loans has been offset in part by the reduction in their hold ings of Government securities. Have commercial banks been getting their share of the people’s savings? Savings deposits in commercial banks and share capital in savings 4 b usiness re v ie w Structure of e a rn in g assets Now let us turn to changes in the major catego ries of commercial-bank assets. One thing stands out— the general downward trend in loans rela tive to investments until the end of World War II. The shrinkage of loans was particularly sharp during the great depression and during World War II. In the post-war period, a sharp expansion in loans together with a decline in EARNING ASSETS— ALL COMMERCIAL BANKS ( June 30) PER CEN T holdings of Government securities. Loan expan sion in the post-war period together with some liquidation of Government securities have brought the ratio back to more than 40 per cent. TYPES O F CREDIT EXTENDED o * i m 1915 .T, i . . tii 1920 NOTE: 1956 i ■f . i i • i i i •i t i i ■ ■ i m 1 1925 DATA AS 1930 1935 1940 1945 1 i .... 1950 i 1955 OF MARCH 28 Business firms frequently stress that new prod ucts make up a large part of their current sales holdings of Governments have restored loans to — products that did not exist a decade or so ago. a more significant place in the earning-asset How does commercial banking measure up in structure. Nevertheless, at the end of 1955 loans this respect? More specifically, have commercial constituted less than 50 per cent of commercial- banks continued to extend the same types of bank earning assets as compared to nearly 80 credit during the past forty years or have they per cent in 1915. moved into new fields? To get at least a partial The ratio of loans to deposits is one that many answer to this question, we should take a closer bankers watch rather closely. For three decades look at the earning-asset structure. When a com the general trend in this ratio was downward— mercial bank extends credit it not only creates a from about 75 per cent in 1915 to less than 20 deposit, it acquires an asset. Consequently, the per cent at the end of 1945. The principal rea asset structure tells us something about the kind son for the sharp decline in the thirties and dur of business that banks are doing. ing World War II was the huge increase in bank In the early part of this century the real-bills 5 business re v ie w doctrine was the traditional and dominant theory collateraled as to the credit functions of a commercial bank. Bankers considered these loans quite liquid. But by highly marketable securities. Briefly stated, this meant that inasmuch as com when the crisis came and banks began calling mercial-bank liabilities are payable on demand their security loans, brokers and dealers had no or short notice, credit should be extended only alternative other than to dump the securities on on the basis of short-term, self-liquidating com the market. Security prices broke sharply. The mercial paper. If bankers only adhered to this crisis demonstrated that liquidity for the bank principle it was thought that assets would be liquid and bankers would always be in a position ing system, in contrast to an individual bank, depends not primarily on the type of loan held to meet the cash demands of their depositors. It but the ability and willingness of the Federal is apparent that strict adherence to the real-bills Reserve Banks to convert bank assets into cash. doctrine would have confined commercial-bank The ability of the Reserve Banks to do so was credit to narrow segments of the economy. limited, however. The Federal Reserve System, Although this doctrine was still widely ac established in the era of the real-bills doctrine, cepted in theory during the twenties, bankers was fashioned in accordance with that theory. were beginning to depart from it in actual prac Direct access to Reserve Bank credit could be tice. Space does not permit a detailed analysis had only by discounting short-term, self-liqui of the many factors involved. Suffice it to say dating, eligible commercial paper or by borrow that as a result of economic and financial devel ing on the bank’s own note with such paper as opments, business demand for short-term, self- collateral. The vanishing supply of eligible com liquidating commercial loans was rapidly dwin mercial paper in member-bank portfolios greatly d lin g . In 1 9 2 9 , l oans c o n s t i t u t e d abou t limited access to Reserve Bank credit. As a re three-fourths of the total earning assets of com sult of this experience, the Federal Reserve Act mercial banks. But about 40 per cent of these was amended so that banks could borrow on loans were made on securities— a type of credit their own notes collateraled which did not conform to the real-bills doctrine. securities or, by paying a penalty rate, against by Government any “ satisfactory” assets of the bank. Im pact o f the g re a t depression A second influence was the development of conditions which impelled banks toward changes The great depression forged drastic changes— in in their lending and investment policies. our thinking as well as in economic conditions. dwindling demand for short-term commercial