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- FED ik/U tfR E SERVE BANK/? f )r ICHMOND August1952 The Nation's Money Supply and Consumers' Prices Also In This Issue A Ithough the nation's money supply has been . / j L growing rapidly since 1915, the expansion during the last decade has greatly overshadowed all past increases. Interestingly, the movement of consumers' prices over the jour-decade period has closely paralleled changes in the money supply. The article on page 3 attempts to clarify the na ture and composition of our money supply and recent significant changes in it. — Fifth District Trend Charts____________ __Page 2 Farm Production and Income Prospects___________________ Page 5 Recent Developments in Municipal Bond Financing_____________________Page 7 Business Condition and Prospects________Page 9 Statistical Data___________________________Page 12 F e d e ra l Reserve Bank of Richmond F if t h d is t r ic t T r e n d s BUSINESS FAILURES DEPARTMENT STORE SALES Reduced soft goods production over the past 12 months has not found more than a token reflection in business failures. Failures which have been in a general downward trend since 1949 leveled off thus far in 1952. June failui*es were 3 7 % under a year ago. Department store sales in June (adjusted) were up 5 % from May and 11% ahead of June 1951. The June figure (adjusted) was w ith in 2 .4 % of the all-tim e peak established in January 1951. Substantial recovery in sales of m ajor household appliances, radios and television aided materially in the sales rise. ------- <&. * CIGARETTE PRODUCTION DEPARTMENT STORE OUTSTANDING ORDERS Latest figure, May, which is up 6% from April, but 3 % under May, 1951. Five months output down 1 % . The trend in consump tion to king-size varities gives an extra filip to the demand for fluecured and Burley tobacco. H igh level June sales in department stores gave considerable im petus to store purchases in that month with outstanding orders (ad justed) up 4 5 % from May to a level 1 0 % above a year ago. Store inventories (seasonally corrected) rose 7 % from May to June, but were 3 % under a year ago. ACTIVE COTTON SPINDLE HOURS RETAIL FURNITURE STORES NET SALES Improved sales of cotton goods and yarns late in M ay and June brought mill operations during June to the highest level of the year. Spindle hours operated in June were 1 5 % higher than in May and within 8% of the high plateau in late 1950 and early 1951. Furniture store sales aided by the improved demand for house hold appliances (adjusted) rose 4 % from M ay to a level 19% ahead of a year ago. June sales (adjusted) were within 3 % of the alltime peak established in July 1950. Store inventories (adjusted) in June rose 2 % from May but were 5 % under a year ago. i 2 h August1952 Comments on the Rising Money Supply h a t is money? Ask Mr. Average Man and the answer is spontaneous and to the point, “ It is what I use for payment when I buy things.” W hen pressed to be more specific, he may add “ It’s cash— paper money and coins.” Ask an economist what money is and he will probably identify it by its functions including me dium of exchange, measure of value, standard for de ferred payments, and store of value. H e may then name the things that serve these functions, being careful to give proper qualifications to each. W The x\verage Man and the economist should not be parmitted to go their separate ways each content in his own understanding of money, probably the most im portant economic tool a modern society possesses. M on ey is basically important, of course, in its role as a me dium of exchange. It may assume even greater im portance when changes in the amount available do not keep pace with changes in the quantity of goods offered for sale as, for example, when the supply increased by two and a third times during W orld W ar II, a period when the production of many consumer goods had to be sharply curtailed or discontinued altogether. T h e N ation ’s M on ey Supply Since 1939 The nation’s privately held money supply at $184 bil lion in May 1952 was almost three times its 1939 level. This spectacular increase may be broken into two major periods based on the nature of money creation. From 1939 through 1945, new money came primarily from expansion in the public debt. Since 1945, additional money was created as a result of growth in private debt. From December 1945 to May 1952, loans and securi ties other than Governments at all commercial banks in creased from $33 billion to an estimated $72 billion, a twofold increase, while holdings of Government securi ties declined sharply. A s seen in the chart the money supply during the postwar period increased by $34 bil lion, to a level 22% above 1945. Private economic ac tivity over the period has thus been the cause of a sig nificant increase in the money supply. The public may at times decide to hold a larger share of its money in the form of currency and coin and a smaller share in the form of demand or time deposits. The factors influencing the extent to which different types of money are used may be of a seasonal nature, such as the increased use of currency and coin during the Christmas season, or they may represent longer range influences related to the level and nature of eco nomic activity. The increased use of currency and coin during the war years illustrates this latter influence. At the end of 1939 currency and coin in circulation made up only 10% of the total money supply. A t the end of 1945 this proportion had jumped to 18% . This may be ac counted for in part by the greater mobility of the popu lation in war-time as compared to more normal periods and the use of cash to pay military personnel during the period. During the war years demand deposits increased ill importance from 47% to 50% of the total money supply while time deposits declined from 43% to 32%;. By Mav of this year, currency and coin had declined from the high point of 18% in 1945 to 14% of the total. De mand deposits had continued their increase and in May were 52% of the total money supply while time deposits had climbed only slightly to 34% . Money creation through incurring debt is brought about in this m anner: The credit of a business firm is generally restricted in its use to the purchase of goods from a limited number of suppliers who are willing to sell to the firm on time. W hen the firm needs immediate purchasing power outside the limited range of its own credit, it seeks to convert its credit into money. It may do this by borrowing from its bank, that is, asking the bank to give money in exchange for the firm’s credit. The money so received is generally in the form of a de mand deposit, which is simply a credit entered on the books of the bank representing a legal obligation to