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F E D B R / fR E S E R V E B A N K /O F RICHMOND
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DISTRICT
April 1955
DISTRICT CHANGES IN PROSPECTIVE PLANTINGS
Peanuts Tobacco
Cotton
Wheat
Oats
Soybeans Barley Sorghums
* Per cent change from 1954.
* * Less than 0.5% increose
77' arm income in Fifth District states declined
i
again in 1954 and production of feed crops
zvas curtailed by drought. These facts together
with acreage allotments on the 1955 crops of to
bacco, cotton, peanuts, and wheat provide the back
ground against which farmers are mapping this
year’s operations. Their plans are discussed in
the article beginning on page 3.
Also In This Issue -
-
-
Fifth District Trend C h arts____________ Page 2
Retail Trade and the Business Outlook____Page 5
Secondary Bank Reserves—
A Challenge to Management _________ Page
7
Business Conditions and P rospects_____ Page
9
Fifth District Statistical Data __________ Page 11
Federal Reserve Bank of Richmond
F ifth
D istr ic t
T r en d s
CONSTRUCTION CONTRACT AWARDS
400
CONSTRUCTION CONTRACT AWARDS
400
r
ONE AND TVJ0 FAMI LY HOU3ES
300
J
200
100
J(\
ir Y
A
/y
w
>
A
\ A
- A
V
J
300
200
100
(Sea sonally Adju sled)
(19 *7-1949-1 DO)
1947
1948
1949
1950
1951
1952
1953
1954
0
1955
There was a drop of 25% in seasonally adjusted contract awards
for one- and two-family houses between January and February but
the February level was still 92% higher than a year ago and 4 times
higher than in the years 1947-49. In the first two months of 1955,
awards for this type of structure were up 125% from a year ago.
Contract awards for commercial construction during February
dropped 13% from January on a seasonally adjusted basis but was
still 52% higher than in February last year. In the first two months,
the gain over last year was 39% . Commercial projects started in
this District are 2.2 times higher in February than in the years
1947-49.
BITUMINOUS COAL PRODUCTION
DEPARTMENT STORE SALES
150
1
\
125
jM
100
w
V
W
^v|
>
✓
75
(Seasonally Adjusted)
(1947-1949*100)
0
'
Average daily production of bituminous coal in February was at
the same level as in January and 19% higher than in February 1954.
Last year, February’s output was moderately below that of Janu
ary. In the first two months of this year, bituminous coal produc
tion was 17% larger than a year ago.
1948
1949
125
125
100
%V vvJ\Wi
1952
1953
1954
J
V ^
\ l
V
100
80
1/
j
1947
i 2f
60
(19 47-1949=1 00)
0
1955
January sales of furniture stores gave evidence that recovery ap
peared to be under way but February sales washed out most of the
January gain showing an adjusted drop of 4 % during the month
but a rise of 6% over a year ago.
vv
(Sec sonally Adjusted)
0
1951
“Y
120
60
(I9<*7-1949-1 30)
1950
1955
i
- tV
Ai
80
75
1949
1954
100
(Sea sonally Adjusted)
1948
1953
140
100
/I
75
1947
1952
140
120
a
1951
COTTON CONSUMPTION
150
A
v\Av k r
vy \1r\ /
1950
Department store sales in this District established an all-time
high record in December 1954 at a level 33% higher than in the
base years 1947-49. January sales dropped 7 % from those in Decem
ber and February sales dropped 4 % from those in January. Feb
ruary sales were 3 % higher than in February 1954 and the combined
January-February total was 7 % higher than a year earlier.
RETAIL FURNITURE STORES NET SALES
150
Alf
1..............
i
1947
1948
1949
1950
1951
1952
1953
1954
1955
Cotton consumed in Fifth District mills rose 2 % in February from
January to recover one-third of the loss experienced between Decem
ber and January. February consumption was 6% higher than in Feb
ruary last year and the first two months of the year shows a gain
of 5 % .
/f a n & u j L
April 1955
Prospective Changes In Crop Acreages
77* i f t h D i s t r i c t farmers are planning some sizable
Jshifts in their 1955 plantings of various crops. This
fact is revealed in the United States Crop Reporting
Board’s annual survey of farmers’ planting intentions
and other available data. Actual acreage, of course, may
vary substantially from the announced levels if farmers
alter their plans, if adverse weather occurs at planting
time, or if changes are made in acreage allotments of
certain crops.
For the most part indicated acreage shifts tend to off
set one another, although there is a slightly smaller to
tal acreage in the specified crops. Usable data are
available for 12 of the principal crops grown in the Dis
trict. In the aggregate, the acreage devoted to these 12
crops will decline 2 % — to 16.4 million acres. In V ir
ginia the expected decrease is 1% compared with 2%
in Maryland and South Carolina, and 3% in W est V ir
ginia and North Carolina.
W ith tobacco, cotton, peanuts, and wheat each grown
under acreage allotments, the changes indicated for these
crops tend to be governed largely by these external con
trols. The indicated changes for other crops are a by
product of the shifts forced in allotment crops, the cur
rent and prospective pattern of farm prices, and perhaps
still more important, the tight feed supply situation in
areas which were hurt by drought in 1954 and earlier
years.
Feed Production May Increase
District farmers are planning to cut corn acreage in
1955 and to increase the acreages of oats, barley, grain
sorghums, and hay. A clearer picture of the effect of
shifts in crop acreages upon feed production can, how
ever, be seen by reviewing the situation in each state
insofar as available data permit. Details for each state
are shown in the accompanying table.
Presumably the greatest need for increased feed pro
duction over 1954 levels exists in South Carolina where
last Summer's drought was particularly severe. Actual
ly, farmers in the Palmetto State are planning to reduce
corn acreage 83,000 acres or 7% and to increase oats by
some 56,000 acres, barley by 3,000 acres, grain sor
ghums by 8,000 acres, and hay by 61,000 acres. Mean
while, wheat is reduced by 27,000 acres. Such a com
bination is apparently calculated to produce more feed
early in the year and provide a better hedge against
drought should it cut corn yields again in 1955.
