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FE DE RAL RESERVE B A N K OF R I C H M O N D



DECEMBER

1960

STATE INCOME TAXES . . .
Their Impact on District Taxpayers

I9 6 0
State individual income faxes are providing a greater share of rapidly grow ing state tax revenues in the Fifth District.

State individual income taxes are the nation’s
fastest growing major source of tax revenue. Col­
lections of these taxes totaled $2.2 billion in I960,
more than three times the yield just ten years
earlier. They are thus helping to supply the
revenue state governments need to finance their
rising expenditures. These governments are now
spending about $27 billion annually for education,
highways, and other goods and services, 220%
more than in 1950.
In the Fifth District, only West Virginia does
not levy an individual income tax. In the rest of
the District, individual income tax revenues have
been rising even faster than in most other states.
From $16 million in 1940, they increased to $82
million in 1950 and reached $311 million in 1960.
While total state tax collections in the District
rose by 574% during this 20-year period, the still
faster growth of individual income tax revenues
has increased the relative importance of these
taxes. They now supply 19% of state tax reve­
nues in the Fifth District compared with 5% in
1940.
As shown in the chart on the next page, the
relative importance of these taxes in 1960 varied
from 13% of total state taxes in South Carolina to
27% in Virginia. In the District of Columbia,
however, the relative importance of the income tax
must be judged on a different basis since District
of Columbia taxes are equivalent to both state and
2



i

local taxes elsewhere. The tax is actually about
as important there as it is in Maryland and V ir­
ginia, since it provides about 15% of total state
and local tax revenue in each of these areas.
OLD INCOME TAXES Although District individ­
ual income taxes have only recently attained an
important place in state tax structures, their
antecedents date back to colonial days. In 1701
the colony of South Carolina enacted a “faculty
tax,” an annual levy which generally varied ac­
cording to the supposed profitability of the tax­
payer's profession. This primitive type of income
tax was also levied in Maryland during the Revo­
lution and in Virginia from 1786 to 1790.
The colonial faculty taxes were inequitable be­
cause they failed to allow for income variations
within professions. In 1838 South Carolina
switched to a more modern tax based on the actual
income of the taxpayer. Maryland and Virginia
adopted similar taxes during fiscal emergencies in
the early 1840’s, but the Maryland law was a poor
revenue producer and was repealed in 1848. In
the following year, North Carolina enacted an in­
come tax. The Virginia and North Carolina taxes
have been levied continuously since their adoption,
but both laws have been amended many times. On
the other hand, South Carolina’s tax wras aban­
doned in 1868 and not levied again until 1897.
State income taxes of the 1800’s were char-

State individual income taxes as percentages of total state
tax collections in the Fifth District, 1940 and 1960

Per cent
30

1960
1940

20

10

D.C.

Md.

Va.

W .V a.

N .C.

S.C.

acterized by low rates, high exemptions, and local
assessment and collection. These provisions re­
sulted in low revenue yields and generally poor
enforcement of the laws. Effective legislation was
not developed until 1912, when Wisconsin enacted
a law providing for centralized administration of
its new income tax. In 1913 the yield of W is­
consin’s tax was over eight times greater than the
highest amount any state had previously collected
through an income tax in any one year.
AND NEW INCOME TAXES The success of W is­
consin’s new techniques and of the Federal income
tax adopted in 1913 led to renewed interest in state
income taxes. North Carolina and Virginia im­
proved the administration and increased the rates
of their income taxes in 1919. After repealing
its old-style tax in 1918, South Carolina adopted a
higher yielding tax in 1922. A few years later,
many new state income tax laws were passed dur­
ing the fiscal emergencies of the Great Depression.
West Virginia enacted an income tax in 1935,
Maryland in 1937, and the District of Columbia
in 1939. West Virginia’s tax was repealed in
1943, but the others have remained in force.
Thirty-one states now tax individual net in­
comes, and each state has a somewhat different
law. For instance, definitions of taxable income
and allowable deductions vary considerably. Al­
though many states have tended to make these
parts of their laws similar to provisions of the
Federal legislation, numerous minor differences
still exist and are important to some taxpayers.
The tax paid by the average person, however, is
most affected by other key provisions of the state
law s: personal exemptions, tax rates, and whether
deduction of Federal income tax is permitted.