pay on demand. Thus, the firm’s credit has been exchanged for the bank’s credit which is very widely accepted in ex change and is, therefore, classed as money. Private debt has increased and with it the money supply. Similar principles are invoked when Government borrowing (public debt) is substituted for private borrowing. W e have been speaking of the money supply as though it consists of currency and coin, demand deposits, and time deposits. The nature of these three components and the question as to whether all three should be classed as money need to be explored in some detail. B usiness A ctiv ity and Spendings The spending or the flow of money is closely related to business activity. A s a matter of fact it varies di rectly with changes in the level of business activity. In the United States today almost every business transac tion is expressed in terms of money and completed by the use of money. Thus, the total flow of money in the nation is an important indicator of the level of business activity and changes in the flow may well reflect the trend of coming economic events. A foreknowledge of the effects of changes in the money flow provides the ba sis for monetary and fiscal actions to combat undesirable The financing of the war effort was by far the most important of the factors which caused increases in the money supply since 1939. A s shown in the accompany ing chart, the total money supply at the end of 1945 was two and one-third times its 1939 level. Commercial bank’s holdings of Government securities increased dur ing the period from $16 billion to $91 billion, fivefold. i 3y F e d e ra l Reserve Bank of Richmond inflationary or deflationary developments. cepted without question as meeting liquidity require ments. A t present, they are universally and immediately accepted in exchange for goods and services. T o de termine the supply of currency and coin held by the public, holdings by the Treasury, by the Reserve banks, and by private banks, for the reasons given below, are deducted from the total outstanding. M ore than 85% of all payments in the United States are estimated to be made by checks drawn against de mand deposits in commercial banks. Because of their ready acceptability, demand deposits give immediate pur chasing power to their owners and, therefore, must be in cluded in a definition of the money supply. T o arrive at demand deposits held by the public, all interbank de posits, United States Government deposits, and items in process of collection are deducted from total demand de posits of commercial banks. Interbank deposits are deposits by one bank in an other bank and are, there fore, b a n k e r s ’ d e p o s it s . They are excluded because they fall in the same cate gory as money not yet cre ated. Banks create deposit money when individuals or business firms borrow from them. They also create de posit money when they make payments on their own account with checks drawn against themselves, since the banks can and do c r e a t e d e p o s it m o n e y (within limits prescribed by law) amounts actually on hand have no more sig nificance than any possible amount they may create. The distinction is between actual money and potential mon ey. Potential money is excluded from the nation’s mon ey supply. The same reasoning applies to currency and coin held by banks. Because of the close relationship between the flow of money spendings, the flow of goods and services to the market place, ahd the prices which result from these two flows, bankers and businessmen have a strong and valid interest in the nature of money, its origins, its uses, and its influences on economic behavior. The amount of money that an individual spends is affected by many factors. One important factor is the amount of money he has on hand. M ore important than his supply of money is the individual’s income, the periodic money flow to him which he expects to continue uninterrupted for some time. So it is with the nation as a whole— the total money spendings in the nation will be determined in part by the supply of money available and by the rate at which money is being used. This article is designed to throw light on an old but ever interesting ques tion : W hat is the basic na ture of money and exactly what serves this purpose today ? W h a t is M on ey ? There is some difference of opinion as to just what things should be included in a definition of money. T w o of the most commonly used definitions, however, include the follow ing: (1 ) Demand deposits and cur rency and coin in the hands of the public. (2 ) Demand d e p o s it s , c u r r e n c y and coin, and time deposits in the hands of the public. Cut-and-dried definitions by themselves, though use ful, hardly explain. T o understand the role of money, one needs to know the characteristics perculiar to mon ey, those things which place it in a category by itself. A ny article which is widely accepted in exchange for goods and services is in a limited sense money. Defini tions of money, however, usually attempt to identify the most readily exchangeable things. The term liquidity is applied to this concept of ready exchangeability. Thus, the most liquid assets are those which are most widely acceptable in exchange. A ll assets can be listed in the order of their liquidity, say, from the most liquid to the less liquid, e. g., from coins to houses. The problem is to draw a line, in terms of liquidity, which separates money from non-money. Since interest is primarily in the effects of changes in the money supply on prices, em ployment and production, we also need to identify that portion of the money supply which is available for spend ing by consumers and business firms. Interbank deposits serve a number of functions which cannot be readily foregone. They serve as clearing ac counts and must be adequate for this purpose. In the case of non-member banks, a portion of their interbank deposits serve as reserves required by state law. In terbank accounts provide correspondent relationships which many banks find essential to efficient operations. Such factors tend more or less to freeze these deposits in place, making them unavailable for immediate use. Items in process of collection are excluded to avoid double counting. W hen a check is deposited by an in dividual in his bank a certain interval elapses between the time when his account is credited with the amount involved and the time when the deposit is reduced in Currency and coin in the hands of the public are ac C o n tin u ed -{ 4 f on page 8 j f b /t e u * August 1952 Farm Production and Income Prospects income in this District was running well ahead of last year in the early months of 1952. The smaller production of some crops coupled with slightly lower farm prices