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march 'Yields" on Checking Accounts Rise In Recent Years Regional Wrap-up '74: Doldrums Descend on District Economy business rerieir The Fed in Print FEDERAL RESERVE RANK of PHILADELPHIA IN THIS ISSUE . . . Indexing Inflation: Remedy or Malady? . . . Indexing is a much-discussed method of reducing the burden of inflation, but it can also affect society's decision about how vigorously to combat inflation. "Yields" on Checking Accounts Rise in Recent Years . . . Commercial banks are not permitted to pay interest on checking accounts, but the difference between the cost of gener ating demand deposits and of unit service charges can be viewed as an "im p licit" interest payment. Regional Wrap-up '74: Doldrums Descend on District Economy . . . Although the Third District econom y experienced a general econom ic downturn along with the nation, the situation in some spots was not as acute as elsewhere. On our cover: Located on US 222, north of Goshen, Pennsylvania, stands the birthplace of Robert Fulton, pioneer steamship builder, artist, inventor, and engineer. The little stone house, situated in the rolling hills of the Conowingo countryside, stands as a memorial to American inventiveness and to the genius who was born within its shelter. (Photo by the Pennsylvania Historical and Museum Commission, Harrisburg, Pa.) BUSINESS REVIEW is produced in the Department of Research. Editorial assistance is pro vided by Robert Ritchie, Associate Editor. Ronald B. W illiam s is Art Director and Manager, Graphic Services. The authors will be glad to receive comments on their articles. Requests for additional copies should be addressed to Public Information, Federal Reserve Phone: (215) 574-6115. Bank of Philadelphia, Philadelphia, Pennsylvania 19105. Indexing Inflation: Remedy or Malady? By Vincent A. Gennaro When people could still talk about price in creases lightly, inflation was sometimes referred to as "crab grass on the lawn of prosperity." Since most people will tolerate a little crab grass and a little inflation, the analogy appeared apt. Unlike crab grass, however, inflation is not dis dained because it is ugly or rapacious. The arbi trary and unpredictable redistributions of income and wealth that stem from unexpected inflation underlie its unpopularity. Some economists be lieve, however, that many of inflation's ill effects can be softened or eliminated through a program known as "indexing" or "monetary correction." They argue that an indexing program has the additional benefit of making it easier to wipe out the crab grass of inflation while preserving the lawn of prosperity. Indexing is a method of linking various pay ments made under contract (wages, rent, and interest) to selected price indices by periodically "adjusting" for price level changes. When prices go up, indexed payments go up, while price level decl ines mean lower payments. The idea is by no means new. Its origins date back as far as the 1700s. Under the name of "tabular standard" it was proposed in detail in the late nineteenth century by the English economist Alfred Mar shall. Recently the idea has been employed ex tensively in Brazil, Chile, and Israel. The inten tion of indexing is to alleviate some of the ill effects of inflation or deflation. Indexing exists in the United States as well to some extent (see Table 1). Nearly 5.1 million workers have cost-of-living escalator clauses in their contracts while another 13 million receive indexed food stamps. In all, nearly one out of every four persons has some income tied to the cost of living. Many would like to see still more comprehensive application of escalator clauses. A program of indexing, however, has its "costs." 3 BUSINESS REVIEW MARCH 1975 TABLE 1 ESCALATION AND THE CONSUMER PRICE INDEX The number of people known to be receiving autom atically escalated payments based on the Bureau of Labor Statistics' Consumer Price Index includes: Millions 5.1 Wage earners covered by union contracts 28.9 Social Security beneficiaries Retired military and Federal Civil Service employees and survivors 1.9 Postal workers 0.6 13.0 Food stamp recipients Total 49.5 M any other people receive automatically escalated payments although the exact number is not known. Among them: (1) State and local employees and retirees (2) Alimony and child care recipients (3) Lessors with CPI adjustments in leases (4) Royalty recipients covered by escalator clauses (5) Beneficiaries of certain insurance and annuity policies S O U R C E : Morgan Guaranty Survey, M ay 1974. households that depend solely on fixed incomes in the form of pensions, insurance benefits, or interest on assets will be among the losers in terms of declining living standards. There will also be gainers— those whose incomes rise faster than prices and output in general— but the in come redistributions which result may generate social as well as economic distress.1 For example, even if wages increase to keep pace with prices, workers will find larger por Whether or not indexing is acceptable to society depends on how its benefits stack up against its costs. INFLATION'S ILL EFFECTS Inflation has many “ costs" which impinge on individual members of society. Perhaps the most distressing of these ill effects is the “ surprise" decline in purchasing power which results from an unexpected rise in prices. The same market basket of goods and services purchased in the past takes more and more dollars from our w al lets. For those individuals with few assets, stan dards of living must decline when their incomes fail to keep pace with inflation. Likewise, those 1For a more complete discussion of the effects of inflation, see W . Lee Hoskins, “ Inflation: Gainers and Losers," Busi ness Review of the Federal Reserve Bank of Philadelphia, February 1970, pp 23-30. 4 FEDERAL RESERVE BANK OF PHILADELPHIA inflation. In fact, the value of these resources in alternative uses should also be considered a cost of unanticipated inflation. tions of their income being redistributed to the Government during inflationary periods. Be cause of the graduated tax system, the Internal Revenue Service claims a larger chunk of inflation-boosted earnings. A worker whose earned income is presently $15,000 will be rapidly pushed into a higher tax bracket despite the fact that his annual pay raises of, say, 10 percent only about maintains his pretax purchas ing power. At that rate, 20 years hence his annual salary will be $100,912, putting him in a 50percent bracket under the current Federal tax structure. In inflation-adjusted terms, he is con siderably worse off after taxes even though his wages have kept pace with inflation. In this example, the Federal Government is a gainer and the wage earner is a loser as a result of inflation. Redistribution in wealth, thevalue of accumu lated savings, can also result when inflation is not accurately anticipated. If actual inflation is greater than expected, net borrowers (those who have borrowed more than they have loaned out) will gain as they repay "cheaper" dollars, and lenders will suffer. If actual inflation is less than expected, net lenders will gain as the dollars they are repaid are worth more in purchasing-power terms than lenders had expected. For example, suppose you lend a friend $100 at 8 percent interest, expecting that prices will rise 5 percent before the loan is repaid. If prices actually rise only 2 percent, you are better off since your inflation-adjusted or real return is 6 percent, rather than the 3 percent you were anticipating. But if prices rise 7 percent, your real return is only 1 percent, and the borrower has gained at your expense. All of these unforeseen changes in wealth and income resulting from unexpected inflation could be greatly reduced if wage con tracts or loans took account of unexpected as well as expected future price changes. IN D EXING'S BENEFITS One method of removing the ill effects