The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
January 1963 FEDERAL RESERVE BANK OF DALLAS This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Annual Report Issue co n ten ts nineteen hundred and sixty-two economic conditions....................................... 3 financial developments.................................. 7 district developments ....................................... 11 nineteen hundred and sixty-two The Nation’s economy began the year 1962 on a highly optimistic note. To a large extent, this favorable outlook was based on an expected continuation of the upturn during the latter por tion of 1961 from the shallow and short-lived 1960-61 contraction. An anticipated resurgence of construction activity and the expectation that Government purchases and consumer buying, especially of durables, would move upward sharply were additional factors contributing to the high expectations for 1962. By midyear, most of the broader measures of business activity had risen markedly to record or near-record levels. After midyear, however, the rate of advance slackened, and the economy moved along a high-level plateau until the final months, when signs of renewed strength were observed. economic conditions Although the economy failed to attain the levels expected by many individuals early in 1962, overall gains last year were noteworthy. Consumer income and buying reached new highs; output of mines and factories increased appreciably; and the modernization and expan sion of existing productive facilities permitted a large outflow of final products with stable prices. Gross national product, the broadest measure of economic activity, rose about $35 billion, or 7 percent, during 1962 to a new high of around $555 billion. Such a gain is well above the 3-percent increase registered during 1961 and exceeds the annual advances noted in all but 3 years since 1950. Especially meaningful is the fact that, in constant dollars, gross national product rose nearly 6 percent. Business investment, principally in the stock piling of steel, played a strategic role in prompt ing the marked gains registered during the first quarter of 1962. Throughout most of the period, steel users were faced with the possibilities of a work stoppage in the steel industry and steel price increases and with the potential impact of stockpiling on future production schedules. Inventory accumulation, $6.7 billion on an annual-rate basis in the first quarter of the year, boosted industrial production, with correspond ing increases in employment, hours worked, and final income. The consumer utilized his increased buying potential to expand his purchases. This demand, especially for nondurable goods and services, and the high-level peacetime outlays for defense purposes provided the basic support for the continuation of the expansion into the second quarter of the year. In the spring, a new labor agreement was reached by steel producers and their employees without an interruption in work schedules. This agreement and subsequent events affecting the industry contributed to a slackening of inventory accumulation, which exerted its influence on the economy. Nevertheless, economic activity con tinued to increase through midyear, but some observers felt that business confidence was be ginning to wane. The sharp downturn in stock prices in late May added another element to the uncertainty that was developing as to the econ omy’s strength. During the summer months, business review/January 1963 3 most of the broad economic measures moved only within narrow limits at their advanced levels. The level of unemployment and the less than full utilization of plant capacity continued to cause concern. By late summer, there was mention of a recession in late 1962 or early 1963, and discussion increased about the possi bility of a tax cut to provide a stimulant to the economy. In the early fall, the Treasury revised depre ciation schedules, and Congress granted a tax credit to business as an investment stimulant. In addition, the Administration announced that it would not seek a reduction in taxes during 1962. A short time later, the possibility of direct mili tary involvement arose with regard to Cuba. The impact of this crisis on the economy could have been great. Fortunately, the potentially danger ous situation eased quickly. Both scare buying and the shifting of resources from peacetime uses to the output of war goods were minimal. New orders for defense requirements, never theless, strengthened late in the year. In addi tion, widespread acceptance of the new-model automobiles contributed to the fourth-quarter advance; automobile sales during the period were at or near a record. Consumer spending for other durable goods continued at high levels, and buying of nondurables just prior to the year-end holiday season exceeded seasonal expectations. Certain elements of aggregate demand— e.g., state and local government spending and various consumer purchases, mainly in the service and nondurables sectors— have reinforced the Na tion’s economy during recent years regardless of the tone of business. Such factors contributed to last year’s increases. Spending by state and local governments increased at an annual rate of about 9 percent during the 1950’s and early 1960’s, including 1962. Consumer purchases of services increased around 7 percent annually during the 1953-62 period. Nondurable