Virginia is the only other District state to show a
sizable net increase in the acreage of oats and barley,
but the increase is still smaller than the reduction in
either wheat or corn acreage. There are some indica
tions that W inter killing of wheat in some sections of
the District may cause some farmers to plow up severely
damaged fields and plant Spring oats. The extent to
which this may influence farmers to alter their 1955
cropping plans remains to be seen.
Smaller Tobacco and Cotton Acreages
Farmers in this five-state area plan to plant about
4 % less tobacco this year than in 1954. Flue-cured
acreage will be down 5 % , Virginia fire-cured 8 % , Bur
ley 5% , and Maryland about 2 % , but Virginia Suncured will be up 5% . Because of the current Burley
supply situation, legislation is now before Congress
which, if enacted, would decrease the 1955 Burley allot
ments (if approved by producers in a special refer
endum) by a moderate amount.
Cotton is not covered by the planting intentions re
port. However, acreage allotments are in effect, and,
based on past history, it is reasonably assured that prac
tically all District farmers will plant within their allotted
acreage. In fact, data for District states reveal that
underplanting in 1954 amounted to 6% in the Carolinas
and 7% for the nation. Largely because of adverse
weather, underplanting in Virginia totaled 17%.
If, for convenience, it is assumed that the planted
acreage of cotton— actually the acreage in cultivation
on July 1— will coincide with present allotments, the
reduction for the District will total 11% — largest cut
back for any major crop and the smallest cotton acreage
in the District for many decades. In fact, the acreage
in both North and South Carolina will be the lowest in
more than 80 years— since the early 1870’s.
Other Crops
The acreage of peanuts in Virginia and North Caro
lina is expected to remain unchanged in 1955. South
Carolina farmers, however, plan to increase the land
devoted to peanuts by 1,000 acres. Consequently, the
total peanut acreage in the District will be a fraction of
1% larger than in 1954.
Soybean acreage will be 14,000 acres or 1% smaller
this year than last. In Maryland and North Carolina
the same acreage is contemplated, but other District
states show modest acreages declines.
Indications are that the acreages of Irish and sweet
potatoes grown in the District will be decreased 1% and
2 % , respectively. N o change in either crop is indi
cated for Virginia and North Carolina, but the other
states will cut acreages slightly.
Significance
W ide dissemination of this information on farmers’
planting intentions gives them the maximum opportunity
to alter their plans if conditions appear to justify a
change. In this way the Spring planting intentions re
port tends to be one of the important segments in the
agricultural outlook work carried on throughout the
country. Another important purpose of this and other
Federal Reserve Bank of Richmond
reviews of the contemplated shifts in crop acreages is
to throw some light on the probable level of farmers’
production expenses and their gross and net farm in
comes.
W ith smaller acreages of tobacco and cotton in pros
pect, production expenses should be smaller in 1955
than in 1954. Gross income from these crops is likely
to shrink even more than production expenses, however,
and result in somewhat smaller net incomes. From the
standpoint of feed crops, it appears that a larger har
vested feed supply will depend on more favorable weath
er than in 1954 since, except in South Carolina, acreage
shifts do not suggest that the aggregate production of
feed will be much, if any, larger.
PROSPECTIVE PLANTINGS OF SPECIFIED CROPS IN 1955
Fifth District
Crop
T obacco*
Flue-cured __________________ _________
Va. Fire-cured _____________ _________
_________
Maryland ___________________ _________
Va. Sun-cured -------------- ------- _________
Total T o b a c c o _______________ _________
C otton f -----------------------------------__ ____
Corn, A l l ______________________
Oats** _________________________ _________
Barley** ______________________ _________
Hay, All* _____________________ _________
Peanuts*** ------------------------------- _________
Soybeans*** _________________ _________
Sorghums _____________________ - - _____
Irish Potatoes** ---------------------Sweet P o ta to e s -------- ------------- . ______
W heat** ______________________
Total (12 Crops) ------------- _________
Maryland
Indicated
1955
1955
as % of
1954
Indicated
1955
1955
as % of
1954
Indicated
1955
1955
as % of
1954
1000 Acres
Per Cent
1000 Acres
Per Cent
1000 Acres
Per Cent
873.0
9.3
27.1
49.0
4.4
962.8
1.308
4,706
2,092
318
4,290
302
993
175
99.7
90.0
1.015
16,351.5
95
92
95
98
105
96
89
95
103
105
102
100
99
114
99
98
92
98
_
T obacco*
Flue-cured _________________
Burley ______________________
Total T o b a c c o ______________
C otton f _______________________
Corn, A l l ______________________
Oats** ________________________
Barley** ______________________
Hay, All* _____________________
Peanuts*** ____________________
Soybeans*** _________________
Sorghums -------------------------------Irish Potatoes** ---------------------Sweet Potatoes ----------------------W heat** ______________________
Total (12 Crops) ________
Indicated
1955
1000 Acres
Per Cent
3.1
3.1
182
80
15
836
90
93
94
100
_________
7
78
13
93
_.
.
_________
56
1,192.1
f
1955 cotton data are allotted acreages.
*
Acreage harvested.
**
Includes acreage planted in preceding Fall.
49.0
98
466
76
84
466
101
100
96
99
132
100
5.6
5.0
185
1,468.6
95
91
88
98
98
97
99.0
9.3
13.2
96
92
98
4.4
125.9
18
874
260
125
1,388
108
242
16
31.3
20
269
3,477.2
105
96
100
95
104
112
103
100
97
114
100
100
90
99
.
South Carolina
Indicated
1955
1955
as % of
1954
Indicated
1955
1955
as % of
1954
1000 Acres
Per Cent
1000 Acres
Per Cent
121.0
96
121.0
774
1,099
991
26
470
14
171
36
10.8
22
141
3,875.8
96
89
93
106
113
115
108
97
129
98
96
84
98
653.0
10.8
663.8
516
2,085
685
68
1,130
180
441
123
39
43
364
6,337.8
97
97
_ ______
_________
. ... ....
_________
98
North Carolina
1955
as % of
1954
_________
_________
___
49.0
_
W est Virginia
Crop
Virginia
95
91
95
88
96
100
105
100
100
100
110
100
100
100
97
Comparison is made with July 1, 1954 acreage in cultivation.
* * * Grown alone for all purposes.
Sources: U SD A , A M S : C rop P rod u ction , December 1954 and March 1955; T h e C otto n S itu ation , December 1954.