of infla tion is to eliminate inflation itself. However, this solution is difficult to carry out and may take considerable time. In the interim, a policy of "indexing" can ease the burden inflation exacts on unwary economic decision-makers. Index ing would act as an "insurance policy," guard ing against losses from unexpected price changes. If wages were indexed (by way of an escalator clause), they would increase when prices rise. Constant purchasing power would thus be maintained despite price increases.2Cur rently, inflation expectations are taken into con sideration in wage contracts that are not in dexed. If expectations prove to differ greatly from the actual rate, however, then workers or employers may suffer. If inflation is underesti mated in the contract settlement, workers' real wages will fall during the contract period— that is, money wages will rise less than prices. If inflation is overestimated, workers will get real wage gains. Indexing in wage contracts elimi nates such "surprises" about real wages. A con tract with an escalator clause means that labor and management bargain over "re a l" wages rather than so-called money wages. Interest payments can also be indexed, eliminating the need for borrowers and lenders to guess at the rate of inflation.3 For example, suppose the annual rate is 10 percent, the in- 2W ages could also be adjusted to account for productivity changes, so that purchasing power can actually rise or fall accordingly. Presently, these inflation expectations are built into many interest rates. If a lender, for example, desires a real (inflation-adjusted) rate of return of 3 percent and anticipates an annual rate of inflation of 5 percent over the contract period, he will require an 8-percent market interest rate. The 3 percent covers the risk and the opportunity cost of tying up his money, w hile the 5 percent w ill be to maintain his pur chasing power (to stay even in real terms). If the actual rate of inflation turned out to be 9 percent, the lender would be In sum, unexpected inflation exacts social costs in the form of arbitrary redistributions of income and wealth. Economic decision-makers, such as households and firms, will try to avoid these costs by devoting resources, including their own ti me and effort, to the task of protecti ng themselves from the redistributional impact of 5 MARCH 1975 BUSINESS REVIEW TABLE 2 ADJUSTING PRINCIPAL FOR 10 PERCENT INFLATION ASSURES LENDER OF HIGHER GAINS TO OFFSET INFLATION Principal "Adjustment" Made to Principal for 10 Percent Inflation With Indexing $1,000 $1,000 0 "Adjusted Principal" 1,000 Interest (5 Percent) Balance (Principal and Interest) + 100 1,100 50 55 1,050 1,155 price level changes. Forthe economy as a whole, the average percentage change in the price of business inputs— that is, labor, land, and capital— will equal the average percentage change in the price of business output— the goods produced and sold (see Table 3). In such a case, profits increase by the same percentage. This occurs with no forced adjustment on profits directly— rather, the input prices are escalated when output prices rise in general. How would indexing originate in various bus iness contracts? In a market-oriented economy, escalation of wages and interest payments in private contracts would be decided by the par ties involved, not by a program imposed by the Federal Government. (In Brazil the program was imposed by government decree. See Box 1 for discussion.) The Government's role in indexing private payments would be to remove any bar riers (such as interest rate ceilings) to an indexed agreement and provide the kind of price indices required to allow indexing to work equitably and efficiently. Indexing of the Federal Government's own revenues and expenditures is a different matter, however, because these changes would require explicit legislation. Currently, social security payments and government pensions are tied to terest rate paid annually on passbook savings accounts by a bank is 5 percent, and the balance (principal) in the account for the last year is $ 1,000 (see Table 2). Without indexing, the hold er of the passbook would have $1,050 after one year. This amounts to a loss in real dollars or purchasing power of $50, since one would need $ 1,100 now to buy what he could with $ 1,000 a year ago. If savings deposits were indexed, first the principal would be "corrected" for inflation, then the interest rate would be applied to the corrected principal. With indexing the new bal ance is $1,155, compared to $1,050 without indexing, and the 5-percent stated rate of interest represents the real rate of interest— the rate of return in terms of increased purchasing power. The asset side of a bank's balance sheet would likewise be indexed, of course. Unlike wages and interest which require ad justments, aggregate profits (business revenues minus costs) will automatically keep pace with losing money in real terms. Under indexing the interest rate could be stated at 3 percent. The interest payment would be tied to the price level and fluctuate accordingly, eliminating the need to bear the risk of price changes. It would also alleviate the unforeseen transfer of wealth during unexpected inflation. Neither the borrower nor lender would lose or gain because of unanticipated inflation or deflation. Without Indexing 6 FEDERAL RESERVE BANK OF PHILADELPHIA TABLE 3 PROFITS INCREASE "AUTOMATICALLY" UNDER INDEXING PROGRAM BY SAME PERCENTAGE AS PRICES IN GENERAL Total Profits, No Inflation Revenues Total Profits, Indexed for 10 Percent Inflation $300 Revenues $330 - Costs 200 - Costs 220 Profits $100 Profits $110 Percentage Change in Profits: 10_ = 10 Percent 100 BOX 1 THE BRAZILIAN EXPERIENCE The final verdict is not yet in on indexing in Brazil. Many believe, however, that it has contributed to improved performance of the Brazilian economy over the last decade. From 1959 to 1965 inflation in Brazil raged at an average annual rate of over 53 percent, while the economy grew, in real terms, at a rate of 5 to 6 percent annually. Even as far back as 1950 inflation proved to be very disruptive to the financial system. Since usury laws limited interest rates to 12 percent, banks began charging commission fees on top of the maximum rate. But lending rates still lagged far behind the inflation rate. Compounding the problem, banks could not offer high enough interest rates to depositors to attract or even maintain savings deposits. This resulted in banks limiting loans to terms of 120 days or less. Consequently, housing markets suffered. However, consumers did not halt their borrowing. Anticipation of future price rises spurred consumers to buy now even if they had to borrow at "hig h " interest rates, which were considered a bargain in their inflationary economy. The nation was indeed troubled. In 1964 the Brazilians implemented their comprehensive system of indexing after the military overthrow of the Coulart government. The inflation rate has gone from 91.6 percent in 1963 to less than 20 percent in 1973, while the average annual real growth rate for the last five years has been roughly 10 percent. This is not to say that indexing alone was responsible for this performance. It was accom panied by slashed budgetary deficits, a watchful regulatory eye on money supply growth, and various wage-price controls. Not everyone benefited equally in the post-1964 Brazilian economy. Real wages of un skilled workers declined more than 30 percent while the real minimum wage declined 20 percent from 1964 to 1967. (However, since 1967 there has been a steady rise in the average real wage.) Indexing was responsible in part for this decline. It was used not as a device to help 7 BUSINESS REVIEW MARCH 1975 labor keep pace with inflation, but as an instrument of anti-inflationary policy.* Wages were tied to a formula which had a built-in bias toward lower wage adjustments. The formula included an unrealistically low expected inflation rate and did not allow for retroactive correction of its inaccuracies.