EXEMPTIONS Personal exemptions granted in the
Fifth District are fairly similar, and about average
when compared with those given by states outside
the District. Maryland legislation provides an
exemption of $800 for a single person, while V ir­
ginia, North Carolina, South Carolina, and the
District of Columbia grant exemptions of $1,000.
Beginning in 1961, South Carolina’s exemption
will be reduced to $800.
Exemptions for married couples are twice those
of single persons, except in North Carolina. In
that state a married man gets a $2,000 exemption
and his wife can receive an additional $1,000 ex­
emption if she has a separate income and files a
separate tax return. Exemptions in states out­
side the Fifth District range from $400 to $4,000
for a single person and from $800 to $6,000 for
a married couple.
District exemptions for dependents vary more
widely. Virginia’s $200 exemption is the smallest
in the nation except for Mississippi, which gives
none at all, while the $800 exemptions now allowed
in Maryland and about to be granted in South Car­
olina are the largest in the country. Other Dis­
trict allowances for dependents are $300 in North
Carolina, $400 under present South Carolina law,
and $500 in the District of Columbia.
RATES Except for the Maryland rate, which is a
flat 3% on most net income, tax rates levied in the
District are also rather similar. On the first
bracket of net taxable income they vary from 2%
to 3%. This is above the national average since
many states start with a 1co rate. Rates on the
/
highest income brackets are 5% in Virginia and
the District of Columbia and 7% in North and
South Carolina. In contrast to the relatively high
initial rates, these top rates are in the lower mid­
dle range when compared with those of other
states, which have top rates ranging up to 12.74%
of net taxable income.
DEDUCTIONS Another cause of wide variation in
state income tax burdens is that some states per­
mit a taxpayer to deduct his Federal income tax
in computing taxable income, while others do not.
Seventeen states allow this deduction and three
more, including South Carolina, allow a partial
deduction. The other 11 states, including Mary­
land, Virginia, and North Carolina, as well as the
District of Columbia, do not permit deduction of
Federal income tax.
These differences exert a significant influence
on tax burdens because the Federal tax is often

3

the largest of a taxpayer’s possible deductions.
The effect of this deduction may be illustrated by
comparing the state income tax paid by married
couples in North Carolina with that paid by mar­
ried couples in Colorado, where deduction of Fed­
eral income tax is allowed. (In calculating the
tax in this and subsequent illustrations, it was
assumed that all incomes consisted of wages or
salaries earned by the husband and that deductions
exclusive of Federal income tax totaled 10% of
these incomes.) Colorado grants a smaller per­
sonal exemption and levies higher rates than
North Carolina. However, the Federal income
tax deduction of Colorado married couples with
incomes of $5,000 or more is large enough to re­
duce their state income tax below that of North
Carolina couples with the same incomes. For in­
stance, married couples writh incomes of $2,500 pay
a tax of $7 in North Carolina compared with $16
in Colorado. On incomes of $7,500, however.
North Carolina couples pay $177 while Colorado
couples pay $157. At higher incomes this dif­
ference increases because the Federal income tax
absorbs a greater share of these incomes and so
the deduction for it is proportionately larger. M ar­
ried couples with incomes of $100,000 are taxed
$5,940 in North Carolina compared with $3,727
in Colorado.
Federal and state income taxes as percentages of
income of m arried couples in North Caro lina
Per cent of adjusted gross income

0

10

20

30

40

Adjusted gross income (thousands of dollars)

4




50

NET BU RD EN OF V IR G IN IA

IN C O M E T A X AT

S ELE C T E D IN C O M E S

A djusted gross incom e
$ 2,500
5,000
7,500
10,000
15,000
20,000
25,000
50,000
100,000
500,000

N et burden of V irg in ia incom e
ta x on
Single person
M arried co
$ 20
$ 4
58
40
111
88
178
172
282
317
360
442
416
555
630
889
691
1,300
2,009
2,004