First, it marked the demise of the real-bills loans has already been mentioned. The growing The doctrine. Commercial bankers, under the pres importance of the corporation and large-scale sure of changing events, had already departed production together with the rise of new indus from the doctrine in practice but most of them tries, such as the automobile and electrical ap still thought it good in theory. The depression pliances, brought an also altered prevailing views about bank liquid intermediate- and long-term funds. Large gold increasing demand for ity. Banks, particularly the money-market banks, imports built up a substantial volume of excess held a large volume of loans on securities. A reserves. Bankers were anxiously seeking outlets large part of them were subject to call and were for their idle funds. They were also facing in 6 b usiness re v ie w creasing competition from nonbank lenders. These are some of the reasons bankers began MEMBER BANK LOANS— UNITED STATES ( End of year) to take a new look at types of credit formerly regarded as unsuitable for a commercial bank. B IL L IO N S $ Credit for the purchase of consumer goods had generally been frowned upon by both lenders and consumers; yet the experience of sales fi nance companies indicated that consumer credit was both safe and profitable. Loans for the purchase of homes, although made by many banks, were typically single-pay ment loans maturing within three to five years. This was not a liquid loan from the standpoint of the commercial bank; neither was it satis factory from the point-of-view of the borrower. Savings and loan associations, however, were ex tending longer-term credit to home buyers with interest and principal repayable in regular in stalments. The amortized loan was more suitable changed drastically in 1938 so that data prior for both borrower and lender. thirties, the FHA not only provided insurance to that time are in no sense comparable. By 1938, however, consumer and non-farm, real- for home loans but also popularized the amorti estate loans had grown until each made up In the early zation principle. Term loans to business also emerged following roughly one-fifth of the total member-bank loan portfolio. Although only fragmentary data are the depression. Such loans came to be regarded available, they indicate a considerable growth in favorably by business firms in need of inter term loans to business also. These newer forms mediate-term credit for the purchase of machin of credit have continued to expand rapidly in the ery, equipment, and other fixed assets. Interest post-war period. cost to the borrower was generally less than How have commercial banks made out in selling securities in a weak market; borrowing competition with other lenders in these newer from a bank avoided the red tape involved in credit fields? In non-farm mortgage credit, com floating a security issue under the new Securities mercial banks gained in the decade from 1935- and Exchange Act; and the provisions of a term- 1945 although the increase in their proportion loan agreement could be more readily adapted of the total was quite moderate. Banks improved to changing conditions. their position substantially in the early post-war period. Life insurance companies and savings Com position o f the loan portfolio and loan associations have also been supplying Data on loans reflect the growth of these newer a gradually increasing proportion of a rapidly forms of bank credit. Unfortunately, the classi rising volume of non-farm mortgage credit. fication of loans reported by member banks was Commercial banks have become the largest 7 business re v ie w 1- 4-FAMILY NONFARM MORTGAGE CREDIT securities from 1930 to 1945, reflecting deficit ( End of year) financing in the thirties and in World War II. BIL L IO N S Percentage-wise, holdings of corporate, state, and i municipal securities declined sharply. Total holdings of these securities, however, have risen moderately in the post-war period, but the prin cipal shift has been from Governments into loans. TERMS O N W H ICH CREDIT IS EXTENDED Our third major question is whether commercial banks have made progress in adapting the terms PERCENTAGE DISTRIBUTION BY MAJOR HOLDERS on which credit is extended to the changing needs of borrowers. As we have seen, the short term, single-payment loan was typical among commercial banks prior to the thirties. Data on 100 the terms on which credit is extended are quite limited; however, certain trends are evident. CONSUMER INSTALMENT CREDIT f End of year) 1929 '31 '3 3 '3 5 '37 '3 9 '41 NOTE: 1955 F IG U R E S P R E L IM IN A R Y 43 45 47 '49 '51 '5 3 '5 5 B IL L IO N S $ single source of consumer instalment credit. Their relative gain was greatest in the early post war years. Sales finance companies have also gained, particularly in the post-war period, re flecting in large part the high level of automobile sales. The relative gain of sales finance com panies in the past two years reflected the sharp rise in instalment credit for financing automo biles, which accounts for the bulk of their financ ing, and the reluctance of commercial banks to meet the more liberal credit terms