suggests, however, that the lead over a year ago may not be maintained in the remaining months of 1952. In view of the changing situation, it may be well to review these and other agricultural developments in some detail as a basis for anticipating what may be ahead. F a r m M arketings and In com e H igh er— P rices L o w er Than in 1951 Through June of this year American farmers received about $13.2 billion from the sale of farm products. This was 3 % more than in the corresponding p e r io d la st year. The physical volume of farm products sold was 7% larger, but prices aver aged a little lower. Mean while, prices paid by farmers for production items, inter est, taxes, and wage rates have a v e r a g e d a b o u t 3% higher than during the first half of 1951. During the six-month pe riod, January-June, receipts from livestock and livestock products for the country as a whole totaled $8.9 billion, or 4 % less than a year ago. Crops, on the other hand, produced receipts totaling $4.3 billion, or 21% more than from January through June 1951. Sharp increases in receipts from wheat, cot ton, and potatoes accounted for most of the increase. State income data are not available on as current a basis as are data for the entire country. Up to May 1, however, income from livestock and livestock products in Fifth District states was up 4 % , income from crops was 25% greater, and total cash receipts from farm marketings were running 11 % ahead of the correspond ing months of 1951. A s an aid in interpreting these data, it is helpful to bear in mind the composition and seasonal pattern of farm income. W hile there has been a long-time upward trend in the relative importance of livestock and live stock products, farmers in this District still receive near ly two dollars from crops for each dollar received from their livestock enterprises. Care should be exercised in projecting the gains in farm income in the early months of 1952 over the cor responding levels in 1951. Livestock income is dis tributed rather evenly through the year, whereas there is a strong seasonal movement in the income from sale of crops. Normally, Fifth District farmers receive only about one-fifth of the income from crops in the first half of the year. In contrast, they receive nearly one-half of the income from livestock and livestock products by mid year and just over one-fourth of the total income from the sale of all farm products. On the o t h e r hand, the months of September, O c tober, and November ac count for 57% of the income from crops and 4 7% of the total from all sources. The best sources of basic information for assessing the prospective level of farm in come this fall are to be found in the monthly crop and farm price reports issued by the Bureau of Agricultural E c o n o m ic s (B A E ) . The prospects for 1952 crop pro duction and farm prices are developed in the following sections. C rop P rodu ction B elow 1951 M ost of the income from crops received by farmers in this area in early 1952 resulted from sale of crops pro duced in 1951. Income from crops during the remainder of 1952 will, for the most part, however, represent this year’s production. Tobacco leads all other products as a source of farm income in Fifth District states, accounting for 48% of the total income from crops and 31% of the total in come from both crops and livestock during 1945-49. A s of July 1, prospects in Fifth District states were for a smaller total production of tobacco than in 1951. A ccording to estimates of the B A E , flue-cured produc tion in Fifth District states is down 3 % , Burley produc tion is off 4 % and Maryland 18% . Estimates for V ir ginia fire-cured are 20% smaller, and Virginia suncured is 8 % below 1951 levels. These reductions are attributable to lower yields, since acreage is the same or larger than in 1951 for all types except Maryland. Cotton ranks second to tobacco as a source of farm in F e d e ra l Reserve Bank of Richmond come among Fifth District crops and, together with cottonseed, accounts for 18% of the income from crops and 12% of the total income from farm marketings. Since the first official estimate of cotton production (due August 8 ) is not available as this is written, the best in dication of the size of the 1952 crop available at the time of writing is the estimated acreage in cultivation on July 1. Fifth District cotton acreage on that date was 5,000 acres larger than in 1951 with Virginia accounting for most of the increase. For the country as a whole, cot ton acreage is 7% below 1951. year compared with 38% of the total during the decade of the 1940’s. Feed crops production will be nearly as large this year as last in the Fifth District. Indications as of July 1 were that corn production would be about 3 million bushels, or 2% lower than in 1951. Smaller crops of barley and rye also were indicated. The oat crop, on the other hand, is about 5% above 1951 and the sorghum acreage, though comparatively small, is somewhat larger this year. Total hay production is expected to be a lit tle smaller this year, but slight increases are expected in alfalfa and lespedeza. W hile the actual outturn of the various crops may be Peanuts, though tremendously important in certain Drought— The Bankers' Problem which has a way of upsetting the most carefully calculated of man’s plans, has done it again. W ithering drought and abnormally hot weath er over much of the Fifth District during late July played havoc with crops on many farms and, in spite of scattered rains toward the end of the month, it ap pears that over-all crop production will be below the estimates in the July crop report, on which the ac companying article was based. N a tu re , A spot check of several sections of the Fifth Dis trict on August 1 brought discouraging n ew s: Many corn fields are too far gone for later rains to revive. Tobacco fields in some areas have smaller crops and the quality of the leaf has been hurt. Dry pasture land has caused some dairymen to begin feeding their meager supplies of hay to the cattle, making it sure that they will have to buy hay in quantity during the winter months. Vegetable crops have been hurt in both quantity and quality. Many fruit growers re port unusually small fruit with consequent lower yields. The drop in production will mean that many farm ers will have lowrer incomes this year than in several recent years. Not all of the area’s farmers have been unlucky, of course, and, with lower over-all produc tion, some will doubtless get higher prices for the fruits of their labors. But the farmers who fail to make a crop will benefit little from higher prices, and many who usually grow enough feed for their own livestock, with some left over for sale, may have to buy feed this winter— an unhappy