goods acquisitions by individuals also have tended to 4 rise at a fairly constant rate — 4 percent — and last year was no exception. In addition to the contribution made to the economy in 1962 by the sectors that have con tinued to trend upward, advances were recorded in the cyclically sensitive areas of economic endeavor. These more volatile areas include changes in business inventories, consumer pur chases of durable goods, and certain types of construction. Business sales generally trended upward dur ing 1962 and at the end of the year were well in excess of the 1961 monthly average of about $61.5 billion. Inventory accumulation usually is closely related to sales activity; throughout most of 1962, inventories were held at low levels relative to sales. During the first quarter of 1962, however, the possibility of a steel strike stimu lated stockpiling. Stock accumulation during the first quarter amounted to an annual rate of $6.7 billion, and inventories grew at a rate of $4.0 billion in the April-June period. During the latter half of the year, inventory accumulation slackened as stocks again were closely keyed to near-term sales requirements. Industrial production advanced about 8 per cent during 1962, but most of the gain occurred in the first half of the year. Manufacturing of nondurable goods continued its secular growth; and output of chemicals showed special strength, PRODUCTION AND INVENTORIES UNITED STATES in v en to r y Qtanaz MILLIONS OF OOLLARS (Seasonally odjusled) ■H5j sr SOURCES: Boo'd o! Oownars, F»d«ial Rit-srvt Syslffr, US. OopofimoiU of PRODUCTION INDEX 1957-59*100 1 125 although declining prices of some major chemi cals affected segments of the industry. A more rapid rate of increase was attained in durable goods industries. The transportation equipment, machinery, fabricated metals, and furniture in dustries were among those that enjoyed highlevel production throughout most of 1962. Steel output showed varying trends last year. Output was at an annual rate of about 120 mil lion tons early in the year when rapid stockpiling occurred, but the rate diminished to about 75 million tons following the labor agreement. After bottoming in the summer, steel production edged upward; and toward the end of the year, the industry reached an operating rate of over 95 million tons. Automobile output in 1962, at almost 7.0 million units, was around one-fourth higher than in the previous year and was second only to the record output of 7.9 million units in 1955. Retail deliveries, including about 300,000 foreign-produced cars, approximated 7 million units; and inventories of motor vehicles at the beginning of 1963 were at low levels in relation to dealers’ sales. Production of machinery advanced appreci ably in 1962, as domestic machine tool bookings exceeded the previous year’s total by about 20 percent. Foreign buying in some lines dimin ished, however, since overseas producers were able to reduce their order backlogs and shorten the time required for delivery. On the average, producers of major materials operated between 75 percent and 85 percent of capacity during 1962. Nevertheless, commensu rate with the increase in output was an expan sion in plant and equipment, with new invest ment for producers’ durable equipment rising over 10 percent. Expenditures for all plant and equipment, at an estimated $37.4 billion, were about one-tenth above 1961. For many of the firms enjoying output growth sufficient to ap proach existing capacity, increased outlays were OUTPUT OF SELECTED KEY INDUSTRIES UNITED STATES PERCENT (Saasonolly adjusted indexes, 1967-59=100) 150 70 —- 1961 resz ••Estim ated. realized. Some firms whose output failed to ad vance appreciably, however, were forced to mod ernize in order to compete with both foreign and domestic firms. Expenditures for modernization accounted for about 70 percent of all plant and equipment outlays last year. Total new construction expenditures of about $61 billion in 1962 were up approximately 7 percent from 1961 and provided a strong stim ulus to the economy. Spending for residential building expanded more rapidly than for the other construction categories, with private non farm housing starts— at over 1.4 million units— one-tenth greater. Building of individual homes increased; the average price of homes moved upward; and a smaller proportion of new starts was made under the Government-insured and -guaranteed programs than in 1961. Expendi tures for additions and alterations of existing property, as in the past few years, trended up ward; and construction of multifamily units was maintained at a rapid pace. Outlays for commercial and industrial build ing rose about 5 percent last year. The growth in residential areas encouraged the construction of shopping centers and office space, and spend- business review/January 1963 5 ing for new industrial facilities also contributed to total commercial and industrial expenditures. Construction outlays by Federal, state, and local governments for highways, educational and recreational facilities, office buildings, and the like moved to higher levels; but the gain in this type of spending was less than the increases registered in the residential and commercial and industrial construction categories. Purchases of goods and services by all levels of government rose again last year. Net expendi tures of the Federal Government, as indicated in the