{
4
y
April 1955
/ fo n fflfy /fa n c a *
Retail Trade and the Business Outlook
moved downward until January 1954 to reach a low
point in the late recession. From the low point of
January 1954 sales recovered to Summer and leveled
off through the Fall. The current revival began in
November, when adjusted sales in that month were only
1% below the February 1953 high, carried through
December, and brought sales to a new high 11% above
the January 1954 low and 4 % above the 1953 peak.
A
l t h o u g h retail trade in January and February receded moderately from the December peak, the
amount of back-away was of little consequence. This
all-time high level of retail trade has been a major con
tributing factor to the amount of the business recovery
that has occurred since the Summer of ’ 54.
Most economic analysts would probably project the
year 1955 somewhat as follow s: expenditures for goods
and services by Federal, state and local governments will
likely show a moderate increase, with state and local
government expenditures about offsetting some reduc
tion in Federal Government expenditures. Planned ex
penditures by business concerns (revised) for plant and
equipment shows some increase and inventory liquida
tion will no longer act as a drag on the economy but
may even add to the total demand for goods. Expendi
tures on construction other than manufacturing plant
appear to be a strong sector of the economy, possibly
adding $2-3 billion to the amount spent on such facili
ties in 1954.
The December Boom
A large part of the rise in sales of retail stores in
December over a year ago was due to the early introduc
tion of new model automobiles. Many other types of
stores, however, showed sizable gains over December
1953— food was up 6.6% , apparel 5.1% , furniture 3.8% ,
lumber, building materials and hardware 7.6% , and
filling stations 4.4% . Although the November-December rise was considerably accentuated by automobile
sales, there was, nevertheless, a considerable recovery
in many other lines of trade.
The net arithmetic effect of the factors mentioned
would indicate mild improvements in 1955 over 1954,
although this gives little or no consideration to con
sumers’ outlay on goods and services. These accounted
for two-thirds of the total demand for goods and services
in the fourth quarter of 1954. Some analysts are
exuberant over the business outlook and anticipate a
rather sharp increase in consumer expenditures in 1955
over 1954. Those not so optimistic on the outlook as a
whole are anticipating a much smaller gain in this sector
of the economy.
On a seasonally adjusted basis, the rise from Novem
ber to December amounted to 7.5% in durable goods
stores and 4.2% in nondurable goods stores, with a
total rise during the month of 5.3% . The NovemberDecember rise in sales of nondurable goods stores was
rather abrupt for they had maintained throughout much
of the year only a slightly rising trend. Strength was
manifest in food (up 5 % ) , general merchandise
(up 6 % ) , apparel (up 1 1 % ) ; in durable goods the
sales rise came mainly in automotive establishments.
In view of the fact that the economy has already re
corded marked recovery in the fourth quarter of 1954,
the purpose of this article is to examine some of the
early 1955 elements of the trade portion of consumer
purchases to evaluate the recovery under way and judge
the possibility of its being sustained or, alternatively,
backing away from current high levels.
January Recedes
Sales of retail stores compiled by the U. S. Depart
ment of Commerce are not strictly a measure of retail
trade but also include some business sales. In the in
come and product accounts, sales to business concerns
are segregated but it is not possible to segregate these
on the basis of retail sales reports presented. Therefore,
the indications which follow will be clouded to the extent
that the sales recovery represented a disproportionate
amount of business sales in the early part of 1955 com
pared with a year earlier.
January figures released by the Department of Com
merce (seasonally adjusted) showed all store sales down
1.7% from December with durable goods stores sales
down 3.3% and nondurables down 0.8% . Types of
stores running contrary to these trends were eating and
drinking establishments, up 2 .1 % ; furniture and ap
pliance stores, up 5 .1 % ; filling stations up 5.0% and
drugstores, up 2.9% .
In Perspective
A substantial part of the December to January decline
in the seasonally adjusted figures was contributed by
the automobile dealers. In past years, when automobiles
were introduced as early as they were last year, it was
customary for both January and February new pass
enger car registrations to fall from December levels, with
a subsequent rise from February through May or June.
The 40% decline from December to January (21 states)
is larger than in any of the earlier years, which showed
decreases ranging from 9 % to 32% .
Sales of all retail stores in the United States estab
lished a pre-recession high in February 1953, held close
to that level through mid-Summer of that year and then
In the past, when early model introduction occurred,
February also fell below January, but this year indica
tions from preliminary figures are that February sales
{5 y
Federal Reserve Bank of Richmond
of automobiles are about 5% higher than in January
after seasonal correction. This certainly indicates a
very strong demand for automobiles at this season of
the year. Whether the level is sustained or a still
higher level reached is problematical but at least the
automobile industry is doing its part in making the busi
ness recovery one of exuberance rather than moderation.
the United States while February sales declined 5.1%
from January. Levels in early March were showing
considerable strength but year-ago figures were adverse
ly affected by weather conditions. In the Fifth Federal
Reserve District, department store sales, seasonally ad
justed, reached their high point in December; January
was down 7% from December and February down an
additional 7% from January.
February Holds
In the Fifth District, new passenger automobile regis
trations for four states and the District of Columbia,
while showing a drop of 38% in January from Decem
ber, were 22% larger than in January 1954. In 21
states of the United States reporting thus far, January
sales were down 40% from December but 22% higher
than a year ago. Other durable goods sales in the de
partment stores of the Fifth District showed seasonally
adjusted major household appliance sales in January
up 34% from December and up 21% from January
1954, although they were down 58% from the all-time
peak in July 1950. January sales of domestic floor cov
erings in District stores, seasonally adjusted, were down
4% from December and up 4% from a year ago. For
the historical record, sales of these products, seasonally
adjusted, were 24% under November 1950’s all-time
peak. Adjusted sales of furniture and bedding in Dis
trict department stores in January were 4 % higher than
in December and 3% higher than a year ago. January
sales of these products were within 9 % of the all-time
peak established in March 1951. Sales of furniture
stores in the Fifth District in January, seasonally ad
justed, were 4 % higher than in December, 12% higher
than a year ago, and 12% under the all-time high rec
ord of June 1952. It is apparent, therefore, that other
lines of durable goods sales as far as the Fifth District
is concerned have continued to show strength in Janu
ary but not the exuberance that was witnessed in new
passenger automobile sales.