combination of lower income and greater outlay. Some entire com- Continued on pape 11 quite different from that indicated on July 1, there is the possibility that marketings from 1952 farm production in the last half of this year may run somewhat below the corresponding level a year earlier. Whether market ings of livestock and livestock products will continue to run ahead of last year, and thus offset such weakness as may be found in crops, remains to be seen. areas of the District, accounted for only 4 % of the in come from crops and 3% of total cash farm income for the District during 1945-49. The sharp cut in peanut acreage allotments in 1952 largely accounts for the 15% reduction in Fifth District peanut acreage. W heat production in the District was estimated in July as 1% larger than in 1951. This aggregate in crease, however, fails to reveal that production in South Carolina increased more than enough to offset the sub stantial decline in Maryland and the moderate reduc tions in Virginia and North Carolina. It is worthy of comment that Maryland, Virginia and W est Virginia are currently producing less wheat than during the decade of the 1940’s. North and South Carolina, on the other hand, are producing substantially larger quantities of wheat. A s a consequence, these lat ter two states produced 48% of the District total this Prices R eceived and Paid Prices received by farmers in June were about 3% below the level a year ago for the country as a w^hole. The decline of 9% in the prices of livestock and live stock products was partially offset by a 5% increase in the price of crops. The price of Maryland tobacco has been running sub stantially under that in 1951 despite the improved quality Continued on page 11 i 6y August 1952 Recent Developments in Municipal Bond Financing P u blic Credit Finds N ew U ses and V olu m e Reaches N ew H ighs n all-time record year of state and municipal bond financing is in the making. In 1950, when the fullyear record for new issues was set, offerings through out the nation reached the $2 billion level by the end of the first six months. This record was erased during the first half of the present year by a volume that raced past the $2 billion mark and reached $2.5 bil lion. This huge total was attained despite the excep tionally heavy flotations of the past five years and the restrictive influence of the Voluntary Credit Restraint Committee during the first quarter of 1952. W ith W est Virginia leading the way with two un usually large issues— $96 million of turnpike bonds and $30 million of veterans bonus bonds— the Fifth District states and municipalities offered investors $298 million of new bonds in the first half of this year, the largest amount ever borrowed by these public bodies in a com parable period. This was 34% greater than the previous record-amount for the first half of 1950 and well above the corresponding national gain of 21% . Indications are that the annual volume of tax-exempt securities in the nation will be lapping at high-tide marks for some time to come. A recent meeting of the M u nicipal Forum of New Y ork was told that the backlog of state and municipal capital projects, excluding public housing, for the next decade is estimated at around $100 billion. It is not likely that all the projects will materi alize or that such an amount of new indebtedness will be incurred in this period. Inhibiting factors, it was ex plained, would likely be found in national defense re quirements, inflation control, and limited fiscal resources. Nevertheless, this tremendous amount of financing re quirements can hardly be called imaginary. One has but to observe the crying needs for more and better school facilities, for extensive street and highway im provements, for water and sewerage extensions to sub urban areas, for hospitals, housing, and dozens of other public services and facilities to realize what a lot of money is sorely needed to meet growing demands from a social-minded public for more and better services. There is an important angle to this vast backlog of capital requirements easily overlooked in the shuffle of attention given to defense spending and to the record outlays for corporate plant and equipment A s the im pact on business activity of defense spending tapers off and if, as some authorities expect, investment by cor porations in plant and equipment declines markedly in the next year, some of the slack could be taken up by increased spending by state and local governments. tory, but since the opening of the Pennsylvania Turn pike in 1940, the forerunner of 20th century toll roads, millions of persons have become familiar with high speed, continuous-traffic expressways. Although only a small number has been constructed, considerable inter est in turnpikes as the answer to chronic problems of congested highways and inadequate highway finances has developed— largely as a consequence of the better-thanestimated success of the New Jersey Turnpike. Toll roads are presently being constructed in Colo rado, New York, and Oklahoma, and plans in Ohio and Indiana are nearing the construction stage. In the Fifth District, W est Virginia issued $96 million of revenue bonds last March for construction of an 88-mile toll turnpike southward from Charleston to Princeton near the southern W est Virginia-Virginia line. And in V ir ginia and North Carolina, legislation was enacted dur ing the past year providing authority for financing fu ture construction of turnpikes with revenue bond issues. Is all this indicative of another Turnpike Era— with public agencies acting in place of the private interests of the first Turnpike Era? This is a moot point, but even if, as is likely, only a modest number of toll roads is con structed, it would effect a very substantial increase in the amount of outstanding revenue bonds. It has been pointed out that the single record-setting issue of $326 million of Ohio Turnpike revenue bonds last June nearly equaled the year’s total of all revenue bonds issued in the country as recently as 1947. Aside from such giant issues, there has been an increasing resort to revenue bonds for financing a wider range of public projects. In the Fifth District, as in the United States, a larger amount of revenue bonds was issued in the first half of 1952 than in any previous six or twelve-month period. A R evenue B onds and Turnpikes Until a few years ago, the word “ turnpike” was fa miliar only to those who had read early American his i . . . and M unicipal-Industrial P rojects It has been said that the revenue bond is no longer something new and different, but as already indicated, there have been new uses of funds derived" from such bond issues. One of the more controversial uses is the construction and equipment