** The result was a decline in labor's relative share of national income. It is possible, however, that this redistribution of wealth and income can be partly attributed to factors other than indexing. Brazil's fiscal policy is conducive to these inequities. There are liberal tax incentives to those who invest in the securities markets, favoring those with capital to invest and hardly beneficial to the "poor." There have also been structural changes in the educational distribution of the Brazilian work force. Aside from the increase in the average level of education of the labor force from 1960 to 1970, the variation of the level of education increased greatly. Education did not grow uniformly throughout the labor force, leading to a decline in the income share of unskilled laborers.*** There are limitations in appraising indexing on the basis of the Brazilian experience. First, the effects of indexing cannot easi ly be isolated from the effects of any other economic pol icy of the same time, making the results difficult to evaluate. Also the degree of comparability between the United States and Brazil is dubious. Brazil has neither a strong union movement nor the sophisticated financial markets of the United States— not to mention thedisparity of the rates of inflation between the two nations. In addition, the type of government in the two countries is different. *W alter W . Heller and Albert Fishlow, “ Painless Inflation through Indexing? Should W e follow Brazil's Example?" Bank Letter of National City Bank of Minneapolis, June 20, 1974. **lndexing in Brazil was not merely offered to workers as an alternative; it was imposed by government decree. ***Albert Fishlow, “ Brazilian Size Distribution of Incom e," American Economic Review 62 (M ay 1972): 401. the Consumer Price Index. However, items such as Federal income tax brackets, personal exemp tions, and corporate and capital gains taxes can also be adjusted for inflation. Consequently, the taxes paid by individuals and businesses would be affected. For example, indexing could alter the manner in which firms report their earnings, so that profits resulting purely from inflation would not be taxed. Companies would be permitted to re value or index such balance sheet items as work ing capital and fixed assets (building and equip ment) in accordance with the rate of inflation. As prices rise, the value of fixed assets on a firm's financial statements would be revalued upward to reflect the higher price the firm would have to pay to replace its equipment. This would au tomatically increase the depreciation expense— the amount the firm is allowed to charge as an expense against current income to cover the cost of worn-out buildings and machinery. Reported earnings would be lower than they would be in an nonindexed world, and firms would con sequently pay lower taxes. The working capital adjustment has a similar effect, lowering both reported earnings and taxes. Aside from making the tax system more equitable by taxing real purchasing power instead of dollars, sharehol ders would benefit from more accurate informa tion on a firm's performance. The distorting im pact of inflation on reported profits would be sharply curtailed. Aside from the effects on business taxation, indexing would also alter the personal income 8 FEDERAL RESERVE BANK OF PHILADELPHIA tax considerably. The Federal Government would no longer receive higher real revenues as a by-product of inflation (see Box 2). During inflation, the ceilings on tax brackets could be escalated. If, for example, an income tax range were $0-$ 1,000 and a 10-percent inflation oc curred, this bracket would be revised to $0$1,100. Thus, a person who increased his dollar income from $950 to $1,045, leaving his real purchasing power unchanged, would not be pushed into a higher tax bracket as he would be in a nonindexed world. The personal exemption could be similarly adjusted, and the inflation component could be removed from capital gains before the tax rate is applied. All these tax ad justments would deprive the Federal Govern ment of its "extra" tax gains accruing from infla tion and prevent Uncle Sam from being one of inflation's big winners.4 Indexing does not remove all the ill effects of inflation, however. In actual practice it is quite difficult to linka// payments to a price index. For example, it's highly unlikely that the cash in people's pockets would be protected against inflation. Thus, holders of money balances would continue to lose purchasing power during inflation. In addition, the fact that there may be time lags between periods of adjustments means some inequities will remain under indexing. Ide ally, to eliminate lags between price changes and the compensation for such changes, the ad justments would be daily or even continuous. This, too, is impractical. These imperfections must be weighed in considering the merits of comprehensive indexing. It remains true, however, that an indexing program will eliminate a good deal of the redis tribution of income and wealth that results from unanticipated inflation. Most observers agree that such redistributions are "costly" both economically and politically and should be avoided. However, many feel that the bad "side effects" associated with an indexing "c u re " rule it out as a viable means of reducing the social ills associated with inflation. 4The Federal Governm ent also gains if inflation is unan ticipated because it is the largest net debtor in our economy. BOX 2 WITH NO INDEXING, INFLATION INCREASES INDIVIDUAL TAX BURDENS . . . Table A— Tax Brackets Are Not Adjusted for Inflation Year 1 2 3 4 5 10 (D (2) (4) (5) (6) Real Value of Taxable Income (3) Taxable Income in Current Dollars Inflation Rate Effective Tax Rate Taxes Paid* Real Value of After-Tax Income 0% 10 10 10 10 $10,000 10,000 10,000 10,000 10,000 $10,000 11,000 12,000 13,310 14,641 20.9% 21.3 22.0 22.6 23.3 $2,090 2,340 2,659 3,010 3,409 $7,910 7,873 7,802 7,739 7,672 10,000 23,579 6,622 7,192 10 *Calculationi of taxes paid was based on 1972 Federal 9 28.1 Income Tax, Schedule X, Single Taxpayers. BUSINESS REVIEW MARCH 1975 BOX 2 (Continued) BUT INDIVIDUALS STAY EVEN WHEN TAX BRACKETS ARE INDEXED. Table B— Tax Brackets Are Adjusted for Inflation Year 1 2 3 4 5 10 (1) (2) Inflation Rate 0% 10 10 10 10 10 (4) (5) (6) Real Value of Taxable Income (3) Taxable Income in Current Dollars Effective Tax Rate Taxes Paid* Real Value of After-Tax Income $10,000 10,000 10,000 10,000 10,000 $10,000 11,000 12,100 13,310 14,641 20.9% 20.9 20.9 20.9 20.9 $2,090 2,299 2,529 2,782 3,060 $7,910 7,910 7,910 7,910 7,910 10,000 23,579 4,928 7,910 20.9 *For this calculation it was assumed that the income breakpoints in Schedule X were adjusted upward by the inflation rate (1). Tables A and B show a hypothetical example of an individual's income tax payments. In both cases it is assumed thatthe inflation rate is 10 percent per year and that the person's real taxable income (2) is protected from inflation by indexing. His current dollar income (3) increases each year by a percentage equal to the inflation rate (1). The effective tax rate (4) represents the proportion of current dollar income going to taxes (5). Real after-tax income (6) (representing what the person could spend in terms of goods and services) shows the inflation-adjusted purchasing power remaining after taxes have been paid. In Table A, although income is escalated, the tax brackets are not adjusted for inflation. Even though real taxable income (2) remains constant, after-tax income (6) falls. Since the tax rate is based on current dollar income (3), as income increases to keep pace with prices, the individual is forced into a higher tax bracket (4). Not only does the tax payment rise in dollars, but also as a percent of his earnings. In Table B, not only is income escalated, but the tax brackets are also adjusted for inflation. The tax rate (4) is now based on real taxable income (2). As current dollar income increases with prices, the worker is not forced into a higher tax bracket and his real spendable income remains unchanged. 