Preliminary figures of all retail stores in February
show declines from January in dollar sales in all cate
gories save automotive establishments and lumber, build
ing and hardware concerns. A ll store sales were off
3.3% . If the figures are adjusted by the same seasonal
index used last year, February adjusted sales of all
stores would come out a shade above January. In this
calculation, food stores and filling stations held even
with January, while automotive stores showed a gain of
5% and offset losses shown by other types of stores.
Indicated Consumer Outlays
If the changes over a year ago in the sales of retail
stores in January and preliminarily indicated for Feb
ruary are applied to consumer outlays for the first quar
ter of 1954, for durable and nondurable goods, the fol
lowing figures are indicated: nondurables, $125.7 bil
lion, up 2.9% from the fourth quarter and up 5.8%
from the first quarter of 1954; durables, $30.7 billion,
up 2.7% from the fourth quarter and up 9.6% from the
first quarter of 1954; total durable and nondurable,
$156.4 billion, up 2.9% from the fourth quarter and up
6.5% from a year ago. In dollar terms, the indicated
first quarter 1955 outlay of consumers on durable and
nondurable goods at $156.4 billion would be $4.4 billion
higher than in the fourth quarter and $9.6 billion higher
than a year ago, all figures being expressed in annual
rates.
Current Trends
Sales of all retail stores in the United States in Janu
ary receded 1.7% from the all-time high figure of D e
cember 1954 on seasonally adjusted figures; February
preliminary sales on the same basis remained at the
January level. Thus far, the back-away from the peak
has been quite modest and unless sales drift lower in
later months, the trade level will continue to offer sub
stantial strength to the rising business trend.
Sales of durable goods stores in January declined 3%
from December (seasonally adjusted basis) and Feb
ruary showed a further drop of 3 % . Sales of nondura
ble goods stores in January declined 1% from Decem
ber on a seasonally adjusted basis, and February has
apparently declined 1% further from January.
In the department store segment of the trade area
January 1955 established a level exceeded only by Janu
ary 1951 and July 1950 (seasonally adjusted basis) for
Seasonal Patterns
Registration of new passenger automobiles in the
Fifth District in December reached the all-time peak
established in August 1950; if past seasonal patterns are
maintained during 1955, the most optimistic forecasts
will be met or surpassed. New automobiles were first
introduced during November in the year 1935 when De
cember registrations stood at 69% of the peak month of
the subsequent year. In 1936, December registrations
of new cars stood at 85% of the subsequent year peak;
in 1937 the depression of that year predominated over
the seasonal and December was higher than any month
of the model year. December 1938 registrations were
93% of the peak in the following year and in 1939 De
cember registrations were 72% of the following year’s
peak. If this seasonal pattern is approached this year,
record sales would be indicated. Such a forecast is not
here intended.
i 6 }>
April 1955
$ & H £ U JL
Secondary Bank Reserves-A Challenge To Management
A
every decision made and every action taken
by the commercial banker is influenced by the
fundamental need of being ready to redeem his bank’s
deposits into cash. A s indicated in “ Cash at W ork ”
in the October 1954 M onthy Review, his first assurance
lies in maintaining an amount of cash, either on hand
or in demand accounts with other banks, adequate to
meet his day-to-day needs. His second assurance rests
in his understanding and application of the principles
relating to the liquidity, safety, and profitability of the
remaining assets— principles which indubitably find ex
pression in his secondary reserve policy.
lm o st
The ever-present need of maintaining convertibility of
his deposits conditions the banker’s attitude toward cash,
making it sharply different from that of the average
business man or individual. The banker looks upon
his pool of cash and bank balances not as something
available for spending but rather as a protective shock
absorber. Demands of depositors for cash can first be
met from this pool of funds, but in the process counter
forces (in the form of bankers’ decisions and actions)
are set in motion to restore the shock absorber to its
original position— ready to meet any successive de
mands. The efficient banker never permits his pool of
readily available funds to remain much below or above
some predetermined level relative to his deposit liabili
ties. Although there is a steady ebb and flow through
the pool over short periods of time, it is fairly constant,
seasonality considered, over the long run. In this area,
then, the commercial banker’s attitude is one of wanting
money to hold rather than the more general attitude of
wanting money to spend.
Because the commercial banker desires to keep his
available cash close to estimated needs, he is contstantly
confronted with two problems which are closely related :
first, how to employ profitably any funds in excess of
estimated requirements and, second, how to maintain a
standby reservoir from which to replenish his cash when
seasonal or other deposit declines reduce the cash level.
The problems are interrelated because in banker think
ing profitability must always be tempered with liquidity
and safety— the ability to convert into cash conveniently,
quickly, and preferably without loss. It is through his
comprehension of and “ solutions” to these problems that
the banker establishes his secondary reserve policy.
Safety has several aspects of basic importance to
bankers. It may refer to susceptibility to wide fluctua
tions in price of marketable securities. Securities with
relatively high interest rates and long maturities are
generally subject to much sharper fluctuations in price
than the shorter term, lower interest-bearing issues.
Used in this sense, safety to the banker becomes an
attribute of liquidity. Because an asset is marketable
at some price does not mean it is considered liquid by
the banker. In his eyes it must be readily marketable
without significant loss before he considers it liquid.
This fairly common concept of liquidity is itself subject
to varying interpretations among bankers or by the same
banker under different economic conditions.
Another thought regarding employment of excess
fun ds: in principle, the use of funds by a banker means
the creation of an amount of deposit liabilities appropri
ate to the amount of funds available— it does not mean
the “ spending” of excess funds. Banks make payments
by means of their own deposit liabilities. True, the
owner of a newly created deposit may immediately con
vert it into cash, or draw a check which will find its
way to some other bank, resulting in a demand from
that bank that the deposit be redeemed. Nevertheless,
the acquisition of an earning asset— a customer’s promis
sory note, a corporate bond, a Treasury Bill— is paid
for through the creation of deposit liabilities. The first
effect of such a transaction represents the employment
of excess cash, because deposits have now increased and
accordingly the amount of cash needed to maintain the
cash-deposit relationship is larger. Some of the bank’s
excess funds have become “ employed” as a part of the
pool which the bank desires to maintain. There is no
reason to suppose that demand deposits given in ex
change for earning assets are subject to any different
demands for redemption than those exchanged for cash.