administrative budget, advanced nearly onetenth during 1962 to approximately $92 bil lion. Outlays for the military functions of the Department of Defense, the military assistance portion of the mutual security program, atomic energy, and other defense-related activities ac counted for more than one-half of the total. Such expenditures, which reflect the inter national political environment, rose significantly over 1961. Gains also were recorded in other types of Federal Government expenditures, such EMPLOYMENT AND EARNINGS UNITED STATES as those for public works and highways in 1962, and state and local spending maintained its sec ularly upward movement. Production increases stimulated hirings of factory workers in 1962, principally during the first half of the year; manufacturing employment leveled off during the second half, as the tempo of industrial activity moderated and the effect of laborsaving devices was felt. Total employment was generally higher throughout most of the year; however, the civilian labor force also edged upward, and the seasonally adjusted rate of unemployment failed to decline below 5 per cent, fluctuating between 5 percent and 6 per cent of the civilian labor force. Although some improvement was shown in the unemployment pattern of married males, which is especially strategic because of family dependence, many teen-agers and women workers had difficulty, at times, in finding employment. The unemploy ment total also was expanded by persistent pockets of unemployment. A retraining program was implemented recently in an attempt to re duce extended unemployment and to provide industrial mobility. Nevertheless, the general level of unemployment continues to be a problem. Manufacturers’ payrolls moved to higher levels in 1962 as a result of increased employ ment, an extension of the factory workweek, and greater hourly earnings. The average work week rose to almost 41 hours in April but re ceded to slightly lower levels later in the year. Average hourly pay, fluctuating within a fairly narrow range and attaining a new high, aver aged about 3 percent above 1961. Personal income advanced 6 percent during 1962 to approximately $440 billion. Pacing the 1962 income gain were labor income; rents, interest, and dividends; and nonfarm proprie tors’ receipts. Despite additional veterans’ pay ments and higher social security benefits, Government transfer payments advanced only moderately, while farmers received slightly less 6 CONSUMER INCOME AND SPENDING UNITED STATES income than in the prior year. With this addi tional buying potential, consumers expended more for goods and services last year. In addi tion to the increase in spending for nondurable goods and services, consumer outlays for du rable goods were up almost one-tenth — cen tered principally in automobile acquisitions. Prices of final goods and services advanced slightly in 1962, with most of the rise centered in the service area. Wholesale prices rose only fractionally in 1962, while average prices of industrial goods were little changed. Sensitive material prices trended downward throughout 1962. financial developments The supply of loanable funds advanced stead ily during 1962 and was fully adequate to meet credit demands in the economy. With the vol ume of reserves available to the commercial banking system being sufficient throughout the year to support further expansion of credit and the money supply, bank reserve positions were generally easy. Savings flowed into commercial bank time and savings accounts at a record rate, partially reflecting changes in permissible interest rates payable on time and savings de posits; and substantial cash inflows were re corded at nonbank financial institutions. Borrowings at commercial banks moved sig nificantly higher during the year, with consumertype loans and loans for real estate purposes increasing appreciably. Although commercial and industrial loans moved only slightly higher during the first three quarters of the year, notable strength was evident in the final quar ter. Demands for long-term funds increased moderately, with much of the impetus stemming from mortgage credit requirements. State and municipal governments borrow ed a record amount, and offerings of long-term Treasury issues were of substantial proportions. Cor porate requirements for external funds were significantly reduced. Total loans at all commercial banks in the United States increased about $15 billion during 1962 and approached a level of $140 billion by the end of the year. About one-half of the ad vance occurred in real estate and consumertype loans. Commercial and industrial loans were paced by the credit requirements of trade and service establishments and accounted for about one-third of total loan expansion. Loans for purchasing or carrying securities declined during the first half of the year — a develop ment which was related, in part, to the sharp downward movement of prices in the stock market. After m idyear, however, loans to brokers and dealers rebounded somewhat under the stimulus of rising stock market prices, reduc tions in margin requirements, and expanded fi nancing needs of Government securities dealers. Loans to nonbank financial institutions showed little change over the 12 months. Total investments at commercial banks in the Nation advanced approximately $4 billion dur ing 1962 to a level of almost $95 billion. Hold ings