that were being extended. Investm ent portfolios The most striking change in commercial-bank investment portfolios is the rise in Government 8 PERCENTAGE DISTRIBUTION BY MAJOR HOLDERS b usiness re v ie w Len gth enin g o f m aturities operation The tendency since 1930, particularly, has been surveys of 1946 and 1955 provided more definite toward longer maturities. Home mortgages are information on term loans to business. In Octo typically longer-term loans. Although detailed ber 1955, 22 per cent of the total number of data are not available, information supplied in business loans held by Third District member the housing census of 1940 indicates that the banks were term loans. This is nearly double the average maturity on non-farm mortgages out percentage in 1946. The percentage of term to standing— held by all lenders— was roughly of the bankers, the business-loan the total number of business loans was highest for retail trade and “ other” businesses which in clude sales finance, mortgage, and construction INVESTMENTS— ALL COMMERCIAL BANKS companies. You will note, too, that the percent age was higher in 1955 for each of the major PER CENT types of business than in 1946. In terms of dollar amount, there was little change in the proportion of term to total busi ness loans. The percentage of the dollar amount of term loans to total loans to manufacturing and mining companies was less in 1955 than in 1946. This probably reflects increasing reliance on retained earnings and declining output in the coal regions. There were significant increases, o t mm , m BBS . . i . ! . , i . m m BtHm m m m am 1930 NO TE: 1935 1956 DATA A S 1940 OF MARCH 1945 1950 1955 28 eight years. In 1950 it was about fourteen years. TERM LOANS— THIRD DISTRICT MEMBER BANKS Percentage of Number of Business Loans by Business of Borrower PER C EN T Today the average maturity of non-farm mort gage loans is undoubtedly even longer. Although commercial banks have probably not lengthened maturities as much as some other lenders, the trend among banks has been toward longer-term home loans. In recent years the trend in con sumer instalment loans has been toward longer maturities, particularly in financing automobile purchases. The growth in term loans to business also in dicates the trend toward longer maturities. (As used here, term loans refer to those with a ma turity in excess of a year.) Thanks to the co TO TA L M ININ G TR A D E TRA D E 9 business re v ie w however, in the percentages to retail and whole The development and growth of term lending and the amortization principle have already been sale trade. mentioned. Financing equipment purchases, es A m ortized loan pop u lar pecially in the transport industries, provides The amortized loan— with interest and principal repayable in instalments — has been another example of progress in lending prac widely tices. Transportation companies sometimes incur adopted by lenders in the case of loans with heavy expenditures in buying new and modern longer maturities. The loan survey of 1955 re equipment to replace that which has become vealed that about one-third of the number and worn and obsolete. Only recently most of the one-fourth of the dollar volume of business loans air lines placed large orders for jet planes. The of member banks were repayable in instalments. diesel has almost displaced the steam locomotive The small banks with total deposits of less than on railroads. A company desiring to purchase a $2 million held about 20 per cent of the business quantity of new equipment wants to make sure loans repayable in instalments as compared to that funds will be available before placing an over 40 per cent for banks with deposits of over order. $100 million. Term loans repayable in instal A common procedure is for the company first ments are especially well suited to the needs of to go to its bank or other lender to arrange for many manufacturers, such as petroleum pro a commitment before placing an order, thus ducers and public utilities. The credit needs of making sure that it can obtain the money to pay these types of borrowers are usually large and for the equipment. typically they deal with the larger banks. the money as the equipment is delivered. Once Lending techniques and practices ing balance is usually refunded into a term loan. Lenders today are extending credit in a rapidly The maturity of the loan is often arranged in The lender then advances the entire order has been delivered the outstand new such a way that depreciation charges will pro products, new techniques of production, regional vide a substantial part of the funds needed for shifts in business and population, etc. New in repayment. changing environment— new industries, dustries such as plastics, synthetic fibers, petro This same general pattern is used by banks chemicals, electronics, and air transportation are in financing equipment purchases of the trans growing and some of the older industries are port static or declining. New production techniques trucks, etc. It illustrates how loan terms have industries — railroads, air lines, buses, are constantly rendering old ones obsolete. Bank been tailored to meet the