Without regard to source, they are both used as money
by their owners to make business and personal pay
ments. The decision to make a payment locally or in
some other part of the country is determined by busi
ness and individual needs, not by the nature of the crea
tion of the money that is used.
The banker’s problems of liquidity and safety arise
only with the acquisition of assets other than cash.
W hen a bank accepts deposits of cash— when it creates
deposit liabilities in exchange for cash— it can meet any
demands of its depositors without difficulty because it
has a dollar of cash for every dollar of deposits on its
books. It is only when the bank creates deposits in ex
change for an asset other than cash that its total deposits
become greater than its total cash. The problem of
meeting demands for the conversion of deposits into
cash, however, does not become serious until total de
posits have been expanded to an amount several times
the size of the bank’s cash accounts. This is true since
demands for redemption are generally offset by new de
posits of cash or checks which the bank claims against
other banks. The net conversion loss suffered from
time to time is only a very small percentage of the total
deposit liabilities created. It is this net loss figure which
forces the banker to decide, first; what level of cash and
bank balances he needs to maintain relative to his de
posits and, second, what provision he needs to make for
replenishing the cash pool.
In acquiring earning assets, therefore, the banker,
i 1 )>
Federal Reserve Bank of Richmond
in 1929 these types of securities equaled only 2.2% of
assets for Fifth District member banks and 2.5% for
the nation. A t that time, commercial paper, bankers’
acceptances, and brokers’ call loans were relied on more
heavily to fill out the secondary reserve account. In
the W orld W ar II years, the amount of short-term
Government securities held reached as high as 20% of
total assets, primarily because of the absence of other
acceptable loans and investments.
while seeking to acquire those assets which give him
the largest possible return, must at the same time make
provision for meeting any net conversion losses he may
suffer which in turn reduce the amount of his cash and
bank balances relative to his outstanding deposit liabili
ties.
From years of practical experience the prudent bank
er is able to estimate the probable net losses he will
suffer for several months in advance. H e recognizes
the seasonal patterns that the flow of payments through
his deposit accounts tend to establish; he knows that his
balances “ due to” other banks are subject to certain
standard behavior as well as to in-and-out swings of
unpredictable magnitude or timing. He keeps himself
informed as to the payment plans of his largest deposi
tors— those who with a single check can produce a con
siderable drain— and at the same time considers the
support he will receive from his more stable demand
accounts and his savings deposits. Naturally he takes
account of future loan demands and the extent to which
drains will materialize from the creation of deposit lia
bilities to meet these demands; and in addition, he allows
for some margin of error in his own estimates.
In the light of this detailed analysis, the banker ar
rives at the rough amounts of secondary reserve-type
earning assets the institution will require over the period
analyzed. Charactertistic of these assets is their ready
marketability with the potential loss, through market
fluctuations, at a minimum. Today, since they are only
a short step removed from money itself, the assets pur
chased will predominantly take the form of Treasury
Bills or other Government obligations of short maturity.
Commercial paper issued by large corporations with
prime credit records and bankers’ acceptances are also
generally considered eligible for the account.
Although ready convertibility into cash without sig
nificant loss is the primary requisite of secondary re
serve type assets, the manager of the account strives
for the maximum income permitted under these condi
tions. Because of their short-term nature and the un
questionable worthiness of the credit standing of the
issuers, the return on securities of this kind is very small
relative to other loans and investments. T o squeeze the
maximum return possible from the secondary reserve
portfolio, while constantly maintaining it at a level and
of a composition appropriate to the bank’s liquidity
needs, requires a high degree of technical efficiency and
maturity of judgment. The exact timing of sales and
purchases for the account must be related to two con
stantly fluctuating variables: market conditions and the
bank’s liquidity needs. The first of these requires
familiarity with the money markets in which these kinds
of securities are traded, cognizance of price changes, a
broad understanding of overall economic conditions with
particular emphasis on those changes which affect money
market conditions, and a knack for appraising the nearterm future. Determination of the bank’s liquidity
needs, as pointed out above, rests on a continuing knowl
edge of the cash, deposit, and loan position— present and
potential future. In matching the two variables, any
margin of error, needless to say, must be in favor of liq
uidity.
Looking back to mid-year 1954, it is found that
Treasury Bills, Certificates of Indebtedness, and Notes
made up 12% of the total assets of member banks in the
Fifth District and just slightly less than that for all
member banks in the nation. By contrast, ‘way back
The good bank helmsman, in steering a sometimes
difficult course between Scylla and Charybdis, is con
stantly aware that his vessel can ride out easily the
adversities of somewhat lower profitability but may run
into trouble through inadequate liquidity.
{8
y
April 1955
Business Conditions and Prospects
however, was 3% higher than a year ago and the first
two months of the year were up 7 % . The February
adjusted level was 10.5% below the December peak and
back to the same level established in October and N o
vember. Average daily seasonally adjusted sales in
Maryland and Wishington, D. C., were lower than
either January or February 1954. Sales in W est V ir
ginia and North Carolina were lower than in January
but higher than in February last year. Sales in South
Carolina were higher than in either January or Feb
ruary last year.
in the manufacturing industries of three
States of the District in February (based on manhours) rose 1.6% from January, which compares with a
rise of 0.7% in that period last year. The trade level,
however, apparently receded somewhat from the peak
levels of December and January. The back-away seems
unimportant, for early March indications point to a
resumption of the upward movement.
O
p e r a t io n s
The overall volume of new construction placed under
contract rose further in February, after seasonal correc
tion, due entirely to a sharp increase in awards for fac
tory buildings. Cotton consumption recovered about a
third of its December-to-January loss, but on a spindlehour basis February held even with January’s high for
the current recovery. Insured unemployment in the
week of March 5 was down 7.3% from a month earlier
and 23.0% under a year ago, which is about the same
pattern as indicated nationally.
W hile sales of women’s coats, suits, dresses and acces
sories in February were smaller than a year ago, men’s
wear was somewhat higher. Domestic floor coverings
and major household appliances were the bellwethers
while radios, television, ect., took a substantial beating.