10 FEDERAL RESERVE BANK OF PHILADELPHIA OBJECTIONS AND BARRIERS TO INDEXING than these firms had expected, real wages will increase. In a competitive economy, such a "surprise" increase in real wages will mean that firms will cut back on production and hire fewer workers. These unexpected increases in real wages are quite likely to occur during the initial phases of a restricitve anti-inflation policy since workers will be attempting to "compensate" for past inflation and hedge against future inflation by demanding higher wages. Thus, restrictive policies are generally accompanied by rising unemployment. If all wage bargains are indexed, however, there is no need to "compensate" for past inflation or build in hedges against unex pected future inflation in wage agreements. Thus, real wages will not increase as rapidly in a fully indexed economy during a restrictive mone tary policy, and the rise in unemployment con sequently will be smaller.6* With fewer unem ployed laborers, it becomes politically easier to adhere to a dedicated anti-inflation program. Indexing, then, according to this view, operates so as to change the terms of the cost-benefit calculation which underlies society's decision about how much effort to devote to fighting inflation. Only if society decides that as a resultof indexing the costs of fighting inflation have increased significantly relative to the benefits, will the "w ill to combat inflation" be weakened. It is by no means clear that this must be the result if comprehensive indexing is implemented, however. In fact, indexing's supporters would argue that the cost of fighting inflation has been reduced and therefore the will to fight inflation may be increased. Another objection to indexing is the conten tion that such a mechanism would "institution alize" a wage-price inflationary spiral. Accordingto this view, widespread indexing would alter the structure of the economy— that is, cause it to respond in a more inflationary way to irregulari- Perhaps the most popular objection to com prehensive indexing is the claim that such a program represents a "policy of despair"— throwing in the towel in the fight against infla tion. Opponents argue that by making inflation more tolerable, indexing reduces the will to combat inflation. However, advocates of index ing make a strong argument that instead of weakening the fight against inflation, indexing actually makes it easier to combat inflation. In dexing, they say, reduces the burden— typically reflected in increasing unemployment— of an anti-inflation effort. Policymakers are faced with a cruel dilemma. Reducing a demand-related inflation typically requires slowing the rate of increase in total spending. Slower growth in demand, however, usually results in higher unemployment. Conse quently, decision-makers follow "gradualist" policies which attempt to reduce slowly the inflation so as to minimize the adverse employ ment effects. In an indexed economy, however, policymakers can act more vigorously in the anti inflation effort because the increase in unem ployment will be smaller than that which occurs in an nonindexed economy, say the proponents of indexing. Firms' decisions about how many workers to hire depend mainly on real wages— money wages adjusted for inflation.5As real wages rise, other things equal, firms will hire fewer workers or begin furloughing some of their existing labor force. According to this argument, firms that include escalator clauses in their contracts bar gain in terms of real wages and, consequently, know what real wages will be over the life of the contract. Other businesses which do not include indexing clauses in their wage agreements can only forecast what real wages will be over the contract horizon. If prices increase more slowly 6lndexing is a two-sided coin, however. If the Governm ent is pursuing expansionary policies, fewer jobs would be created for each dollar of stimulus provided by fiscal or monetary policies, since wage gains would proceed more rapidly than in a nonindexed econom y. 5For empirical evidence, see Robert E. Lucas, Jr. and Leonard A. Rapping, “ Real Wages, Employment, and Infla tion," Edmund S. Phelps et a/., eds., Microeconomic Foun dations of Employment and Inflation Theory (N ew York: W . W . Norton and Company, 1970), pp. 257-305. 11 MARCH 1975 BUSINESS REVIEW ties such as a crop shortage or an increase in the price of crude oil. These unpredictable infla tionary shocks would be expected to feed through the economy at a faster pace. The inflationary rise in the price of oil, for example, will quickly result in increased wages for workers in all industries. Those firms whose product prices had increased less than the average will find their profit margins squeezed since their wage costs increased by a greater percentage than their prices. Such firms are victims of "costpush" pressure to raise their prices further to restore previous profit margins. Thus, indexing perpetuates inflation, or so the argument goes. The argument doesn't go far enough, however, contend proponents of indexing. First, it ignores what happens to those firms whose prices had initially increased more than the average as a result of oil price rises. Even after the wages of their workers have been escalated, their profit margins will be fatter. If these firms are in competitive industries, swollen profit margins will attract new firms, thus stimulating additional production. This pressure of profits pulling new firms into an industry should reduce the rate at which an industry's profits are rising.7 Only if "cost-push" pressures for increases in the rate of price changes are greater than "profit-pull" pressures for reductions in the rate of price increases can inflation accelerate as a result of indexing. The "cost-push" spiral argument also ignores development on the demand side of the econ omy. When the price level rises as a result of some external shock, more money is required to conduct the same amount of real economic activity. If the money supply is not increased enough to accommodate the price rise, the rate of increase in aggregate demand will eventually be slowed. A restrictive monetary policy will thus reduce pressures on prices, but at a cost in terms of higher unemployment. These unem ployment costs in turn are higher without index ing than with it. Another argument against indexing relates to the problem of measuring inflation. Suppose, after hearing the arguments about its relative merits, society should conclude that there is only a small risk that indexing will perpetuate infla tion by institutionalizing a wage-price spiral or by reducing the public will to combat general price increases. Should contract forms be altered immediately to include escalator clauses? Not necessarily, for there still may be substantial costs to implementing a comprehensive program. In particular, the inherent inability of price indices to capture changes fully in the cost of living presents an obstacle.8 Because of their failure to adjust adequately for both quality changes and for behavior changes by the public when prices rise (for example, buying artificial sweeteners when sugar prices rise), all price indices currently available give biased measures of true changes in the cost of living, say opponents of indexing. The reply from supporters of indexing, however, is that the method of constructing price indices can be modified to attempt to measure changes in the cost of living more accurately. Such changes would be costly in terms of both money and time but could be done. Another possible snag associated with imple menting indexing would be the problem of escalating everyone's income with a single index that is based on one subgroup of the population. Suppose this price index rises more rapidly than the living costs of other subgroups of the population. If so, these other subgroups would receive escalated incomes in excess of what they would have received if their wages were escalated by their own "index." This would give them an unwarranted increase in income. Conversely, certain subgroups could receive a smaller escalator than warranted by increases in their cost of living. Thus, income shares could continue to shift under a program based on a 8For a more complete discussion on the reliability of price indices, see David B. Thomas, “ H o w Reliable Are Those Price and Employment Measures?" Business Review of the Federal Reserve Bank of Philadelphia, April 1973, pp. 17-22. 