of industrial plants for lease to private industry. N o permissive laws for such bonds exist in the Fifth District, but several other states— Alabama, Illinois, Kentucky, Mississippi, and Tennes see— have enacted such enabling legislation. Opposition to such issues came to a head last year when the Investment Bankers Association, the Munici pal Finance Officers Association, and the Chairman of the Securities and Exchange Commission registered their objections to the practice. In general, opposition is based on the following points: (1 ) Municipal bonds, unlike private corporation securities, are not subject to the jurisdiction of the SEC, but if thev continue to be 7 :> F e d e ra l R eserve Bank of Richmond issued to finance property used by private concerns, a plausible argument could be made that they should come under the authority of the SEC for the protection of the investing public. (2 ) The use of public credit in con junction with industrial projects may weaken municipal credit in general. (3 ) If an increasing volume of such tax-free bonds is issued, Federal revenue may suffer and courts 111a}' decide that income from these bonds should be taxed. Or, as expressed by the Chairman of the SEC, “ if the practice referred to is continued it will be only a matter of time until Congress will attempt to put an end to it” — possibly by adopting legislation re moving the tax exemption from municipal-industrial bonds. It has been argued also that once one type of municipal bond is taxed, it will open the door to taxa tion of all municipal bonds. . . . Raise Im portant Q uestions A point not spelled out in the preceding statement of objections to the use of revenue bonds for industrial pro motion is that generally they are payable solely from the rentals of the property involved. It has been charged that this fact might not always be made known to pur chasers of the bonds and that they might not, therefore, be aware that taxes or other revenues of the municipality would not be available for payment of the bonds. In Mississippi, however, the law permits municipali ties to finance industrial projects by issuing general ob ligation bonds which are backed by the taxing power of the locality floating the bonds. In such cases, any de fault 011 the part of the private company leasing public property would become a liability of the community and payable from general funds of the municipality. W ill this practice, if extended to other states, tend to change or lessen the importance of the fundamental point that an industrial project sponsored and financed by a municipality should stand or fall on its own merits and financial strength? And if private investors shun partic ular municipal-industrial issues, is there a possibility— because of the enthusiasm of the parties to the project and the extent to which negotiations and efforts on the project had already proceeded— that pressure would be exerted to get the state to purchase the bonds ? W ould this be a favorable or an unfavorable development? It would be well if these and other questions, along with the basic problem of whether construction and fi nancing of industrial facilities are proper or suitable functions of local governments, could be resolved satis factorily before too long. States and municipalities have too much at stake to risk developments that might weak en their credit, obstruct the smooth placement of their bonds, or threaten their tax-exemption privilege. E. M. D. Comments on the Rising Money Supply Continued from page 4 the bank against which the check is drawn. The check is in “ process of collection” during this period and ap pears as deposited funds on the book of both the banks. These items are deducted to avoid this duplication. Deposits of the U. S. Treasury are, of course, not a part of the privately held money supply. Although they are immediately available to the Treasury for spending, they are generally excluded from definitions of the mon ey supply on the basis that their level is not a determi nant of Treasury spending. Congressional action in the last instance determines this. Furthermore, within limits prescribed by law, the Treasury can create money. The reasoning given above as to bank created money applies h ere: money in the hands of a money-creating agency is not in any significant respect different from money which may lie brought into being. The line is drawn between actual money and potential money. Up to this point, the discussion has been within the limits of both definitions given above. The second defi nition, however, includes time deposits which are made up of time (or savings) deposits in commercial and mu tual savings banks and Postal Savings deposits. The reasoning for including time deposits in the definition of the money supply is that, in practice, time deposits are almost as readily available for spending as demand deposits or currency. Most banks make time deposits available to their customers on demand although they may require a waiting period of from 30 to 60 days. Those who exclude time deposits do so, in part, on the basis that such deposits must be converted into either currency or demand deposits before they can be spent. Many other assets also possess high liquidity, for example, shares of Savings and Loan Associations, short-term Treasury securities, and prime commercial paper. All of these may be converted immediately into demand deposits or cash with little risk of loss. A n alysts who exclude time deposits argue that it is illogical to draw the line short of these other very liquid assets. Whatever definition is used, there need be little con fusion if the component parts are clearly stated. A n in terpretation of the influences stemming from changes in the money supply, however, will be significantly affected by the component in which the change occurs. For ex ample, the interpretation of a given change in the total money supply may be different if the change is found entirely in demand deposits than if the change is entirely in time deposits. The former may indicate increasing business activity, the latter decreasing. The prudent banker and businessman will follow changes in the mon ey supply bv its component parts, not as a single figure representing a homogeneous economic factor. R. P. L. 8^ August 1952 Business Conditions and Prospects was nearly $30 million. Some fairly substantial indus trial facilities have been projected in both June and July, amounting in value to nearly $140 million. I mprovement both in trade levels and in soft goods pro duction was in evidence during June, but the steel strike put selective crimps in several segments of the District’s industrial activity. The primary impact of the strike was in the steel producing plants and in so-called