The deduction of Federal income tax in states
such as Colorado has an interesting effect on the
difference between the state income tax paid by
married couples and that paid by single persons
with the same income. Since a single person us­
ually pays more Federal income tax than a mar­
ried couple with the same income, he also has a
greater deduction for state tax purposes. At high
income levels the difference is great enough to
make his state tax less than that of the married
couple even though the couple gets a higher per­
sonal exemption.
Since laws in the District, except for South Car­
olina’s partial deduction, do not allow deduction
of Federal income tax, they levy substantially
greater income taxes on persons with high incomes
than do states which allow the deduction, even
though some of the latter states levy much higher
rates. On the other hand, tax burdens on very
high incomes in District states are lower than in
Alaska, Delaware, Hawaii, Newr York, Vermont,
and Wisconsin, wdiich do not allow the deduction
and also levy higher top rates.
TAX BURDEN IS LOWER THAN THE TAX
The
Federal income tax has another important effect
on burdens of state and local taxes of all kinds.
These taxes are allowable itemized deductions on
the Federal tax return and thus reduce a taxpay­
er’s Federal tax liability. In effect, a taxpayer
‘‘gets back” part of his state or local tax payments
by having to pay less Federal income tax. The
net burden of a state income tax is therefore less
than the actual amount of tax paid.
The chart on the left illustrates these relation­
ships. It shows income tax levies as percentages
of the income of married couples in North Car­
olina. The difference between the net state tax
burden and the actual state tax paid increases as
the income of a couple increases and they become

subject to higher Federal rates. In the case illus­
trated, the net burden of the state income tax be­
comes a decreasing share of the taxpayer’s income
at incomes over $25,000.
As shown in the chart, the lower the Federal
tax rate to which a taxpayer is subject, the smaller
is the part of his state taxes that he “gets back”
when he deducts them on his Federal return.
Thus the Federal tax provision that gives most
married couples a lower tax rate than is imposed
on single persons with the same income has an in­
teresting effect on net burdens of state taxes.
The married couples subject to a lower Federal
tax rate “get back” a smaller part of their state
tax payments than do single persons with the same
income. At high income levels this difference is
large enough to make the net burden of a state
income tax on married couples greater than that
on single persons.
The table showing net burdens of the Virginia
income tax illustrates this fact. As shown, how­
ever, at extremely high incomes the net burden on
single persons is again higher than that on mar­
ried couples. This happens because the top Fed­

eral tax rate is the same for both single persons
and married couples.
TAX BURDENS COMPARED
In comparing state
income tax burdens at different incomes or in dif­
ferent states, all of the factors discussed above
must be considered. To make a fair comparison
among taxes on persons with differences in income
or marital status, the net burdens should be used
to measure the tax load. Then, to measure the
relative tax loads, it appears fairest to compare
the net burdens with the incomes that the tax­
payers would ordinarily retain after paying Fed­
eral income taxes if no state income tax were
levied.
The chart below makes these comparisons for
taxes on married couples in the Fifth District. The
variations shown are particularly striking be­
cause this entire group of relatively similar taxes
falls within the middle range of tax burdens when
compared with other state income taxes. It is
also worth noting that none of the taxes can be
described as highest or lowest without reference
to a particular level of taxpayer incomes.

NET BURDEN OF STATE INDIVIDUAL INCOME TAXES ON MARRIED COUPLES
as percentage of the income that they w ould ordinarily retain after
paying Federal income tax if no state tax w ere levied
Per cent

Adjusted gross income (thousands of dollars)




5

Form 3CN-117
2 60
( -

-

U.S.

)

D epartment

of A griculture

A g r i c u l t u r a l M a r k e t in g S e r v ic e

COTTON CLASSIFICATION MEMORANDUM Form 1
Gin Bale No.......2262 . .. ^Address $
........Anytown Gin ^Company.
Anytown, U.S.A.

Whse. Bale N o......................... ..........
D a te

.....October 15 , i960

Grade

P- 999766

1 - 1/16
Staple

Reduced from

a/c or Remarks
...............

Chairman, Board of Cotton Exuminers.