of municipal bonds increased about $5 billion, and average maturities of investment portfolios were lengthened, as banks placed greater emphasis upon return. To an increasing extent, acquisitions of municipal issues were extended to include medium-grade securities. Commercial banks reduced their holdings of Government securities during 1962, with nota ble reductions in Treasury bills. The desire to offset rising operating and interest costs was among the considerations inducing smaller short-term Government holdings. Average ma- business review/January 1963 7 SELECTED FINANCIAL INDICATORS turities of Government portfolios were length ened during the year. UNITED STATES PERCENT PCRAdMJJH. Reserve positions of member banks were comfortable during 1962 as free reserves ranged from a low of $256 million to a high of $657 million, based on weekly averages of daily fig ures, and averaged over $400 million during the year. Borrowings from Federal Reserve banks were nominal during the year, exceed ing $100 million in only 3 months. Moreover, only on infrequent occasions did the money market banks in the 37 major financial centers have a net borrowed reserve position. Public ownership of liquid financial assets ad vanced significantly during the year. Higher in terest rates paid on savings deposits and expand ing personal income encouraged savers to build up their holdings of time deposits at commercial banks, savings and loan shares, and time de posits at mutual savings banks. Time deposits adjusted at commercial banks (total time de posits less time deposits of banks and the Gov ernment) increased approximately $14 billion during the year, compared with an expansion of $10 billion in 1961. Banks in major financial centers added significantly to their negotiable time certificates of deposit in an effort to attract more corporate and public funds, and a second ary market for these certificates developed dur ing the year. Savings and loan shares at all operating sav ings and loan associations advanced only about $6 billion during 1962, this growth being about 4 percent less than in 1961. Time deposits at mutual savings banks moved up about $2 bil lion during the year, or at an annual rate of approximately 5 percent. While commercial bank credit advanced in 1962, the effective money supply (demand de posits adjusted plus currency in the hands of the public) declined in the first half of the year and expanded only slightly during the last half. For the year as a whole, the money supply ad- 8 4 .2 3 .6 1 e-Eslimal«d 9-Pfdiiriinary vanced almost 2 percent, compared with a 3percent growth in 1961. The decrease in the money supply during the first 6 months of the year reflected a reduction in the demand deposit component, which was related, in part, to a shift of funds from demand deposits to time and savings accounts. After midyear, the rate of growth of time deposits slackened, and demand deposits adjusted increased moderately. The currency component of the money supply ex panded steadily during 1962, growing slightly over $ 1 billion. Viewing the money supply in a broader context by including time and savings deposits at commercial banks, the growth during 1962 was 7 percent, compared with 6 percent in 1961. The demand for mortgage funds expanded during the year, mainly in response to increased private construction activity. Adequate funds were available, however, as most mortgage lenders were actively seeking outlets. Total mortgage debt outstanding in the United States approached $250 billion by the end of 1962, or almost $25 billion above the amount outstand ing at the beginning of the year. Rates on con ventional, FHA-insured, and VA-guaranteed mortgages declined slightly during the year; while fees, commissions, and charges as a per centage of loan value moved lower. Less strin gent credit requirements and smaller downpay ments also gained in importance. Foreclosures increased during 1962 but remained a relatively small percentage of total m ortgage debt outstanding. State and local governm ent borrowings reached about $8.5 billion during 1962, or ap proximately the same as in 1961. This debt financing continued to reflect capital outlays for public improvements, as well as the increased pressures upon general property taxes as a source of funds. Interest in new municipal issues was especially notable at commercial banks. The Federal Government, in financing its cash deficit during the year, was a significant borrower of long-term funds in 1962. The Treasury raised around $7 billion through sales of marketable securities, with issues having original maturities of 5 years and beyond ex panding about $3 billion. Treasury accent on long-term borrowing had the effect of raising the average maturity of marketable public debt by about 6 months to a level of approximately 5 years at the close of December. The Treasury also raised substantial amounts in the short-term maturity area through new issues of bills. Refundings and advance refund ings of $50 billion were effected during 1962, with long-term issues usually included in the exchange offerings. The Treasury was success ful in placing a large portion of its new issues outside the banking system. Corporate securities offered for cash during 1962 reached a level of around $10.4 billion, or $2.8 billion below the 1961 level. About $2.1 billion of the decline in offerings centered in common stock