captive coal mines. T o a lesser extent it has adversely affected steel fabricating industries and railroads and has slowed down some construction activity. The long steel strike has reduced steel supplies even in plants 011 defense production, and it is more than like ly that defense plants will receive the first steel ship ments until their supplies are at workable levels. It is probable, therefore, that further effects of the strike will be witnessed in the construction industry, particularly those projects outside of defense and military require ments. The steel strike is over, but its consequences will con tinue to be felt for some months to come with construc tion and steel fabrication probably being held at lower levels than would hold if ample steel supplies could be expected. Widespread television coverage of political conven tions, together with the extremely high temperatures in many sections of the country adversely affected store traffic in many lines of trade in July. Abnormal tem perature, however, markedly improved sales of air con ditioners, refrigerators and electrical fans, and the po litical conventions probably influenced the better level of sales of television sets. T extiles New business in cotton goods is termed slow in trade circles but occasionally a fairly substantial volume of fu ture orders continues to be placed. Expectations are that during August a substantial improvement in commit ments will take place, even though recovery in employ ment levels throughout the country may be slowed be cause steel pipe lines need to be filled to attain pre-strike employment levels. Cotton spindle hours operated in the District snapped back substantially in June and have risen 15% on an ad justed basis from May to a level within 8 % of a year ago. Cotton consumption, which had not fallen as sub stantially as spindle hours from April to May, showed an adjusted rise of 1% from May to June to a level also within 8% of a year ago. The June recovery in the in dustry’s operations put it back to the level that prevailed early in the year. Anticipations for fall and winter seem to point to a considerably better level than that prevail ing in June. Aside from the industries affected by the steel strike, employment levels in the District improved during June. United Mine W orkers have given notice of termination of their contract which will become effective late in Sep tember. There are no indications as yet whether an other paralyzing strike will take place, but the fact that coal stocks in most users’ hands are at a high level would at this time seem to suggest that settlement could be ar ranged without too much interruption. The soft goods industries of the District seem ready for recovery, though the amount and speed of that recov ery are somewhat contingent 011 the ability of steel-using industries to get back into full employment. The out look for the District, even if recovery nationally is slow, is for an improving level of production, employment and trade. C onstruction Total construction contract awards in June (adjusted) were up 3% from May and 2% ahead of a year ago. In the first half of the year, total awards were down 48% , but if the Savannah River Atom ic Project is eliminated, the first six months would show a drop of 12% from a year earlier. Residential construction in June rose 11% (adjusted) from May to a level 15%; above a year ago and in the first six months of the year was 1% higher than a year ago. Certificates of necessity were issued between June 13 and July 10 for construction in the amount of $44 mil lion which was somewhat higher than in several past months. Contract awards for military construction in June were $38.4 million, and as of July 25 the July total The hosiery industry is in an optimistic frame of mind. Concensus of opinion is that the price structure 011 fullfashioned hosiery has readied bottom and hope continues for improvement in the price level in the fall. Interest ingly, one producer which had been prominent in price reductions has made its first advance in more than a year and a half. The seamless branch of the industry appears more optimistic than the full-fashioned. Sales of men’s and children’s hosiery are considered at a good level and still further improvement is anticipated in coming months. Chain stores have been important buyers in the men’s hosiery field, as well as in children’s anklets. Business of yarn spinners has picked up notably with knitting yarns accounting for the bulk of the rise. This reflects the improvement in seamless hosiery and in the knit underwear business. Yarn spinners did not profit very much from recent government contract awards, since most of these went to the integrated producers. There has, however, been a good demand from the nar row goods industries, particularly those making web bing. {9 y F e d e ra l Reserve Bank of Richmond are operating at full tilt and expansion in some of these installations is under way. W ork clothing industries are seasonally slack at the present time, but there is a considerably better feeling among the producers, and the outlook is not without promise. B anking D evelopm ents D urable G oods Industries Although the lumber industry is operating at levels be low a year ago, the price structure is showing moderate firmness. W ith stumpage and other costs high, many of the small mills remain shut down while those remaining in operation are enjoying a fairly good volume. The housing outlook continues to show substantial strength and, as a consequence, the demand for lumber continues at a good level. The status of steel inventories at the shipyards is not known, but the length of the steel strike probably left in ventories insufficient to continue operations at the high level of the first five months of the year. Firms operat ing on merchant ship contracts see little business ahead on completion of present contracts. Those working 011 naval ships, however, will probably continue to expand their employment levels. Another atomic energy plant is projected for the Ohio River Valley. From the viewpoint of desirable site fac tors, a river location between W heeling and Huntington might well be chosen. Ordnance works in the District D E B IT S T O IN D IV ID U A L Deposits of member banks continued to rise during June with a gain of 2.9% over May and 8.9% over a year ago. Time deposits during June rose 0 .5 % — a level 8.1%-. ahead of a year ago— attesting to the continuing savings trend. Total loans of member banks were up 1.3% in May to a level 4.5% over a year ago. The weekly reporting hanks have shown a less than seasonal decline since spring in their commercial, industrial and agricultural loans. Consumer loans, on the other hand, have shown a rather sharp increase since the spring months and a considerable jump took place during May and June. Loans on real estate have continued their moderate up ward trend, and total loans early in July were at an alltime high level. Business loans appear to be bottoming out and the time is at hand for the expected seasonal rise. Trade loans, loans to sales finance companies, pub lic utilities and construction firms have been rising per sistently since spring. These gains have been more than offset by decreases in loans to manufacturing and mining concerns and to commodity dealers. 