The improvement witnessed in January sales of retail
furniture stores was not sustained in February, when a
seasonally adjusted drop of 4 % occurred. February
sales, however, were 6% higher than a year ago and the
two months of the year were up 11% . February ad
justed sales of furniture stores were back near the level
established in December.
Farm prices in each State of the District during Feb
ruary were higher than in January, and in Maryland
and South Carolina they were higher than a year ago.
Bank debits made a further adjusted rise of 1% in
February and stood 11% above a year ago. Business
failures reversed the downward trend in February and
rose 33% , adjusted, from January. They were, how
ever, a third smaller than a year ago. Bituminous coal
output in February held at the January adjusted level
and was 19% higher than a year ago. In late March
output appeared to be holding at better than the seasonal
level.
Time deposits of member banks during February were
at the same level as in January, and 11% higher than a
year ago. Savings bond purchases were down season
ally 17% from January but remained 6% ahead of a
year ago. Share capital in savings and loan associations
of the District, excluding W est Virginia, was 4% higher
in February than a year ago, largely as a result of a
50% increase in North Carolina and 10% in Maryland.
Other States showed substantial declines.
Household appliance store sales in February showed
an unadjusted increase of 6% from January, and 14%
over last year. Much the same trend was shown by
major household appliance departments of department
stores.
Complete January registrations of new passenger
automobiles are available for Fifth District States, and
while they were 36% below December, they jumped
18% over a year ago. This compares with a drop dur
ing the month of 34% for 47 States and a gain over last
year of 26% . New commercial car registrations in the
District during January were down 27% from Decem
ber, and down 12% from January a year ago. Nation
ally, there was a drop during the month of 11%, but a
3% rise from a year ago.
New passenger car registrations for February are
available only for the District of Columbia. These were
down 3% from January but 56% ahead of February
1954. New automobile sales in Richmond, Virginia,
declined 4% from January to February but gained 19%
in February over last year. Used-car sales in Rich
mond were down 7% from January and 2% from a year
ago.
Employment in the manufacturing industries of W est
Virginia, North Carolina and South Carolina was 0.5%
higher in February than in January, and 1.1% higher
than a year ago. Employment in the nonmanufacturing
industries of these States was at the same level in Feb
ruary as in January, but 1.6% under a year ago, due
largely to W est Virginia’s 6.4% decline.
Definite indications of continued recovery or mainte
nance of high-level sales are hardly to be found in the
department store and furniture store figures for this
District, since February figures fell back into the range
that had held for a good part of 1954. Automobiles, on
the other hand, continued to show strength and the same
is true of household appliance stores. W eekly reports
for most of March, however, showed a considerable
Trade
The current trade level and trends are of considerable
interest since it is here that a large share of the sharp
recovery in business activity of recent months has been
noted. In the Fifth District, sales of department stores
in February failed to maintain January adjusted levels
and were off 4 % in this period. The February level,
i 9y
Federal Reserve Bank of Richmond
measure of recovery in the department store field even
after correction for an earlier Easter.
Construction
Construction has been one of the pillars of strength in
both the District and the United States economies.
There was some back-up in most types of construction
during February, but an adjusted gain of 69% in con
tract awards for factory buildings was more than suffi
cient to offset losses in all other types of construction
and raise the adjusted total contract awards for the
month 4 % over January. Total contract awards in
February were 77% higher than a year ago and the two
months’ gain was 78% .
Adjusted contract awards for commercial buildings
in February were down 13% from January but 52%
ahead of a year ago. Factory awards were up 69%
during the month and up 108% in the year; one- and
two-family houses were down 25% during the month
but up 92% over a year ago. Public works and utili
ties declined 4% during the month but rose 21% during
the year.
Banking
Member banks of the Fifth District lost $71 million
in total deposits between January 26 and February 23,
but on the latter date the deposits were a sharp $441
million over year-ago figures. Time deposits were only
about $300,000 higher in February than January but
had jumped $178 million above the year-ago level. In
terbank deposits were down $31 million during the
month and $24 million above a year ago. Other demand
deposits were lower by $41 million in the month and
$239 million higher than a year ago.
The $71 million decline in deposits was accompanied
by a $68 million decline in loans and investments dur
ing the month of February. In this period, however,
loans rose $31 million, U. S. Government securities
dropped $105 million, and other security holdings rose
$6 million. Relative to a year ago, loans and invest
ments were up $394 million, with loans showing an in
crease of $282 million, U. S. Government holdings up
$38 million, and other security holdings up $74 million.
Borrowings of member banks from the Federal R e
serve and from others totaled $84 million on February
23, a gain of $47 million since January 26 and a gain
of $50 million over February 24 of last year.
4 10
Business loans of the weekly reporting banks con
tinued their upward trend through the fourth week in
March, when they were at an all-time high. Real estate
loans continued to expand at much the same rate ob
served since m id-1954. “ Other” loans (largely con
sumer loans) have been expanding in the early weeks
of 1955 at an accelerated rate.
Manufacturing
Man-hours in all manufacturing industries of W est
Virginia, North Carolina and South Carolina in Feb
ruary were 1.6% higher than in January, and 5.7%
higher than a year ago. The January-February rise of
1.6% compares with last year’s 0.7% . In the durable
goods industries, February gained 3.3% over January
and 3.7% over a year ago. The January-February rise
of 3.3% compares with 1.2% a year ago. In the non
durable goods industries in these States, man-hours in
February were up 1.0% from January and 6.6% ahead
of a year ago. The January-February rise of 1.0% this
year compares with a rise of 0.5% last year.
A brief run-down of manufacturing trends may be of
interest. In Maryland, man-hours reached a low point
in April 1954, recovered about a third of the loss by
August, and have been trending downward since then.
In Virginia, the low point was established in April 1954.
Recovery ensued from that point until a new high level
was established in November. December and January
(latest figures) turned down and approached the low
point of last year. In W est Virginia, the low point was
established during the vacation month of July 1954; a
moderate rise ensued until N ovem ber; a reaction carried
down to January; and February again improved mod
erately. The broad trends show no recovery in W est
Virginia, but they do indicate the decline has ceased.