sales, with the remainder occur ring principally in the issuance of debt obliga tions. Increased earnings and depreciation al lowances permitted corporations to meet a growing proportion of capital financing needs internally. Throughout most of 1962, uncertainties in stock prices prevailed, and corporate sales of common stock were inhibited. The marketing of corporate bonds also declined as some enter prises reached what they considered maximum debt levels with respect to corporate liquidity, interest expense coverage, and an optimum debt-equity structure. Refundings in advance of maturity were infrequent since coupons on outstanding corporate bonds were generally favorable in comparison with prevailing market rates. Interest rate movements during 1962 re sponded to market demand and supply devel opments and to official action aimed at limiting international flows of funds, which are induced by interest rate differentials between U. S. and foreign centers. Relatively moderate demands on the capital markets, reflecting the pace of economic recovery, combined with substantial increases in the supply of funds to reverse the upward movement in long-term rates that de veloped early in the year. As a consequence, long-term interest rates in the Government, corporate, and municipal markets all closed the year near their 1962 lows. After being rela tively stable in the first half of the year, short term rates moved noticeably higher, partially reflecting a significant increase in the supply of Treasury bills. These additions were partly in response to official concern over short-term interest rate differentials between the United States and financial centers abroad. Upward pressures on domestic short-term interest rates, combined with relatively stable long-term in terest rates, led to narrowing yield differentials between maturities during 1962. Federal Reserve operations in the money and credit markets during 1962 were conducted with a view to furthering domestic economic growth business review/January 1963 9 and, at the same time, moderating near-term balance-of-payments pressures partially arising from capital movements of a speculative nature. In response to domestic economic develop ments, the System sought to stimulate and then support an expansion of credit by supplying the banking system with reserves through open market operations. Economic and financial conditions prompted the Board of Governors to change three of its regulations. As a result of a change in regula tion Q, member banks were permitted, effective January 1, 1962, to increase interest rates paid on time and savings deposits to a maximum of 4 percent. Legislation enacted during 1962 sus pended for a 3-year period the restrictions of regulation Q pertaining to foreign official time deposits. Effective in July, margin require ments were reduced from 70 percent to 50 per cent. In October, reserve requirements on time and savings deposits were changed from 5 per cent to 4 percent. However, it should also be noted that the discount rate remained at 3 per cent throughout 1962 — unchanged since the third quarter of 1960. Continuing a trend evident for the past few years, economic relations between the United States and the rest of the world gained in im portance during 1962. The necessity of mod erating or eliminating persistent deficits in the Nation’s balance of payments and maintaining the strength of the international position of the dollar is now generally recognized. More im portantly, efforts designed to assist in the ac complishment of these ends assumed a more significant place in economic policy. In an effort to reduce the balance-of-payments deficit, Gov ernment expenditures abroad were limited wherever possible, and the countries of western Europe were encouraged to shoulder a greater proportion of the military and economic aid burden of the free world. Government efforts to expand exports received increased attention, and legislation was adopted which reduces the 10 tax incentives to invest in developed foreign countries. Although foreign central banks have long intervened in foreign exchange markets to pro tect their currencies against speculative disturb ances, the Federal Reserve has refrained from such operations for many years. In 1962, how ever, for the first time since the early 1930’s, the Federal Reserve System undertook opera tions in the foreign exchange markets for its own account. These operations supplemented those of the Treasury and were aimed at maintaining orderly conditions in the foreign exchange markets, contributing to the mainte nance of confidence in free-world currencies, and facilitating an orderly flow of international trade and payments. The cooperative arrangements among west ern European central banks which were of such importance following the German and Dutch revaluations were strengthened in 1962. Ar rangements were made among monetary authori ties of leading industrial countries to prevent conditions in the London gold market from be coming disorderly. The Nation’s balance of payments showed a modest improvement in 1962. Responding to the increase in domestic income levels attending economic recovery, imports expanded approxi mately 11 percent over 1961, more than offset ting the favorable effects of a high level of exports. The net result was a surplus on trade that was almost $1.0 billion below that recorded for 1961. A reduction in