7ln many cases, however, there are barriers to entry into an industry. Effective barriers may prevent “ profit-pull" pres sures from slowing the rate at which current prices are rising. 12 FEDERAL RESERVE BANK OF PHILADELPHIA single price index. However, proponents of in dexing say that this problem can be circum scribed by using a number of price indices that w ould be more satisfactory from both an economic and a political view. ing a sky-high inflation rate down to earth. • Or, negatively, it might possibly institu tionalize inflation more into the fabric of society. However, this is not a necessary con sequence of indexing as some have sug gested . Whatever its other merits or shortcomings, however, indexing will not reduce the impor tance of monetary and fiscal policies in combat ing inflation. Ultimately it will be these policies that will reduce the rate of inflation while indexing could play a supplementary role. That role could be quite useful, however, if indexing, like the best "pain killer," not only alleviates the "p a in ," but also facilitates the "c u re " by assur ing the cooperation of the "patient." NOT A CURE-ALL Indexing cannot by itself reduce the rate of inflation. Nor for that matter is that its intention. W hat does it offer, then? • It can reduce inflation's arbitrary redistribu tional effects, especially as they affect the Federal Government. • It could provide a less uncomfortable en vironment for anti-inflationary policies and cushion the otherwise harsh effects of bring RESEARCH PAPERS AVAILABLE The Philadelphia Fed's Research Department occasionally publishes RESEARCH PAPERS dealing with a wide range of banking and economic issues. Most of these papers are of a highly technical nature and for the professional researcher. • "Intradistrict Distribution of School Resources to the Disadvantaged: Evidence for the Courts," Philadelphia School Project, by Anita A. Summers and Barbara L. W olfe • "Branching Restrictions and Commercial Bank Costs," by Donald J. Mullineaux • "Economies of Scale of Financial Institutions," by Donald J. Mullineaux • "Required Reserve Ratios, Policy Instruments, and Money Stock Control," by Ira Kaminow • "The Information Value of Demand Equation Residuals: A Further Analysis," by James M. O'Brien • • "Equality of Educational Opportunity Quantified: A Production Function Approach," Philadelphia School Project, by Anita A. Summers and Barbara L. W olfe • "Pennsylvania Bank Merger Survey: Summary of Results," by Cynthia A. Classman Copies of these are available from the Department of Research, Federal Reserve of Phila delphia, Philadelphia, PA 19105. 13 MARCH 1975 BUSINESS REVIEW COMMERCIAL-BANK SERVICE CHARGES FOR CHECKING ACCOUNTS ARE LESS THAN THE COST OF PRODUCING DEMAND DEPOSITS. Millions of Dollars 9 "Yields" on Checking Accounts Rise in Recent Years Costs of Production and Service Charge Income from Checking Accounts, 1973 8.319 8 Cost of Production 7 6 5 4 3 ------------------------------ 1.187 Service ------- Charge Income 2 1 0 ART 2 BANKS CANNOT PAY INTEREST ON CHECKING ACCOUNTS, BUT SOME ECONOMISTS CONSIDER THE DIFFERENCE BETWEEN PRODUCTION COSTS AND SERVICE CHARGES PER DOLLAR OF DEPOSIT AS AN “IMPLICIT” INTEREST PAYMENT ON CHECKING ACCOUNTS. Cents per Dollar of Demand Deposits SO U R C E: Functional Cost Analysis, 1973 Average Banks, 942 Banks Partici pating (Federal Reserve System). 14 FEDERAL RESERVE BANK OF PHILADELPHIA THIS “YIELD” ON CHECKING ACCOUNTS HAS MOVED UPWARDS ,N RECENT YEARS . . . CHART 3 Percent Yields on Checking Accounts, 1969-1973 K 1969 CHART 4 1970 1971 1972 1973 AND IS ABOUT THE SAME FOR BANKS OF ALL SIZES. Percent Yields on Checking Accounts by Bank Size, 1973 2-35 2.30 2.12 0-50 50-200 Over 200 Deposit Size (Millions of Dollars) 15 BUSINESS REVIEW MARCH 1975 Regional Wrap-up '74: Doldrums Descend On District Economy , By Howard Keen jr. in 1973 that was about three times faster than in 1972, saw prices climbing even more rapidly in 1974.2 Nationwide, prices were up a little over 12 percent while Third District consumers strug gled with a rate of close to 13 percent.3 Both nationally and regionally, high interest rates along with shortfalls of oil and agricultural produce contributed to the bulge in the prices of housing, food, and transportation. The result: Bigger chunks out of consumers' pocketbooks, and a tough time in making ends meet in '74. Residents of the Third Federal Reserve District,1 along with their counterparts in the U.S., had little economic news to cheer about in 1974. Prices were climbing at a near-record pace, and real output of goods and services was stalling. Despite this one-two punch, the region did have a few relative bright spots: The total number of jobs available increased and construction con tracts awarded also rose. But inflation, high interest rates, and rising unemployment rates dampened overall business activity. By yearend,the District economy, like that of the nation, was in the doldrums. 2Except where noted otherwise, growth rates for 1974 and other years represent December-to-December changes. PRICES HIGHER, REAL INCOMES LOWER 3The fact that prices rose faster in the region than nation wide doesn't mean that the level of prices in the District is above the average U.S. level. The consumer price index can be used to show changes in the level of prices but, not the levels themselves. Estimates of household budgets can pro vide interarea comparisons of price levels. See Jean Brackett, “ Urban Family Budgets Updated to Autumn 1973," Monthly Labor Review, August 1974, pp. 57-62. “ Even higher" described prices in 1974. Con sumers, still reeling from a pace of price increase 'Th e Third Federal Reserve District covers the eastern twothirds of Pennsylvania, the nine southern counties of N ew Jersey, and all of Delaware. 16 FEDERAL RESERVE BANK OF PHILADELPHIA ring in the first and fourth quarters of the year. For the year as a whole, real output declined 2.2 percent. In the District, industrial activity also fell sharply in '74. A major yardstick of industrial activity in the region is the index of electric power consumption in manufacturing. In thefirst two quarters of the year, the index was down slightly from year-end '73. It appeared to be picking up somewhat in the third quarter, but took a sharp dip in November. Over the first 11 months of 1974 this measure of local industrial activity was down 3.2 percent. THE DISTRICT WAS AGAIN PARTICU LARLY HARD-HIT BY INFLATION IN 74 . . . ] United States Third District* Percent Change 1 4 ----------------- Consumer Prices AND DESPITE FATTER PAYCHECKS, REAL INCOME OF DISTRICT MANUFACTURING WORKERS FELL MORE THAN THE NA TIONAL AVERAGE. * The CPI for the Philadelphia SM SA is taken as representative of the Third District. SO U R C E: U. S. Department of Labor. | United States H Third District Percent Change Average Weekly Earnings in 1 2 ------------------Manufacturing-------------------- W hile price tags were ballooning, workers' purses didn't keep pace. Across the country, workers in manufacturing saw their average weekly earnings grow at a 6.7 percent clip. But the rapid rise in prices more than