particular needs of this ers and other lenders are faced with the problem group of borrowers. of reappraising their lending terms and practices Construction loans provide another example. to see whether they are well adapted to the While a home or some other building is under changing needs of their borrowers. construction the builder needs money to buy Changes in lending practices cannot be shown materials and to pay his laborers. A lender is by statistics. A few illustrations will suffice to unwilling to provide permanent long-term financ indicate that progress has been made in tailoring ing, however, until the building is completed and loan terms to borrower needs. sold. This interim need for funds between the 10 b usiness re v ie w initiation of a construction project, and its com pletion and the arrangement for permanent 1. What banking does depends largely on how bankers think. So long as the real-bills It is doctrine was the dominant concept of com widely used in home construction. Banks also mercial banking, bank credit was confined make term loans to corporations, especially pub to narrow segments of the economy. Not lic utilities, to finance construction programs until the course of events compelled a financing is typically supplied by banks. pending the issue of long-term bonds or some broadening of this concept did commercial other form of permanent financing. banking begin to meet the credit needs of Another adaptation of the term loan to bor other segments on a significant scale. rower needs is where a mining company or 2. It is better to be pragmatic than dogmatic. dealer has entered into a contract to supply a Thirty years ago the typical attitude was large amount of coal to a public utility. Under that consumer credit, term loans to busi the contract, the public utility agrees to buy coal ness, and long-term loans for the purchase according to a regular schedule that meets its of homes were unsound and not suitable own needs. In this case the banker may make a for commercial banking. term loan to the coal company. Terms are ar more venturesome spirit of a few pioneers, Thanks to the ranged so that the funds needed for repayment terms were devised that made these types will be largely or wholly provided by payments of credit more suitable both to lender and received from the public utility. borrower. Today they constitute the bulk These are only a few of many cases that could be cited to indicate that progress has been made in adapting credit terms to borrower needs. C O N C LU SIO N S of the commercial-bank loan portfolio. 3. If banks fail to meet the sound and legiti mate but changing credit needs of a dynamic economy, other institutions will come in to fill the gap. Commercial bank resources have grown tre 4. Bankers face a real challenge and responsi mendously in the past four decades. In general, bility. Commercial banks and other lend bank growth has kept pace with that of the econ ers today are operating within a rapidly omy and with other financial institutions such as changing framework of new industries, savings banks, life insurance companies, and new products, and new techniques. savings and loan associations. Banks have also future of commercial banking The will be made considerable progress in adapting the terms fashioned largely by how bankers respond on which credit is extended to the changing — how well bank officials keep abreast of needs of their customers. the times and adapt banking services to Looking to the future, what are some of the the changing needs of a dynamic economy. lessons that can be learned from past experience? Bankers, of course, should always keep in The indications are that the following factors mind the danger of making unsound loans will have an important influence on the future and of granting terms inconsistent with the growth and development of commercial banking. unique character of a commercial bank. 11 TRENDS IN O FFICE-BU ILDIN G SPACE AND O CCU PAN CY IN PHILADELPHIA Office-building space in Philadelphia little more course of subsequent business readjustments in than filled existing needs through the post-war 1949 and 1953-54, the number of square feet of years to 1955. In the past year, however, the ad occupied space in downtown commercial office dition of several large blocks of new space has buildings declined somewhat further. But these provided tenants with necessary room for expan developments actually posed few problems for sion and presented a greater opportunity for building owners and managers because the total upgrading to air-conditioned quarters with im area of available office space also was declining, proved lighting and modern elevator service. and only a little less rapidly than occupancy. Existing tenants in spreading out are absorbing This was because several large companies com this space rapidly, however, Philadelphia has a. pletely took over their buildings for their own fairly substantial office-building program still un use and thus took them out of the category of derway and new space coming on the market late in 1956 and in 1957 may not be taken up so fast. At present it looks as though we might have a temporary