50 R E P O R T I N G M E M B E R B A N K S — 5 T H D I S T R I C T ACCOUNTS (000 omitted) June 1952 Dist. of Columbia W ashington $1,109,632 June 1951 $1,097,041 6 Months 1952 6 Months 1951 $ 6,633,415 $ 6,385,810 Maryland Baltimore _____ Cumberland Frederick _____ Hagerstown 1,370,940 30,347 22,785 34,683 1,252,493 26,418 22,767 34,982 7,713,367 157,606 135,715 211,740 7,410,070 148,913 123,987 194,102 North Carolina Asheville _______ Charlotte .__ ___ Durham ________ Greensboro ____ Kinston ________ Raleigh _______ W ilm ington W ilson _________ W inston-Salem 59,729 342,124 118,317 107,798 19,910 164,876 45,972 17,084 192,777 62,833 331,191 100,196 104,447 16,583 227,776 46,572 16,430 177,314 367,8S5 2,076,081 631,748 647,876 114,832 1,065,863 271,667 107,042 1,026,236 357,499 2,023,938 586,880 611,434 95,692 1,005,902 253,976 108,374 991.818 South Carolina Charleston Columbia ______ Greenville ... Spartanburg __ 87,206 140,474 106,221 65,260 76,767 129,786 116,792 66,197 481,705 864,369 625,467 407,417 ■146,661 751,968 673,902 401,020 Virginia Charlottesville . Danville __ _____ Lynchburg New port News N orfolk ________ Portsmouth Richmond _____ ____ Roanoke __ 28,909 31,533 48,385 49,083 253,582 33.186 586,168 116,757 28,081 34,501 47,419 43,832 228,256 26,709 595,192 118,477 166,569 198,655 276,728 287,359 1,476,242 173,426 3,433,525 697,973 161,530 199,176 280,323 251,332 1,285,505 150,658 3,272,601 678,563 47,725 170,782 34,411 64,403 30,223 —....... $5,531,282 49,058 155,883 34,026 67,030 32,475 $5,367,524 299,870 1,024,997 220,141 432,882 182,873 282,999 910.171 207,404 400,080 182,976 $30,835,264 W e st Virginia Bluefield ________ Charleston ...... Clarksburg Huntington .. Parkersburg ___ ____ D istrict Totals $32,411,271 (000 omitted) IT E M S July 16, 1952 Change in A m ount from June 18 July 18, 1952 1951 $1,217,459** Total Loans ____ ,__ ____ _ _ 561,228 Bus. & A g ric. -----------------249,032 Real Estate Loans --------423,098 A ll Other Loans ________ 1,920,325 Total Security Holdings 307,205 TJ. S. Treasury Bills ___ U . S. Treasury Certificates .... 175,076 273,765 U . S. Treasury Notes ______ 928,742 U . S. Treasury Bonds ______ . 235,537 Other Bonds, Stocks & Secur. . 283,518 Cash Items in Process of Col. . 184,943* Due From Banks _________ ____ 74,484 Currency and Coin ------------------580,578 Reserve with F . R. Banks 54,145 Other Assets _________________ Total Assets _________________ . 4,315,452 + — 8,246 2,399 2,118 + 8,649 + + 88,724 + 38,401 9,840 + — 864 + 39,256 3,091 -r + 2,715 — 3,331 189 + — 8,887 443 + + 88,099 + 58,091 + 10,151 + 15,011 + 34,383 + 2 5 9 ,5 2 6 + 130,838 + 128,681 — 82,406 + 15,174 67,239 + 41,511 971 + 3,703 + + 38,469 997 + + 4 0 3 ,2 6 8 3,333,049 2,414,089 Deposits o f Individuals 212,263 Deposits of U . S. Government: 195,832 Deposits of State & Local Gov.. 457,872* Deposits of Banks _________ . Certified & Officers’ Checks 52,993 Total Tim e Deposits _________ 653,587 Deposits o f Individuals ____ . 573,977 79,610 Other Tim e Deposits ______ 39,100 Liabilities for Borrowed Mone 31,169 All Other Liabilities _________ 258,547 Capital Accounts ______________ $4,315,452 Total Liabilities ___________ + 68,819 — 15,033 + 91,547 5,775 + 1,654 + — 15,124 2,851 + 2,663 + 188 + 17,500 + — 900 — 171 + 88,099 + 315,904 + 157,779 + 102,188 + 21,679 + 32,406 1,852 + + 35,659 + 18,682 + 16,977 + 38,600 2,499 + + 10,606 + 403,268 *N et figures, reciprocal balances being eliminated. **Less losses for bad debts. i 10 V August 1952 Farm Production and Income Prospects Continued from page 6 of the crop being marketed. The level of support for Prices of most other farm products that are important flue-cured tobacco will be 50.6 cents per pound this sea to this area are about the same as, or slightly below, last son— practically the same as year. Potatoes are a notable the 1951 support price of exception b e in g s h a r p ly 50.7 cents per pound. A c higher than a year ago— cording to The Tobacco Sit though b e lo w th e re c e n t FARM PRICES DOWN, COSTS UP uation, issued by B A E , the spectacular levels. Other UNITED STATES price of flue-cured tobacco is exceptions are meat animals not expected to be much dif and poultry and eggs which ferent this year than the 52.4 are well below levels at this cent average received for the time last year. 1951 crop. This estimate is In summary, it seems un based on the belief that con likely that over-all market tinued strength in domestic ings can continue to run demand will about offset the ahead of 1951 for the re weaker export demand. mainder of the year and thus offset the lower prices that It is rather meaningless to have prevailed this year. compare the level of cotton prices on any given date in On the basis of current production and price indica July 1952 with the level on the corresponding date of tions, many farmers will 1951. Readers may recall sustain rather sharp reduc that prices fell sharply a tions in gross farm income year ago when it became ap this year. These and many parent that cotton produc more are also likely to ex perience rather marked re tion would be much greater ductions in net farm income as a result of the increase than in 1950. It might be noted that, whereas the acre in the cost of producing this crop. Even so, 1952 prob age estimate in July 1951 was associated with distinct ably will be remembered in years to come as a year of price weakness, this year’s acreage report was associated favorable farm income. H . G. P. with only moderate price response. Drought—The Bankers' Problem Continued from page 6 munities may be hard hit by the drop in farm income. W hile the Fifth District states, Maryland, Virginia, North Carolina, South Carolina, and W est Virginia, are not likely to turn into a dust bowl, the matter is still one of great concern to many farmers— and to many bank ers. For the farmers’ problems are frequently the bankers’ problems, too. Bankers know that the hot, dry weather this summer and consequent drought-curtailed income will mean less business on Main Street this fall and winter. Farmerowned deposits in many seriously affected communities will tend to lag below last year’s. Some farmers who in recent years have