In North Carolina, man-hours dropped sharply from a
peak in 1953 until May 1954, rose sharply practically
to the 1953 high by October, and have been trending
downward— by February, about one-fourth of the MayOctober rise was lost. In South Carolina, man-hours
established a low point in May 1954 and have shown
general recovery since that time— indeed, February was
within striking distance of the 1953 peak. It should be
remembered that these man-hour figures will understate
changes in production levels to the extent that efficiency
in output per man-hour has taken place. There is evi
dence that considerable increase in productivity has
taken place in the past year.
v
April 1955
F if t h
D is t r ic t S t a t is t ic a l . D a t a
F IF T H D IS T R IC T IN D E X E S
Seasonally Adjusted: 1947-1949 = 100
B U IL D IN G P E R M IT F IG U R E S
Feb.
1955
Feb.
1954
2 Months
1955
2 Months
1954
$ 2,742,135
17,700
145,100
61,850
84,830
$16,543,057
264,050
264,155
320,670
199,865
$11,329,340
31,350
157,150
208,535
252,350
1,600,408
570,135
152,305
348,021
106,412
992,482
163,600
217,260
684,871
657,531
243,500
893,577
135,086
557,350
122,237
542,635
109,993
552,751
116,500
2,484,700
1,964,327
756,354
95,890
682,331
2,000,617
1,874,898
416,558
899,064
283,280
1,806,298
334,900
591,875
2,223,215
1,821,058
515,370
1,553,975
224,256
1,386,966
210,757
704,641
168,806
1,951,447
277,800
2,810,890
3,363,223
1,609,124
199,965
1,037,841
West Virginia
Charleston
Clarksburg ____
Huntington ____
465,002
133,555
291,390
697,170
128,181
328,409
751,917
223,422
522,140
951,879
187,871
487,654
North Carolina
Asheville______
Charlotte Durham _______
Greensboro .
High Point
Raleigh _______
Rocky Mount
Salisbury ______
Wilson ________
W inston-Salem ..
282,823
1,145,938
665,735
812,675
1,063,935
3,301,158
283,092
84,132
288,000
1,188,517
288,984
1,192,349
341,482
683,633
275,790
1,139,060
184,027
355,337
195,150
2,420,583
385,880
2,682,193
4,097,046
1,213,815
1,409,435
4,084,298
619,519
151,378
494,450
1,934,133
491,387
2,835,787
795,616
1,313,550
441,030
2,869,602
495,182
428,502
403,600
2,627,223
170,791
391,151
417,350
379,330
195,112
946,802
554,500
815,476
390,012
952,609
907,550
457,450
317,556
1,468,321
1,534,255
863,551
% Chg.—
Feb.
1955
Jan.
1955
Feb.
1954
New passenger car registra
tion* _________________________ ___
168
Bank debits ____________________
Bituminous coal production* __
86
Construction contracts ________ 262
Business failures— number ____ 177
Cigarette production ..........................—
Cotton spindle hours __________ 117
Department store sales ________ 119
Electric power production ..................
Manufacturing employment* --- ----Furniture store sales __________ 105
Life insurance sales ----------------- 178
127
166
86
251
133
99
117
124
180
105
113
169
109
151
72
148
259
90
109
116r
162
106
102
144r
Latest Mo.
Prev.
Yr.
Mo.
Ago.
— 36
+ 18
+11
+ 19
+ 77
— 32
+ 6
+ 1
0
+ 4
+ 33
+ 2
0
+
+
+
—
+
— 4
2
—
—1
— 7
+ 5
7
3
9
2
3
+24
* Not seasonally adjusted.
Back figures available on request,
r Revised.
W H O L E S A L E TRADE
Stocks on
February 28, 1955
compared with
Feb. 28,
Jan. 31,
1954
1955
+18
+ 1
+ 10
+ 4
+ 8
+ 3
—12
+ 4
+ 3
+ 9
— 2
0
— 1
— 8
— 6
+ 9
NA
+ 1
0
— 7
0
+ 1
Sales in
February 1955
compared with
Jan.
Feb.
1954
1955
+41
+ 5
+16
+ 17
+ 8
+ 9
+10
+ 9
+12
+ 1
— 3
+ 7
— 3
— 3
— 11
— 13
- 5
—13
— 2
+12
+17
+ 1
LINES
Auto supplies ---------------------------------Electrical goods
Hardware -------------- ------------Industrial supplies .------------Drugs and sundries ------- ---Dry goods -------------- ------------Groceries ---------------Paper and its products -----Tobacco products ..._________
Miscellaneous ______------------District T o ta l----- -------------
N A Not Available.
Source: Bureau of the Census, Department of Commerce.
Maryland
Baltimore _____ $ 9,879,812
Cumberland
217,950
Frederick _____
171,955
Hagerstown
63,070
Salisbury _____
84,955
Virginia
Danville _______
Hampton _____
Hopewell ______
Lynchburg
Newport News
Norfolk _______
Petersburg
Portsmouth
Richmond _____
Roanoke _____
Staunton
___
Warwick
___
South Carolina
Charleston ____
Columbia ______
Greenville _____
Spartanburg
Dist. of Columbia
Washington ____
D E P A R T M E N T ST O R E O P E R A T IO N S
(Figures show percentage changes)
Other
Rich. Balt.
Wash. Cities
— 2
+
6
+ 2
+ 10
+
4
+
6
+
8
8
3
+
3
4
0
+
+
+
2
+14
+
5
— 7
+
Stocks, Feb. 28, ’55 vs ’54
Outstanding Orders
Feb. 28, ’55 vs ’54 ________
Open account receivables Feb.
1, collected in Feb. 1955.
Instalment receivables Feb.
1, collected in Feb. 1955
Md.
Sales Feb. ’55 vs Feb.
’54 __________________
—
3
29.5
45.2
37.2
40.2
13.6
10.7
13.6
14.3
15.8
D.C.
Va.
W .V a.
N.C.
S.C.
+ 12
+
1 —2
0
+
3
8,501,163
5,787,971
$61,691,315
$50,224,978
F U R N IT U R E SA L E S *
(Based on Dollar Value)
Percentage change with correspond
ing period a year ago
STATES
Maryland — -----------------—....... ...........
Dist. of Columbia
..................
Virginia __________
West Virginia ------------------------------North Carolina ------ ------------- ------South Carolina -------- --------District ________________ _____ ____
0
— 1
43.2
2,844,296
$24,758,110
Dist.