problem although there is no indica tion that we are overbuilding for the longer run. O ccupancy has been w ell m aintained since the w a r Tenants of Philadelphia office buildings occupied an all-time high of 10.7 million square feet shortly after the end of World War II. By the spring of 1947 the vacancy rate in center-city buildings was almost nil. However, when the Federal Government began relinquishing large blocks of space acquired through the war years, the rising trend in occupancy that started back in the thirties was reversed. Moreover, in the 12 SPACE IN PHILADELPHIA OFFICE BUILDINGS M ILLIO N S OF SQ U ARE FEET business re v ie w “ commercial” office buildings. Virtually all cording to schedule. New buildings and addi space lost in Philadelphia office buildings during tions and complete reconversions in old ones post-war years came off the rental lists as this promise to give Philadelphia’s office buildings trend developed. Losses through demolitions of the greatest “ face lifting” in years. old structures were insignificant. 1 9 5 6 w ill see a lot o f space in new office buildings. New space fo r the rental lists has been needed fo r a long tim e. Number Three Penn Center, opened for occu Over the whole period from the end of World pancy in 1955, brought the first single block of War II until 1955 little new space appeared on new office-building space onto the Philadelphia the office rental market— with only here and market in almost a quarter of a century. This there a reconverted building or an addition or building contains more than 400,000 square feet some modernization. So, office-building occu of as modern office space as is available anywhere. pancy has remained high, ranging upwards from The Pennsylvania Lumbermen’s Mutual building 92 per cent over the past decade. As a result, ( representing a complete reconversion of the for tenants in downtown office buildings found in mer Ritz Carlton hotel) was the first to open for sufficient “ elbow room” to allow for expansion business in 1956, offering 180,000 square feet of or upgrading to modernized quarters. Nor was space. Two entirely new buildings, The Mall, at there much of a choice in space for the few bus Fourth and Chestnut Streets, with 150,000 square iness concerns that moved into Philadelphia. Owners and managers of local office buildings 300,000 square feet expect to be receiving tenants regard an occupancy rate of 95 per cent as sat isfactory from an earnings standpoint and a more or less normal figure for the long run. center-city office buildings will be expanded by over 1,000,000 square feet— all of it the most modern in design— added in 1955 and 1956 rep The need for expansion among office-building tenants has increased since recovery from the Many tenants have wanted more modern quarters, including air condition ing, lighting refinements and the latest in eleva tor service, for an even longer period. before the end of this year. Thus the rental lists for some 600,000 square feet in 1956. The total of D em and fo r m odernized quarters has grow n ra p id ly . 1953-54 recession. feet and the Transportation Center with well over Air resents the greatest additions made since the depression year 1931. In the more distant future is the announced intention of Uris Brothers, builders of Number Three Penn Center, to erect another unit in that area. Present plans call for a tower building conditioning has expanded rapidly in recent which, by its very nature, would have somewhat years and current estimates indicate that just less office floor space than its predecessor. Still over half of our central-city office buildings now another project is the State office building offer this convenience. Much has been accom planned at Broad and Spring Garden Streets. plished along all lines of modernization in the This would not add new space for rent in Phila recent past and a great deal more will be done delphia but would create vacancies in present before the end of 1957 if present plans go ac office buildings occupied by State agencies. 13 b usiness re v ie w . . . and m ore e x istin g space w ill be vacate d fa irly soon. Rental trends a re stead y. Office-building managers also tell us the “ line is When duPont and the Gulf Oil Company move being held” on rentals almost everywhere. What into new buildings in the suburbs, they will few concessions have been made to hold tenants vacate about 60,000 square feet in downtown — or attract new ones— have been isolated in Philadelphia. The Philadelphia Transportation stances chiefly in some of the older buildings not Company, now occupying 130,000 square feet, yet modernized. Of course, with air conditioning expects to move into their own building in the northern section of the city before the end of or other modernization, higher rentals have been applied. Rent increases are not in prospect in 1957. New buildings coming on the market and coming months, nor are significant reductions old ones being vacated offer much more than the expected. Operating and maintenance costs have means for expansion so many tenants have been crept upward, consequently the prospect of an wanting. All the space that is