W e c e r t if y t h a t a c c o r d in g t o th e O ffic ia l C o t t o n S ta h tfa r d s o f t h e U n ite d S t a t e s t h e g ra d e a n d
s t a p le le n g t h o f t h e s a m p le o f c o t t o n h e r e in id e n tifie d a r e a s s h o w n a b o v e . T h is c la s s ific a t io n
a u u lie s o n lv t o t h e s a m o le a s a n d w h e n s u b m i t t e d .
iii
12

Above:

Here

an

experienced

cotton

classer

determ ines

the

proper g rade of the cotton by com paring the sam p le w ith one

Right: The classer pulls a portion of the fibers to determine
the staple length.

G ra d e and staple length are then stamped

on the class card w hich is returned to the farm er.

CO TTO N
CLASSIFICATION
There are many differences in cotton which affect its usefulness and hence its market value. For this reason, it is important that each bale of cotton
be classified as to quality before it enters marketing channels.
All farmers who have organized to improve the quality of their cotton are offered free cotton classing service by the U. S. Department of Agriculture.
Each group must apply for this service and select a bonded sampler—usually a local ginner or warehouseman—to take samples from each bale
The
sampler must cut samples from both sides of a bale. He then mails both parts of the sample, together with the green class card which identifies it to
classth e f arm er'scotton °
* exPenenced cot,on classers, working under artificial daylight and carefully controlled temperature and humidity,
G£ ADf S u1!!® qU* l'ty ° f * S h ? n iS e* P res?ed in . er™ s of 9 rade and s^ Ple length. The term "grade" refers to the cotton's color, the amount of leaf and
a
,
seven color group”
quality of the ginning. For upland cotton, the principal kind grown in this country, there are at present 39 grades and
The major color groupings-W hite, Light Spotted, Spotted, Tinged, Yellow Stained, Light G ray, and G ray-ind icate the degree of whiteness
Grade
names m order of their highest value are referred to as Strict Good Middling, Good Middling, Strict Middling, Middling Plus, Middling, Strict Low Middling
Plus, Strict Low Middling, Low Midd mg Plus, Low Middling, Strict Good Ordinary Plus, Strict Good Ordinary, Good Ordinary Plus, and Good Ordinary These
terms mdicate variation in minor color differences within a major color group, in foreign matter, and in the quality of the ginning. The entire ranae from
Strict Good Middling through Good Ordinary is found only in the White cottons, however.
STAPLE LENGTHS When the classers use the term "staple length," they refer to the normal length of the cotton fiber. Unlike the grade standards the
number of official stapks length standards is indefinite. For upland cotton, however, there are 14 official staple lengths represented in physical form
These range from 13/16 inch upward in gradations of thirty-seconds of an inch to 114 inches.
torm.
Both grade and staple length affect the market price of cotton. Thus, cotton of the same grade varies in value with staple length. Similarly prices
for cotton of the same staple length vary according to grade. To illustrate: The price of Middling White 1-inch cotton w as quoted on the Greenvilk South
Carolina, spot market at 31.00 cents per pound on October 18
Middling White 1-1/16 inch cotton w as priced at 32.45 cents per pound-a difference of
the stm er|ength stapTe

CO,t° n WQS **

^ 26 50 Ce",S P8r Pound- * 22-50 Pe' bale below the higher grade Middling cotton with

VALUES

The little green card can mean more money in the cotton farmer's pocket. The card tells him what quality cotton he has to sell, and the mar* rep° rtf. qUOt® th? curren* Pn«es; of the various grades and staple lengths. Armed with this information, the farm er is likely to be in a better
wm?*l!nm9 P
n when he 9 < es to sell his cotton. With the aid of the green class card, he can also compare the current spot market prices and local bids
>
with the government support rates for his quality of cotton. This comparison enables him to determine whether it is more profitable to sell his cotton on the
open market or to market it through the government support program.
*hThu f la. si* cati° n of cotJon a ’so ° ids thLe buyer and cuts marketing costs. The buyer can be sure of the quality of cotton he is getting-that the quality
s
f l#rf5v San/e aS !*
• Sta,j i° n •
green
' W,th this assurance, he can buy and sell cotton more intelligently and more efficiently
The
co for FRASER
Digitizednd ition ^ s^ hey *jour ney To* the* cotton miHs!^