Totals
— 2
Sales, Feb. ’55 vs Feb. ’54 _
Sales, 2 Mos. ending Feb. 28,
’55, vs 2 Mos. ending Feb.
28, ’5 4 ___ ________________
5,362,055
District Totals _—$33,774,473
9
-i i i
February 1955 2 Mos. 1955
— 6
+ 2
+ 6
+ 17
+ 2
+ 7
+ 11
+ 19
+12
+ 5
+ 6
+ 5
+ 10
+ 3
IN D IV ID U AL CITIES
Baltimore, Md. -------------------------- —
— 6
Washington, D. C. _______________
+ 6
Richmond, Va. ____________________
+ 8
Charleston, W . V a...... ........................
+ 1
+ 10
Greenville, S. C. __________________
* Data from furniture departments of department stores
furniture stores.
y
+ 2
+ 17
+ 9
+ 6
+ 2
as well as
Federal Reserve Bank of Richmond
F ifth
d ist r ic t
b a n k in g
D E B IT S TO D E M A N D D E P O S IT A C C O U N T S*
(000 omitted)
Feb.
Feb.
2 Months
2 Months
1955
1954
1955
1954
Dist. of Columbia
Washington ______ $1,199,564
$ 998,797 $ 2,522,945 $ 2,095,782
Maryland
Baltimore _________ 1,423,627
1,282,374
2,927,148
2,663,291
Cumberland ............
21,540
20,314
44,209
42,244
20,468
20,516
41,773
41,007
Frederick _________
Hagerstown ______
37,853
33,335
77,614
70,364
Total 4 Cities _
1,503,488
1,356,539
3,090,744
2,816,906
North Carolina
Asheville __________
60,937
55,471
131,659
118,316
Charlotte _________
375,996
332,198
782,282
672,401
D urh am _________ _
73,119
76,809
154,402
162,095
Greensboro ________
141,486
110,522
286,758
225,775
46,656
39,175
94,316
81,338
High Point** ____
20,691
19,582
4 6,165
41,891
Kinston ________ :__
Raleigh _______ ____
193,809
160,235
390,453
347,629
46,960
40,718
97,915
86,711
Wilmington ______
Wilson ______ _____
19,941
17,082
42,267
37,203
Winston-Salem ___
160,046
130,439
321,432
282,020
Total 9 Cities ...... 1,092,985
943,056
2,253,333
1,974,041
South Carolina
Charleston ________
74,503
65,657
156,523
138,216
155,999
149,455
323,699
315,617
Columbia__________
Greenville
111,622
100,791
244,586
208,149
Spartanburg ______
60,267
60,511
130,722
127,976
Total 4 Cities ____ 402,391
376,414
855,530
789,958
Virginia
Charlottesville ____
32,807
27,895
68,240
57,772
Danville __________
36,617
30,504
78,541
71,481
Lynchburg
7
48,540
44,359
100,822
92,914
Newport N e w s __
50,567
44,120
100,626
87,934
252,415
239,367
529,658
487,884
Norfolk ___________
Portsmouth ______
33,211
28,016
68,650
59,104
Richmond _________
597,533
531,499
1,245,715
1,098,807
Roanoke___________
116,878
103,739
239,094
216,109
Total 8 C ities___ 1,168,568
1,049,499
2,431,346
2,172,005
West Virginia
39,889
35,734
83,577
80,125
Bluefield __________
C harleston________
149,464
157,160
351,620
356,909
Clarksburg________
29,034
28,420
69,900
67,382
Huntington ______
63,378
62,505
143,530
138,906
Parkersburg______
25,891
27,547
58,102
58,422
Total 5 Cities ___
307,656
311,366
706,729
701,744
District Totals _____ $5,674,652
$5,035,671 $11,860,627 $10,550,436
W E E K L Y R E P O R T IN G M E M B E R BA N K S
(000 omitted)
ITEMS
March 16,
1955
Change in Amount from
Feb. 16,
March 17,
1954
1955
Total Loans ___________________ _ $1,,575,124**
719,939
Bus. & Agric..................................
Real Estate Loans __ ... .
308,186
All Other Loans _____________
569,051
+ 23,474
+ 16,201
2,737
+
4,693
+
Total Security Holdings _______ 1,831,109
86,495
U. S. Treasury Bills _________
U. S. Treasury Certificates __
49,689
374,481
U. S. Treasury Notes _______
— 16,496
— 1,355
— 13,576
6,501
■ 2,234
2,702
+
+ 20,351
1,527
+
—
516
U. S. Treasury Bonds .............. 1,038,535
281,090
Other Bonds, Stocks & Secur.
340,780
Cash Items in Process of Col. ..
171,442*
Due from Banks ________________
75,118
Currency and Coin ........................
541,618
Reserve with F. R. Banks ____
66,553
Other Assets ... __ . . __
. —
Total Assets __________________$4 ,601,744
Total Demand Deposits
.. . .$3,485,812
Deposits of Individuals ______ 2,618,102
104,420
Deposits of U. S. Government
229,306
Deposits of State & Local Gov.
469,375
Deposits of Banks ____________
Certified & Officers’ Checks__
64,609*
Total Time Deposits ____________
Deposits of Individuals ______
Other Time Deposits ..........
750,429
672,545
77,884
Liabilities for Borrowed Money
19,000
42,444
All Other Liabilities _____________
304,059
Capital Accounts _______________
Total Liabilities _____________ $4,601,744
+ 22,839
—
631
+ 50,548
i 12
)*
+ 161,753
+ 67,143
+
+
44,316
54,918
+ 31,965
— 69,551
—164,780
+ 152,140
+
+
+
—
—
—
60,177
53,979
46,409
13,456
1,798
7,065
4,769
+
+222,577
+ 102,602
+ 78,119
— 12,449
+ 30,199
1,634
+
5,099
+
+ 152,672
+ 156,007
— 13,970
+ 18,905
— 7,559
711
-
—
+
+
+
+
—
3,056
1,930
4,986
— 42,450
— 7,107
559
+
+ 50,548
* Net figures, reciprocal balances being eliminated.
** Less losses for bad debts.
* Interbank and U. S. Government accounts excluded.
** Not included in District totals.
S ta tistic s
51,994
48,388
3,606
2,650
+
— 1,595
+ 16,856
+222,577
@FedFRASER