the recorded net out flow of short-term private capital, however, was a significant plus factor in the balance of pay ments during 1962. The improvement in this sector resulted principally from a reduction in short-term loans. The deterioration and subsequent recovery of the Canadian dollar had substantial repercus sions on the international payments position of the United States. The effects of the Canadian experience were observable in virtually every type of transaction and significantly influenced the quarter-by-quarter movements in the U. S. balance of payments. Certain special transac tions, notably prepayments of loans, had a par ticularly favorable effect on the balance of payments during 1962. The overall deficit last year approximated $2.0 billion, compared with $2.5 billion in the previous year. About 40 per cent of the deficit was settled in gold, compared with 30 percent in 1961; and the remainder, through a buildup in foreign short-term claims on the United States. district developments A favorable economic climate prevailed in the Southwest during 1962. Some measures of southwestern business performance expanded markedly last year, and even those indicators that moved up slightly were at record or near record levels. Similar to the Nation, the south western states (Arizona, Louisiana, New Mex ico, Oklahoma, and Texas) showed greater economic strength in the first half of 1962, especially in industrial output, employment, and earnings. A broadly based expansion was experienced in southwestern industrial output last year, as most types of manufacturing firms boosted pro duction from the 1961 levels. The rate of gain in industrial production, however, was only about one-half as large as in the Nation, princi pally because mining production (which acINDUSTRIAL PRODUCTION TEXAS PERCENT (Seaionolljr adjuit«0 indues, 1957-59*100) counts for about one-half of total industrial activity in the Southwest) edged up about 1 percent. The national advance was only slightly greater, but mining output accounts for less than 10 percent of the Nation’s output. The Texas industrial production index, which basically represents District production trends, rose about 4 percent during 1962, with gains centered principally in the manufacturing area. Output increases of about 6 percent were recorded for both durable and nondurable goods — gains that compare favorably with those in the Na tion. Thus, despite the expansion of factory output, the rate of gain in total production was limited in the Southwest by the slight advance in the heavily weighted mining segment. Crude oil processing in both the District and the Nation rose moderately during 1962 in response to an expanded demand for refined petroleum products. Crude oil output in the Nation rose about 2 percent, and imports of both crude oil and refined products advanced appreciably. However, District crude oil pro duction — which accounts for about one-third of the national total — failed to share in last year’s demand increase. Output, at 2,965,000 barrels daily, was little changed in the region in 1962; while allowable schedules of Texas producers were restricted to a new low of 97 days, or 4 days less than in 1961. The District drilling picture, nevertheless, was brightened by increases in the number of wells completed and total footage drilled. In part, this improvement came as a consequence of industry efforts to develop offshore properties. The trend toward the use of less, but more effective, equipment was extended last year since more and deeper wells were completed with fewer rigs. Agriculture’s contribution to the District’s economy in 1962 was fairly well sustained as compared with 1961. Agricultural production in the five southwestern states failed to attain the record level achieved in the previous year, as a slight gain in the output of livestock and live business review/january 1963 11 stock products was more than offset by a small crop outturn. However, average prices received by southwestern farmers and ranchers last year were slightly above those in 1961, and Govern ment payments were somewhat higher as a re sult of increased participation of farmers in acreage diversion programs. As a consequence, total cash income of southwestern farmers and ranchers in 1962 will compare favorably with the all-time high of $4.4 billion reached in the previous year. Construction was an especially strong ele ment in the southwestern advance during 1962. Strength in all three major construction cate gories (residential building, nonresidential building, and public works and utilities) had pushed the value of total contracts to a new high during 1961, and the 1962 level exceeded this record by about 8 percent, reaching about $4.3 billion. Both residential building and nonresi dential construction were stimulated by rela tively low interest rates and the availability of mortgage funds, but such other factors as in come and population also contributed to the expansion. The largest increase among the major con struction categories in 1962 occurred in resi dential building. Contracts for such construc tion were valued at over one-tenth higher than 2 4 6 8 PERCENT INCREASE, 19626 OVER 1961 • •Partiolly animated SOURCES: F.W Dodge Corporation 12 10 As in the Nation, major industries in the Southwest responded to output advances by ex panding outlays for plant and equipment. In addition, plant and