had enough capital of their own to fi nance their needs will now find it necessary to borrow before another crop is made. Some who are already borrowers will find their incomes so reduced that they will have to seek to carry over some of this year’s debts into 1953, as well as borrowing more funds for the year ahead. If this unfortunate situation means added problems for bankers, though, it does not mean problems they are unwilling or unable to tackle. Over the past several years, Fifth District bankers have been giving more and more attention to the special needs of farmers, and con sequently are able to help farmers meet the particular difficulties of the drought. Most of them will agree with the editor of the Rich mond Times-Dispatch, who wrote on August 1: “ It is in the interest of the local banks to keep the farmers solvent.” i 11 Y F e d e ra l R eserve Bank of Richmond SELECTED AV G . D A IL Y F IF T H D IS T R IC T B U IL D IN G P E R M IT F IG U R E S IN D E X E S June 1952 Maryland Baltimore .ii? 6,045,185 Cumberland 50,249 173,950 Frederick . ___ Hagerstown .... 205,545 Salisbury ______ 174,843 1935-39 = 100— S E A S O N A L L Y A D J U S T E D % Chg.— Latest Mo. June 1952 Prev. Mo. - 2 — 1 — 4 + 3 +20 + 13 + 15 + 5 0 — 1 + 4 + 1 June May 1952 1951 199 423 157 507 86 242 160 110 341 152 199 289 166 Automobile Registration* ______ 455 Bank Debits -------------------------------- 452 131 136 Bituminous Coal Production — 503 Construction Contracts ------------- 516 54 45 Business Failures— N o. ------------246 Cigarette Production ----------------- 278 129 Cotton Spindle Hours --------------- 148 116 Department Store Sales** --------- 122 379 Electric Power Production 150 M anufacturing Em ploym ent* .. 227 Retail Furniture: N et Sales .... 237 339 L ife Insurance Sales ___________ 341 *N ot seasonally adjusted. **1947-1949 = 100. Back figures available on request. -------------- ♦ ♦ --------- + — — — + 3 — 12 — 18 — 4 0 — 20 + 7 — + + '2 — 14 — 11 1 7 1 3 1 9 0 "o i 0 + Number of reporting firms in parentheses. Source: D epartm ent of Commerce. 6 Months 1951 $ 6,377,255 56,800 157,625 145,550 73,555 $ 32,136,305 179,124 1,372,423 843,633 762,199 $ 41,448,400 434,285 968,260 991,150 948,099 507,797 380,118 239,026 881,427 126,007 330,343 1,142,260 906,148 198,203 197,819 84,431 863,440 675,992 173,765 1,373,697 3,616,960 3,367,057 1,410,698 5,893,516 11,483,265 903,001 5,437,340 8,934,119 5,265,418 1,443,925 2,050,747 781,960 10,239,148 2,233,100 3,843,280 9,892,949 11,474,858 W est Virginia Charleston Clarksburg ___ Huntington .... 5,848,140 111,160 542,806 421,698 186,057 625,836 8,824,324 471,357 2,314,981 2,654,134 650,547 4,136,430 North Carolina Asheville ______ Charlotte ______ Durham _______ Greensboro High Point Raleigh _______ Rocky M ount Salisbury W inston-Salem 219,792 935,541 660.092 1,425.185 340,115 1,558,636 340,763 69,167 943,878 432,587 1,336,153 260,560 630,623 236,680 472,869 78,974 90,940 6,334,188 1,716,627 11,312,012 4,586,660 4,403,853 1,776,345 9,094,919 1,868,176 1,126,335 5,052,983 3,853,775 11,883,564 2,862,063 4,361,719 1,781,394 6,654,394 1,503,160 782,531 11,518,612 South Carolina Charleston Columbia ______ Greenville ____ Spartanburg ... 188,871 588,154 505,163 114,800 103,265 3,346,565 407,150 178,700 827,508 6,077,398 4,897,968 1,455,767 905,724 8,517,017 6,529,379 704,940 Dist. of Columbia W ashington .... 3,987,466 3,749,273 24,153,346 33,931,271 District Totals ... $29,542,627 $32,887,210 $167,948,657 $189,980,815 Stocks on June 30, 1952 compared with M ay 31, June 30, 1952 1951 Sales in June 1952 compared with M ay June 1952 1951 + 11 — p28 + 11 — 2 — 7 + 4 - 8 — 6 — 4 + 6 — 12 — 1 — 1 + 3 — 1 -1 3 - 3 + 9 + 9 + 7 + 6 + 1 6 Months 1952 Virginia Danville _______ Lynchburg ___ N ew port News N orfolk _______ Petersburg ___ Portsmouth .... Richmond ____ Roanoke ______ D IS T R IC T W H O L E S A L E T R A D E — F IF T H L IN E S A uto supplies ( 6 ) -----------Electrical goods ( 6 ) ---------Hardware (10) ------------------ ... Industrial supplies (7 ) ... Drugs & sundries (11) ... ... D ry goods (10) -----------------Groceries (54) ------------------ ... Paper & products ( 6 ) Tobacco products (10) . Miscellaneous (97) ---------- ... District Totals (217) ...... Yr. Ago -1 8 + 7 — 17 + 2 — 37 + 15 — 8 + 11 + 15 0 + 19 + 18 June 1951 D E P A R T M E N T S T O R E O P E R A T IO N S (Figures show percentage changes) Rich. Balt. W ash. Other Cities Dist. Totals Sales, June ’52 vs June ’ 51 Sales, 6 Mos. ’ 52 vs 6 Mos. ’5 1 Stocks, June 30, ’ 52 vs ’51 .. + 7.7 + 2.9 — 9.9 + 5.7 + 2.2 — 3.3 + 0.2 — 2.0 — 4.9 + 7.1 + 1.6 — 5.9 + 4.0 + 1.7 — 5.4 Outstanding Orders, June 30, ’ 52 vs ’ 51 —.......... + 13.9 — 6.2 + 12.2 + 24.9 + Current receivables June 1 collected in June 1952 ----- 23.1 45.5 42.4 40.2 Instalm ent receivables June 1 collected in June 1952 13.1 17.6 Md. Sales, June *52 vs June ’51 + 5 .7 - ♦ D + 0 .2 ♦ ♦ 14.9 17.3 Va. W .V a , + 7 .8 + 9.6 N.C. -| 9.8 ADDITIONS TO PAR LIST T h e B a n k o f M a n , M a n , W e s t V ir g in ia , a n e w ly c h a r te r e d n o n m e m b e r b a n k lo c a te d in th e te r r ito r y s e rv e d b y th e R ic h m o n d H e a d O ffice , h as a g r e e d to re m it a t p a r , e f fe c t iv e J u ly 15, f o r c h e c k s d r a w n on it w h e n r e c e iv e d f r o m th e F e d e r a l R e s e r v e B a n k . T h e c o m b in e d A .B .A . tra n sit n u m b e r -r o u tin g s y m b o l o f th e b a n k is -^ 4 ^ - 8.6 38.2 15.0 S.C. “—0.2 -------------- R E T A IL F U R N IT U R E S A L E S — F IF T H D IS T R IC T Percentage comparison of sales in periods named with sales in same periods in 1951 STATES Maryland (7 ) _______________ Dist. of Col. (7 ) ___________ V irgin ia (1 8 ) ^ _______________ W est V irgin ia (10) _______ N orth Carolina (15) ---------South Carolina ( 6 ) _________ District (63) _____________ I N D I V I D U A L C IT IE S Baltimore, Md. (7) ________ W ashington, D. C. (7) Richmond, V a . ( 6 ) _________ Charleston, W . V a . (3 ) June 1952 + 14 — 9 + 16 + 21 + 20 — 23 5 + 6 — 7 + 8 + 21 + 15 — 6 + 3 + 14 — 9 + 18 +23 + 14 +28 + T h e C h a th a m B a n k , S ile r C ity, N . C., in c lu d in g its b r a n c h e s at G o ld s to n a n d L ib e rty, h as a g r e e d to re m it at p a r e ffe c tiv e A u g u s t 1, 1 952 f o r a ll c h e c k s d r a w n on it w h e n r e c e iv e d f r o m th e F e d e r a l R e se rv e B a n k . A ll th r e e o ffice s o f th is b a n k a re l o c a te d in th e C h a r lo tte B r a n c h te r r ito r y . T h e c o m b in e d A .B .A . tra n sit n u m b e r -c h e c k r o u tin g s y m b o ls a re as f o l l o w s : S iler C ity 6 Mos. 1952 + 6 , G o l d s t o n - ^ - , a n d L ib e r ty N um ber of reporting firms in parentheses. i 12 y