wiped out this gain in earnings so that real purchasing power fell almost 5 percent during 1974. Laborers in theThird Districtfared even worse. W hile prices rose at a faster pace in the region than the U.S. average, manufacturing earnings climbed at a slower pace. Average weekly earn ings in manufacturing were up less than 6 percent during the year. When weekly paychecks are adjusted for the effects of higher prices, District workers were left with over 7 percent less real income than in '73. Real Average Weekly Earnings in 1970 1971 1972 1973 1974* * Third District figures based on first 11 months. f U. S. figures deflated by CPI for U. S., and District figures deflated by CPI for Philadel phia SMSA. SO URC E: U. S. Department of Labor. FALLING OUTPUT W hile prices climbed, real output of goods and services fell. Real G N P declined in the U.S. throughout 1974 with the biggest drops occur Construction: Public Works Up, Housing Down. Thanks to a strong year in public works 17 BUSINESS REVIEW MARCH 1975 IN LINE WITH THE U. S. TREND, INDUS TRIAL OUTPUT DECLINED. PRIVATE CONSTRUCTION FELL FROM A YEAR AGO . . . Percent Change □ Electric Power Consumed in Manufacturing in the Third District 8 ~ S. A. --- ■ - Percent Change --- 6 ------------------ ----------------- 4 ---------------- ---------------- 20 ----------------- 10 2 ---------- 0 --- ■ _ — -1 0 -4 — -2 0 1971 1972 1973 1974* 1970 1971 1972 1973 1974* * Annual rate based on first 11 months. SO URC E: F. W. Dodge Division, McGraw-Hill Information Systems Company. * Annual rate based on first 11 months. construction, the value of construction contracts in the Third District was almost 5 percent above last year. Although this was well below '73's increase of 19 percent (and less than the rise in prices in '74), it was a strong showing at a time when the value of total construction contracts was down more than 6 percent nationally. In both the U.S. and the region, the residential sector was the softest in the construction industry. Very high interest rates on business and govern ment borrowing drained funds from the thrift institutions that normally provide the bulk of the country's mortgage financing. As a result, mort gage money was scarce and the interest rates were high. There was some slight easing of this situation late in the year, but for most of 1974 it proved to be a heavy shackle on the construction of residential housing. Overall, the dollar vol ume of residential construction in the U.S. fell more than 20 percent in '74. Regionally, this component was off more than 25 percent from '73 levels. LARGELY BECAUSE OF A BIG DROP IN RESIDENTIAL CONSTRUCTION . . . □ United States Third District Percent Change 50-------- Value of Residential Construction Contracts * Annual rate based on first 11 months. SO URC E: F. W. Dodge Division, McGraw-Hill Information Systems Company. SLIMMER PICKINGS IN THE JO B MARKET Despite the sluggish economy in '74, overall employment in the region was fairly strong. Value of Residential and Nonresidential ------------ Construction Contracts----------- 0 -2 1970 Third District United States 18 FEDERAL RESERVE BANK OF PHILADELPHIA W hile nationwide the total number of jobs fell slightly, the numberemployed in the District was up sharply in the beginning of the year over year-end '73. As the year unfolded, the total number of jobs in the region declined and the unemployment rate rose. Nevertheless, by year-end the index of total employment was still almost 2 percent above December '73. Across the nation, however, the total number of jobs actually fell 0.6 percent during 1974— the first yearsince 19 70 that total employmentdeclined. HOWEVER, PUBLIC CONSTRUCTION IN THE DISTRICT MADE A STRONG SHOW ING . . . □ Third District United States Percent Change Value of Public Construction Contracts 80 60 40 20 JOBS AVAILABLE IN THE DISTRICT’S MANUFACTURING SECTOR FELL . . . 0 -2 0 | United States -40 1970 1971 1972 1973 | Third District Percent Change 1974* ----- Total Employment in Manufacturing ____ * Annual rate based on first 11 months. SO URC E: F. W. Dodge Division, McGraw-Hill Information Systems Company. 4 2 0 -2 -4 -6 BOOSTING TOTAL CONSTRUCTION TO A MODERATE GAIN. □ 1970 Third District United States SO URC E: Percent Change 20 1971 ‘ Third District months. figures 1972 based 1973 on 1974* first 11 U. S. Department of Labor. — Value of Total Construction Contracts — The slight decline in total employment nationwide took place primarily in the last quar ter of the year. Earlier in the year the number of jobholders increased, however. The unemploy ment rate, therefore, moved up only slightly— from 5.2 to 5.4 percent— through late summer. The small increase that did occur stemmed mostly from the inability of newcomers to the labor market to find jobs, rather than from layoffs. All of this changed abruptly near year-end. Sluggish sales, rising inventories, the coal strike, 10 0 -1 0 -2 0 1970 1971 1972 1973 1974* * Annual rate based on first 11 months. SO URC E: F. W. Dodge Division, McGraw-Hill Information Systems Company. 19 MARCH 1975 BUSINESS REVIEW and the slump in the auto industry all combined to cast a gloomy shadow on the job market. Not only were new entrants into the labor force un able to find jobs, but many workers who had held jobs during the year were laid off. The result was a big jump in the unemployment rate to 7.1 percent in December nationwide— the highest in 13 years. NOT ENOUGH, HOWEVER, TO STOP THE UNEMPLOYMENT RATE FROM CLIMBING ABOVE THE U. S. RATE. mmmmmmm United States Third District Percent BUT THE TOTAL NUMBER OF JOBS IN THE DISTRICT FROM ALL SOURCES REGISTERED A HEALTHY GAIN . . . | United States | J| 0 —I____I____I____I___ I____I_ Third District 1969 1970 1971 1972 1973 1974 Percent Change 6 — —--------- Total Employment O. A .----------------------------------------------- H I I J F M A M -2 I I I l I I I I J J A S O N D 1974 - 4 --------------------------------------- SO URC E: U. S. Department of Labor. ________ I_______ I_______ I_______ I_______ 1970 1971 1972 1973 1974* ‘ Third District figures based on first months. SO URC E: U. S. Department of Labor. 11 RETAILING: SALES ARE SLUGGISH With real income down from 1973 and the unemployment rate on an upward trend, con sumers were bound to keep a tighter grip on their pocketbooks. This sharper eye on spending was reflected in slower growth of retail sales at de partment stores. Nationwide, department store sales were up 8 percent over 1973 levels— slower than in '73 when they registered a 13 percent gain over '72. In the District, however, 1974 was a lean year for the big store merchants. With the exception of Philadelphia, where increases ran slightly ahead of those in '73, sales rates were off in all other areas. In fact, some cities experienced a drop from last year's levels. After considering the ef fect of inflation in boosting the dollar volume of sales, it's clear that in most areas of the District unit sales were actually below 1973 levels. Along with the national trend, the District's unemployment rate moved upward only slowly for most of 1974. By the last quarter of the year, however, layoffs and lack of work for new job seekers took its toll. By November the regional rate had jumped to 7.3 percent. The manufacturing sector was especially hard hit: In both the U.S. and the District, workers in these industries found themselves in unemploy ment lines instead of on assembly lines. But, as a whole, the plight of the region's manufacturing workers was not as gloomy as that of their nationwide counterparts. In the U.S., manufac turing employment fell 5.8 percent, while in the region it was off 1.7 percent from 1973. 