commercial building in creases, which were about 8 percent greater last year, reflected the overall growth of the south western economy; and outlays for equipment partly represented efforts to acquire cost savings through automation and modernization. Government-supported highway program s and continued growth of public utilities in the area also boosted public works and utilities con struction. The beginning of new subdivisions in major cities not only generated a demand for shopping centers but created a need for high way and utilities construction. The value of contracts for this type of activity last year was an estimated 5 percent above the previous year. Employment trends in the Southwest in 1962 basically mirrored the overall movement of eco nomic activity. Total employment in the five states increased slightly to a new high of about 4.5 million, and unemployment was reduced. The number of jobless workers in Texas av eraged 4.8 percent of the State’s labor force — below the 5.6-percent rate recorded for 1961, less than the national level, and the lowest an nual rate since 1959. Only one major labor market had a substantial labor surplus at the end of 1962, but a few other smaller markets faced “long-term unemployment” problems. VALUE OF CONSTRUCTION CONTRACTS 0 in the previous year. Inventories of new homes were not overly excessive since most builders were able to move houses shortly after their completion. While foreclosure rates were held at comparatively low levels, foreclosures were high in a few areas. Erection of multi-unit dwell ings, including luxury apartments, continued to show strength; and the vacancy rate during 1962 was, for the most part, little changed from the preceding year. 12 Total nonagricultural employment in the southwestern states expanded slightly in 1962, averaging about 2 percent higher than in 1961; however, in line with long-term trends, the num ber of workers in agriculture receded to a some what lower total. Government employment — principally at the state and local levels — ex panded more than any other major nonagricultural category, although finance and service employment rose appreciably. Employment in mining, construction, and transportation and public utilities, however, de clined during the year, with mining employment receding to the lowest level in 8 years in the five states. The higher outlays for construction were not directly reflected in an increase in the number of workers engaged in the building trades. Construction employment was reduced to the lowest total since 1957. The 1962 decline in construction employment is part of a longerterm trend that has been under way for several years. Laborsaving techniques, coupled with a greater use of fabricated components, have played an important role in the decline. In addi tion, the construction of more expensive build ings, with an accent on luxury appointments, has boosted total construction outlays without pro viding a comparable stimulus to employment. The number of southwestern manufacturing employees advanced slightly last year, with the gain being less than in the Nation. The increase in southwestern manufacturing employment, an expansion in the average workweek of manu facturing employees, and a 3-percent advance in hourly earnings contributed to a moderate rise in income received by southwestemers. Personal income in the District states rose about in line with that in the Nation — largely be cause of gains in wages and salaries. Neverthe less, most of the other major income compon ents increased. Commensurate with the rise in individual income and an expansion in consumer credit, consumer buying in the Eleventh District in creased significantly during 1962, with the gain centered principally in durable goods purchases. Total retail sales of durables may have been around one-fifth larger than in 1961, while the steadily growing sales of nondurables likely rose somewhat less than 5 percent. Similar to the national picture, automobile buying contributed appreciably to 1962 gains. New automobile registrations in Dallas, Fort Worth, Houston, and San Antonio were about one-third greater than in 1961 and exceeded the record established in 1955. Other durable goods which showed sales strength included furniture, household appliances, and lumber and building materials. This pattern of sales was consistent with the higher level of construction in the Southwest. Among retail outlets for nondurables, gaso line service stations and general merchandise group stores showed the largest sales gains. Department store sales in the District during 1962 registered the largest annual advance in 3 years, with most of the increase occurring during the third quarter. The rise in the number of service employees last year indicates that consumer spending for these activities ex panded. In addition, the growth of tourism in certain parts of the Southwest provided added stimulus to the 1962 expansion. Banking in the District during 1962 generally followed a course similar to that in the Nation. Loan demand expanded, reflecting the improve ment in District business activity, and a large increase in time and savings deposits augmented the supply of loanable funds. Commercial banks lengthened average maturities of their invest ment portfolios last year, as considerable pur chases of long-term obligations contributed to a moderate rise in total security holdings. Real