coming into sight indeterminate increase in vacancies seems prefer presents a potential occupancy problem for the able to a general rate reduction that will surely owners and managers of central Philadelphia lower the immediate income from the building. office buildings. The n e ar future looks g e n e ra lly bright. W e a re still e xp e rie n cin g com petition with the suburbs. For the remainder of this year the Building Philadelphia office buildings continue to lose Owners’ and Managers’ Association of Philadel tenants who see some advantages of taking up phia sees no problem in maintaining an occu quarters in suburban areas near the city. Rental pancy rate of 90 per cent. And most members differentials are not important, because where of this group seem to expect little difficulty in they exist at all for comparable facilities they are holding the rate at approximately this level into quite narrow. the early months of 1957. Automobile parking facilities, The absorption of however, seem to be an inducement. It is not so space in the past six months has continued at a much a question of space as of cost. Admittedly, satisfactory pace and reflects the tendency of the price of center-city parking is higher than in existing tenants to expand their present quarters our or to move into larger ones. Most reports also which of course can be avoided by those who suburbs. Philadelphia’s mercantile tax, indicate a normal flow of inquiries, although take up space in the suburbs, is another factor mainly for relatively small blocks of space. About given serious consideration when a move to a the only discouraging factor in the market this new location is contemplated. spring seems to have been the continuing diffi In the past several years the problem of sub culty of encouraging tenants from out of town urban competition has changed somewhat. Ini to take up quarters in central Philadelphia. tially it concerned relatively minor blocks of Owners and managers of our office buildings all space vacated in Philadelphia by small concerns agree that a more active demand from this or branch offices of some of the larger ones. source may be needed to assure reasonably This kind of out-migration never assumed very prompt occupancy of the new space due to come serious proportions, and a few of those who on the market this year and next. made the move later returned to center-city office 14 b usine ss re v ie w buildings. More recently, however, some sizeable be continuing. These moves, to be sure, create blocks of space have been vacated by entire com vacancies that take more time to fill, particularly panies that have built their own office quarters since they are coming at a time when our over just outside Philadelphia and this trend seems to all space is increasing so rapidly. Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. 15 FO R THE R E C O R D . . . INDEX AGO AGO SU M M A RY 1956 Factory* Third Federal Reserve District Un ted States Per cent change Per cent change A p r il 1 9 5 6 from mo. ag o ye ar ag o 4 mos. 1 956 From year ag o A p ril 1 9 5 6 from mo. ag o ye a r ag o Employ ment 4 mos. 1956 from ye ar ago LO CAL CHANGES EM PLO YM EN T A N D IN C O M E factory employment ( lo t a l) . •• + TRADE** Department store s a le s ............ + B A N K IN G ( A ll member banks) Deposits........................................ L o a n s ............................................ Investments.................................. U .S. G ovt, se curities............. O t h e r ......................................... C h e ck paym ents........................ + 4 + 1 + 20 + 4 + 3 +13 0 1 + 1 +10 + 1 + 10 5 0 + 4 +12 + 1 2 1 2 0 2t 0 +17 -1 2 -1 3 -1 1 + 12t ot OT + 16 ye ar mo. ag o ag o year mo. ye a r mo. ag o a g o a g o ag o 0 + 5 +1 +15 + 4 +15 H arrisb u rg . . . 0 +9 -1 +20 +8 +18 La n caste r. . . . 0 + 5 0 + 1 3 - 2 6 - 1 4 + 12 + 1 3 -3 +10 P h ila d e lp h ia .. 0 0 + +2 +11 +11 4 0 +1 + 3 +10 + 4 + 1 + 18 -1 3 -1 3 -1 4 + 9t 0 +1 -1 -1 0 -7 + 1 + 18 -1 1 -1 3 - 3 + 12 + 2 + 17 -1 0 -1 2 - 3 + 10 W ilk e s - B a r r e . - 1 + 1 -2 +13 - W ilm ington.. . - 1 + 5 -1 + + 1 0 + + + Y o r k ................. OT |2 0 C itie s jP h ila d e lp h ia 3 1 2 0 year mo. ye ar ag o ago ag o A lle n to w n . . . + 5 + + 6 + 13 + 17 R e a d in g .......... - 1 0 Scran to n ......... + - *Based on 3-month moving averages **Adjusted for seasonal variation. 0 + 4 + 9 +18 C h e ck Payments Stocks Sales 3 PRICES Con sum er.................................... 0 + 8 -1 Payrolls Per cent Per cent Per cent Per cent Per cent ch an ge change ch an ge change ch an ge A p r il A p ril A p ril A p ril A p ril 1 9 5 6 from 1 9 56 from 1 9 5 6 from 1 9 5 6 from 1 9 56 from mo. ag o O UTPUT M anufacturing production . . . 0 Construction contracts*........... + 13 C o a l m ining................................ + 8 Department Store Tre n to n ........... +1 0 0 +2 4 +17 8 - 2 + 1 + 0 + 11 + 1 - 2 + 4 + 8 -1 + 16 - + 4 -2 6 + 3 + 6 + 7 -2 +13 + 4 + 3 + 1 5 + 10 - 5 + 8 - 7 +9 + 3 + 3 7 - 0 +11 7 -1 2 4 0 -7 + 5 3 0 + 3 + 15 -5 + 8 0 0 + 6 +14 -2 +14 + * N o t restricted to corporate limits of cities but covers areas of one or more counties.