20 FEDERAL RESERVE BANK OF PHILADELPHIA reflected the attempt on the part of many banks in the District to retrench from tight liquidity positions. Closer scrutiny of loan requests and less aggressive loan expansion helped account for the slower pace in '74. THE RETAIL SECTOR FAILED TO PRO VIDE A BOOST TO DISTRICT BUSINESS ACTIVITY. | 1973 ^ 1974 Percent Change over Previous Year* LIKE THE NATION, THE BANKING SEC TOR IN THE DISTRICT REFLECTED THE SLOWER PACE OF BUSINESS ACTIVITY AS THE EXPANSION OF LOANS FELL BELOW THAT OF 1973. 20 — Department Store Sales (By SMSA) — J United States | Third District Percent Change * The first 10 months of the year compared to the same 10-month period of the previous year. SO URC E: U. S. Department of Commerce. 20 ------- Loans: All Member Banks 10 Investments: All Member Banks 20 10 0 LENDING LAGS - 1 0 -------- 1------- 1--------1------- 1-----1970 1971 1972 1973 1974 Despite a brighter overall job picture in the District than nationally, Third District business activity, like the U.S., was stalled in '74. And this slower growth in regional economic activity is mirrored in the lending by Third District banks. For most of the year, credit market conditions restrained bank credit expansion and boosted interest rates all across the U.S. For example, the highly publicized “ prime" rate charged by banks hit a high of 12 percent in August and September— twice its level in January 1973. Some easing in credit conditions near year-end did little to change the picture for '74. Nationally, loans at member banks grew dur ing '74 at a 9.7 percent pace. W h ile this was a creditable showing, it was anemic when viewed against the 19 percent clip of the two previous years. Member bank loans in the region grew 5.6 percent during '74— less than the national rate and well below '72 and '73. This reduced rate of loan expansion was not entirely indicative of the demand for bank credit. To a large extent, it Both in the nation and the region bank invest ments changed very little compared to 1973. Heavy loan demand and double-digit inflation provided incentives for banks to shift their funds from fixed-income securities to more profitable loans where the rate of return kept more in line with the rising price level. Member banks in the District reduced their investments by 1.3 percent— the second year in a row that invest ments fell.4 MORE ALIVE IN '75? In brief, the past year was one of progressive 4lnvestments consist primarily of securities of the U. S. Treasury, other U. S. Governm ent agencies and corpora tions, and obligations of states and subdivisions. 21 BUSINESS REVIEW MARCH 1975 movement into the economic doldrums. Job growth in the District was brighter than the na tional picture, but fast-rising prices and slowrising wages took a harsh toll on real income. Moreover, the fair showing in job growth wasn't enough to prevent the unemployment rate in the region from leading the national rate upward. All of this combined to slow the ring of de partment store cash registers. Lower real in comes and fears of job loss have made consum ers cautious. And consumers' reluctance to spend makes businessmen hesitant to get pro duction lines rolling and provide jobs. W ill this scenario keep the regional economy in the dol drums or will business activity be more alive in '75? With general uncertainty and reluctance to spend in the air, a quick pickup in economic activity doesn't seem to be in the cards. This outlook for economic activity to emerge only slowly from the doldrums is consistent with the expectations of area businessmen who see high unemployment and inflation plaguing a sluggish regional economy through the first half of '75 (see Box), but with some pickup thereafter. THIRD DISTRICT BUSINESSMEN SIZE UP '75 The Federal Reserve Bank of Philadelphia conducts a monthly business outlook survey. This survey is designed to gain insight into prospective economic conditions in the Third Federal Reserve District, an area that includes the eastern two-thirds of Pennsylvania, the southern half of New Jersey, and Delaware. Executives of manufacturing firms with 500 or more employees are polled regarding their readings of local business activity. Since its inception atthe request of the regional business community almost seven years ago, the Business Outlook Survey has become a useful source of economic intelligence both for business and public policymakers. Copies of the monthly summary of the Outlook Survey may be obtained by writing to Public Services, Federal Reserve Bank of Philadelphia, P. O. Box 66, Philadelphia, PA 19105. OUTLOOK FOR 1975 Area executives expect some brightening in the region's economic skies in 1975. Close to half of the businessmen surveyed foresee a higher level of business activity six months down the road. In addition, about half of those polled anticipate higher sales and new orders for their firms in the coming months. Some clouds remain on the region's horizon, however. Roughly half of the large manufacturers expect to be paying, as well as receiving, higher prices by mid year, and more than half plan no increases in their workforce. Consequently, with an expand ing laborforce, the regional economy can expectto be vexed by a high level of unemployment. In a nutshell, Third District businessmen anticipate a pickup in regional economic activity, but no quick turnaround in unemployment and inflation. 3C 22 FEDERAL RESERVE BANK OF PHILADELPHIA The Fed in Print BANK HO LD ING COMPANIES Regulation of interest rates on certain obliga tions October 29, 1974 (P. L. 93-501)— FR Bull Dec 74 p 861 , , BANK LIABILITIES Business Review Topics Fourth Quarter 7974 Selected by Doris Zimmermann A new emphasis on regulations affects liabil ity management— Dallas Nov 74 p 1 Bank liability management: For better or for worse?— Phila Dec 74 p 3 Monetary restraint, Regulation Q, and bank liability management— Phila Dec 74 p 13 Articles appearing in the Federal Reserve Bul letin and in the monthly reviews of the Federal Reserve banks during the fourth quarter of 1974 are included in this compilation. A cumulation of these entries covering the years 1970 to date is available upon request. If you wish to be put on the mailing list for the cumulation, write to the Publications Department, Federal Reserve Bank of Philadelphia. To receive copies of the Federal Reserve Bulle tin, mail two dollars for each to the Federal Re serve Board at the Washington address on page 27. You may send for monthly reviews of the Federal Reserve banks free of charge, by writing directly to the issuing banks whose addresses also appear on page 27. BANK LOANS "S o ld " table revised— FR Bull Oct 74 p 741 BANK LOANS— BUSINESS Loans to manufacturers— Atlanta Oct 74 p 160 BANK LOANS— FARM Booming agricultural loans of commercial banks— Atlanta Dec 74 p 182 BANK SIZE Small bank survival: Is the wolf at the door?— Phila Nov 74 p 16 ALABAMA National and world events "Heart of D ixie"— Atlanta Nov 74 p 172 soften the BANK SUPERVISION Bank supervision in a dynamic environ ment— Bost Nov 74 p 24 BALANCE OF PAYMENTS Oil and international payments— Bost Nov 74 p 29 The U. S. balance of payments during 1974— St Louis Dec 74 p 10 BANKERS ACCEPTANCES Limit to holdings of bankers acceptances increased to one billion dollars— FR Bull Dec 74 p 885 BANK CAPITAL Bank capital ratios— Chic Nov 74 p 13 Banking on debt for capital needs— Phila Dec 74 p 17 BANKING— FOREIGN BRANCHES International banking— structural aspects of regulation— Chic Oct 74 p 3 Overseas branches of member banks assets and liabilities— FR Bull Dec 74 p 884 BANK FAILURES Franklin National Bank statement— FR Bull Oct 74 p 740 23 MARCH 1975 BUSINESS REVIEW CONSUMER CREDIT BANKING— FOREIGN BRANCHES IN U. S. Proposed revisions in data— FR Bull Oct 74 p 742 Data series on foreign-owned U. S. banks— FR Bull Oct 74 p 741 Proposed legislation re foreign banks— FR Bull Dec 74 p 881 CONSUMER EXPENDITURES Consumer demand for durable goods— Kansas City Nov 74 p 3 BANKING STRUCTURE Development in Texas changes in recent years— Dallas Dec 74 p 1 CONSUMER PROTECTION President Ford signed P. protect credit transactions— FR Bull Nov 74 p 800 BURNS, ARTHUR F. The conference