estate, consumer-type, and commercial and industrial loans paced an 8-percent increase in total loans outstanding at the District mem ber banks during 1962. Country banks ac counted for approximately 75 percent of the advance in total District member bank loans, business review I January 1963 13 MEMBER BANK DEPOSITS, LOANS, AND INVESTMENTS ELEVENTH FEDERAL RESERVE DISTRICT b il l io n s o f do lla r s although these institutions account for less than one-half of total loans outstanding. Loans for real estate purposes at all the mem ber banks advanced significantly at a stable rate; and consumer-type borrowings moved moderately upward, despite reductions during the summer months. The rates of increase in District real estate and consumer-type loans, however, were smaller than in the Nation. Dur ing the first three quarters of 1962, commercial and industrial loans were little changed from the end of 1961. However, such loans showed marked increases in the final 3 months of 1962 and at the year-end were about 6 percent above a year earlier. Loans for purchasing or carrying securities and loans to nonbank financial insti tutions rose in 1962, primarily during the sec ond half of the year. Investments at District member banks rose approximately 6 percent during 1962, with an advance of about 17 percent occurring in 14 municipal bond portfolios. Reserve city banks increased their holdings of municipal obliga tions significantly and added moderately to their Government security portfolios. Country banks, on the other hand, augmented their municipal portfolios somewhat but made little change in their Government security holdings. Both reserve city and country banks lengthened the average maturities of their Government and municipal portfolios in an effort to increase income and cover higher operating and interest costs. Total deposits increased approximately 6 percent at member banks in the District during 1962; time and savings deposits advanced about one-fourth, but gross demand deposits were virtually unchanged. About 56 percent of the gain in savings-type accounts occurred at coun try banks. Most banks in District financial centers raised their rates on time and savings deposits to the maximum permissible limits, and the movement of funds from demand to time and savings accounts was more noticeable at these institutions than at country banks. Reserve positions of commercial banks in the District remained comfortable during 1962, with the major portion of excess reserves usually held by country banks. Borrowing from the Federal Reserve bank was nominal, as reserve pressures on member banks were modest. Banks in major financial centers continued to engage actively in money market transactions, with District banks on balance being net purchasers of Federal funds. D istrict bank participation in Treasury financing operations was relatively small last year, except when the “tax and loan” feature was present in offerings. Shorter-term issues usually generated the greatest interest. The lengthening of Government security portfolios by banks was accomplished both through sub scriptions to new securities and through second ary market acquisitions. The First National Bank of Stinnett, Stinnett, Texas, a newly organized institution located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, opened for business December 1, 1962, as a member of the Federal Reserve System. The new member bank has capital of $100,000, surplus of $50,000, and undivided profits of $50,000. The officers are: John C. Bergner, Chairman of the Board; Bill King, President; B. C. Drinkard, Vice President; and John A. Harris, Cashier. n ew m em ber banks The Stonewall National Bank of Corpus Christi, Corpus Christi, Texas, a newly organized institution located in the territory served by the San Antonio Branch of the Federal Reserve Bank of Dallas, opened for business December 15, 1962, as a member of the Federal Reserve System. The new member bank has capital of $200,000, surplus of $100,000, and undivided profits of $50,000. The officers are: Robert H. Flato, Chairman of the Board and President, and J. D. Nelson, Executive Vice President and Cashier. The American National Bank of Killeen, Killeen, Texas, a newly organized institution located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, opened for business January 2, 1963, as a member of the Federal Reserve System. The new member bank has capital of $200,000, surplus of $200,000, and undivided profits of $100,000. The officers are: C. W. Duncan, Chairman of the Board; W. E. Curlee, President; K. R. Cook, Vice President and Cashier; and Colonel A. H. Hopkins, Vice President. new par banks The Security State Bank, Farwell, Texas, an insured nonmember bank located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, was added to the Par List on January 1, 1963. The officers are: G. D. Anderson, President; R. W. Anderson, Vice President; L. S. Pool, Cashier; Mrs. Nina Glasscock, Assistant Cashier; Joe W. Jones, Assistant Cashier; and Irene Dyer, Assistant Cashier. The University State Bank, Denton, Texas, an insured nonmember bank located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, was added to the Par List on its opening date, January 9, 1963. The officers are: Thos. E. Noel, Chairman of the Board; Byron R. Smith, President; and James H. Little, Vice President and Cashier. business review/January 1963 15
@FedFRASER