on inflation— FR Bull Oct 74 p 699 Statement to Congress, September 25, 1974 (budget)— FR Bull Oct 74 p 702 Statement to Congress, October 10, 1974 (inflation and unemployment)— FR Bull Oct 74 p 706 Maintaining the soundness of our banking system— NY Nov 74 p 263 Statement to Congress, November 27, 1974 (petroleum industry)— FR Bull Dec 74 p 830 Statement to Congress, December 5, 1974 (gold)— FR Bull Dec 74 p 835 93-495 to CRIME Criminal behavior and the control of crime: An economic perspective— Phila Nov 74 p 3 DISCOUNT OPERATIONS Emergency Home Purchase Act of 1974— FR Bull Nov 74 p 771 DISCOUNT RATES Change in discount rate, December 9,1974— FR Bull Dec 74 p 885 ECONOMIC PLANNING An economic compact for the latter 70's (Eastburn)— Phila Oct 74 p 3 ELECTRIC PO W ER INDUSTRY Electric power— problems and prospects— Chic Dec 74 p 3 BUSINESS FORECASTS AND REVIEWS Financial developments in the third quarter of 1974— FR Bull Nov 74 p 745 The economy in 1975— uncertainties cloud the outlook— Kansas City Dec 74 p 3 1974— A year of inflation, production cut backs, and oil-induced payments deficits— St Louis Dec 74 p 2 FARM OUTLOOK 1975 agricultural outlook: A year of con tinuing adjustment— Kansas City Dec 74 p 12 FEDERAL FUNDS MARKET Interbank lending— an essential function— Chic Nov 74 p 3 Survey of borrowing— FR Bull Dec 74 p 885 BUSINESS INDICATORS How accurate are business forecasts?— Bost Nov 74 p 2 FEDERAL RESERVE BANKS— FINANCIAL STATEMENTS COLDWELL, PHILIP E. G LO SSARY available— NY O ct 74 p 252 Appointment to Board of Governors con firmed October 9, installed October 29, 1974— FR Bull Nov 74 p 799 L. FEDERAL RESERVE BOARD Membership of the Board of Governors of the 24 FEDERAL RESERVE BANK OF PHILADELPHIA FEDERAL RESERVE BOARD (Cont.) HOLLAND, ROBERT C. (Cont.) Federal Reserve System, 1913-74— FR Bull Nov 74 p 755 INTERPRETATIONS supplement no. 22 available— FR Bull Dec 74 p 885 fangled world— Bost Nov 74 p 20 Statement to Congress, December 12, 1974 (bank supervision)— FR Bull Dec 74 p 838 FEDERAL RESERVE— CREDIT CONTROL INCOME, PERSONAL On Fed watching— NY Oct 74 p 243 Faster gains in per capita income expected for the Southwest— Dallas Oct 74 p 11 FEDERAL RESERVE— FOREIGN EXCHANGE Treasury and Federal Reserve foreign ex change operations interim report— FR Bull Dec 74 p 828 Treasury and foreign exchange operations interim report— NY Dec 74 p 301 INDEXATION The case for and against indexation: An attempt at perspective— St Louis Oct 74 p 2 The concept of indexation in the history of economic thought— Rich Nov 74 p 3 Indexation as a response to inflation: An examination— Rich Nov 74 p 17 FEDERAL RESERVE SYSTEM THE FEDERAL RESERVE SYSTEM— PU R POSES A N D FU N C T IO N S available at $1.00— FR Bull Oct 74 p 740 INDUSTRIAL PRODUCTION INDEX THE FEDERAL RESERVE SYSTEM— PUR POSES AND FUNCTIONS available A revised manufacturing production index for the Southeast— Atlanta Dec 74 p 190 Industrial production— FR Bull Dec 74 p 805 from Federal Reserve Board at $1.00— Rich Nov 74 p 22 FOOD PRICES Factors behind rising food costs— Rich Sept 74 p 19 INFLATION Inflation and stagnation in major foreign industrial countries— FR Bull Oct 74 p 683 Philadelphia sings the inflation blues— Phila Nov 74 p 10 EC O N O M IC S O F INFLATION available— Phila Nov 74 p 23 Inflation, recession— what's a policy maker to do? (Francis)— St Louis Nov 74 p 3 GEORGIA Slowdown in Georgia manufacturing: A shift-share analysis— Atlanta Nov 74 p 166 GOLD Participation in gold transactions— FR Bull Dec 74 p 882 GRAIN Grain export quotas: The short view and the long— St Louis Oct 74 p 12 Dwindling world grain reserves— Chic Nov 74 p 8 INTEREST RATES— DISCLOSURE Truth in Lending Act amendment October 28, 1974— FR Bull Nov 74 p 800 Act of Congress, October 28, 1974 (P. L. 93-495)— FR Bull Dec 74 p 849 HOLLAND, ROBERT C. Saving: An old fashioned virtue in a new- 25 BUSINESS REVIEW MARCH 1975 LIVESTOCK INDUSTRY PRODUCTIVITY Cattle cycles— past and present— Minn Nov 74 p 13 A primer on productivity— Atlanta Oct 74 p 150 MOBILE HOMES RECESSIONS Cut-back in mobile home loans— Atlanta Nov 74 p 176 Another recession, but different— St Louis Dec 74 p 15 MONETARY POLICY REGULATION A SO M E IN STITU TIO N AL ASPECTS OF M O N ETARY PO LICY available— Atlanta Dec 74 p 189 Amendment September 25, 1974— FR Bull Oct 74 p 723 Special rate for emergency loans— FR Bull Oct 74 p 741 Amendment October 25, 1974— FR Bull Nov 74 p 771 MONETARY STABILIZATION The international monetary system (Hayes)— NY Dec 74 p 286 REGULATION D MONEY DEFINITION Amendment September 5, 1974— FR Bull Oct 74 p 723 Interpretation— FR Bull Oct 74 p 724 Amendment November 28, 1974— FR Bull Dec 74 p 861 Amendment November 27, 1974— FR Bull Dec 74 p 862 A time series analysis of income and several definitions of money— Kansas City Nov 74 p 9 MONEY SUPPLY M O N ET A R Y A G G R EG A T ES A N D M O N E TARY PO LICY available— NY Nov 74 p 277 Channels of monetary influence: A survey— St Louis Nov 74 p 8 Revision of money stock measures and member bank reserves and deposits— FR Bull Dec 74 p 817 REGULATION G Amendment November 5, 1974— FR Bull Dec 74 p 863 REGULATION H Amendment September 22, 1974— FR Bull Oct 74 p 725 MORTGAGES The residential mortgage market in recent years— Rich Sept 74 p 3 REGULATION M Amendment November 22, 1974— FR Bull Dec 74 p 862 PETROLEUM INDUSTRY REGULATION Q W h y America's oil supply depends on highpriced foreign sources— Phi la Oct 74 p 7 Amendment October 17, 1974— FR Bull Nov 74 p 771 Amendment November 27, 1974— FR Bull Dec 74 p 862 Amendments to Regulation Q (government deposits)— FR Bull Dec 74 p 883 PIPELINES Pipeline industry responds to challenge of declining reserves— Dallas O ct 74 p 1 REGULATION T Amendment FR Bull Amendment FR Bull 26 November 4, 1974— Nov 74 p 802 November 5, 1974— Dec 74 p 863 FEDERAL RESERVE BANK OF PHILADELPHIA REGULATION U TENNESSEE (Cont.) Amendment November 5, 1974— FR Bull Dec 74 p 863 Atlanta Oct 74 p 155 TRANSFER OF FUNDS REGULATION Y National Commission on Electronic Funds Transfers created October 28, 1974— FR Bull Nov 74 p 800 National Commission on Electronic Fund Transfers established October 28, 1974 (P. L. 93-495)— FR Bull Dec 74 p 849 Electronic distribution of government pay ments— FR Bull Dec 74 p 883 Interpretation— FR Bull Oct 74 p 725 RESERVE REQUIREMENTS Restructured November 13, 1974— FR Bull Nov 74 p 799 Effects of Regulation D changes— Atlanta Dec 74 p 194 STRATEGIC MATERIALS Shortages: A necessary evil of the future?— Phila Oct 74 p 13 WALLICH, HENRY C. Statement to Congress, October 16, 1974 (petroleum prices)— FR Bull Nov 74 p 757 TENNESSEE Economic slowdown hits Tennessee— FEDERAL RESERVE BANKS AND BOARD OF GOVERNORS Publications Services Division of Administrative Services Board of Governors of the Federal Reserve System Washington, D. C. 20551 Federal Reserve Bank of Kansas City Federal Reserve Station Kansas City, Missouri 64198 Federal Reserve Bank of Minneapolis Minneapolis, Minnesota 55440 Federal Reserve Bank of Atlanta Federal Reserve Station Atlanta, Georgia 30303 Federal Reserve Bank of New York Federal Reserve P.O. Station New York, New York 10045 Federal Reserve Bank of Boston 30 Pearl Street Boston, Massachusetts 02106 Federal Reserve Bank of Philadelphia 925 Chestnut Street Philadelphia, Pennsylvania 19101 Federal Reserve Bank of Chicago Box 834 Chicago, Illinois 60690 Federal Reserve Bank of Richmond P.O. Box 27622 Richmond, Virginia 23261 Federal Reserve Bank of Cleveland P.O. Box 6387 Cleveland, Ohio 44101 Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri 63166 Federal Reserve Bank of Dallas Station K Dallas, Texas 75222 Federal Reserve Bank of San Francisco San Francisco, California 94120 27 V'ICl AI. RKBERVE BANK FEDERAL RESERVE RANK of PHILADELPHIA PHILADELPHIA, PENNSYLVANIA 19105 business review FEDERAL RESERVE BANK OF PHILADELPHIA PHILADELPHIA, PA. 19105
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