t,me ° b a ‘e ° f CO,,° n ChangeS handS *

0,50

e ,im in a ,ed -

This in tur" helP* k - P the bales in b e tte r

M em ber Banks Adjust
To N ew Vault
Cash Regulations
On November 24, 1960, member banks were
permitted to begin counting all of their vault cash
as legal reserves. This was the third step taken
by the Board of Governors of the Federal Reserve
System to implement the part of Public Law
86-114, passed by Congress on July 28, 1959,
which authorized the Board to permit member
banks to count all or part of their vault cash in
meeting reserve requirements.
The first step, taken about a year ago, allowed
reserve city banks to count as required reserves
all vault cash in excess of 2% of net demand de­
posits, and country banks to count all vault cash
in excess of 4% of net demand deposits. Late
this summer in its second step the Board author­
ized reserve city banks and country banks to count
vault cash in excess of 1% and 2 }4% of net de­
mand deposits, respectively.
HOW MANY BANKS WERE AFFECTED?
In the
first reserve period after the December 1959
change in vault cash regulations, 68% of member
banks in the Fifth District were able to count some
of their vault cash as legal reserves. In the first
reserve period after the second change, 95% of
Fifth District member banks had some reserves in
the form of allowable vault cash.
The chart on the opposite page shows the pro­
gressively greater amounts of vault cash allowable
at Fifth District banks during the reserve periods
immediately following the first two changes in reg­
ulations. It also shows an estimate of the amount
of vault cash that banks can now count as legal
reserves.
HOW DID BANKS USE THESE FUNDS?
The
banking system may use an increase in reserves to
purchase securities, to grant more loans, to re­
duce borrowings from Federal Reserve Banks, or
to meet the public’s occasional need for more cur­
rency. Or banks may simply choose to maintain
excess reserves at a higher level.
Available data suggest that reserve city banks
in this District used the reserves supplied by the
Digitized for8
FRASER


first two changes in vault cash regulations to re­
duce their borrowings and to increase their loans.
Country banks apparently followed the same
course, and in addition made substantial purchases
of United States Government securities after the
second change.
HOW QUICKLY DID BANKS ADJUST?
Fifth Dis­
trict reserve city banks responded very quickly to
easier positions resulting from changed vault cash
regulations. For several months before the first
change, they held excess reserves averaging 0.5%
of required reserves. The first change released
cash estimated at about 3% of their required re­
serves. If they had not used these funds in the
ways discussed above, their excess reserves would
thus have risen to about 3.5% of required reserves.
However, reserve city banks apparently employed
most of the released funds quickly, since excess
reserves averaged just 1.3% of required reserves
during the first two weeks after the change. By
the third week, excess reserves had been reduced
to the level prevailing before the change.
Following the September 1960 change in regu­
lations, vault cash of Fifth District reserve city
banks rose from 3% to 9% of required reserves.
The banks employed these reserves even more
rapidly than after the first change. If they had
made no adjustment, their excess reserves would
probably have risen to about 6% of required re­
serves. Instead, excess reserves showed only a
slight increase in the first reserve period after the
change, and even this increase was eliminated
within twro weeks.
Following each change in regulations, reserve
city banks in the United States as a whole ad­
justed about as quickly as those in the District.
Fifth District country banks wT much slower
ere
in using their additional reserves. Just before the
first change in regulations, they held excess re­
serves averaging 7% of required reserves. The
first change released vault cash estimated at 5%
of required reserves. If they had made no adjust-

ment, their excess reserves would thus have in­
creased to about 12% of required reserves. Ap­
parently, the country banks utilized a small part
of the released funds quickly, since their excess re­
serves in the first reserve period following the
change in regulations equaled 11% of required re­
serves. However, they maintained excess reserves
at this level for another month. The final adjust­
ment reducing excess reserves to 8% of required
reserves was not made until two months after the
regulations had been changed.
By August 1960, monetary conditions had eased
further and excess reserves at District country
banks had risen to an average of 10% of required
reserves. The second change in regulations re­
leased enough vault cash at this time to have raised
excess reserves of these banks to about 19% of
required reserves if the funds had not been used.
In the first reserve period after the change, excess
reserves at these banks actually rose to 16% of
required reserves. Thus, some of the released
funds were used quickly, but the rest were held as
excess reserves. In succeeding periods these ex­
cess reserves were gradually reduced, but three
months later they still totaled 12% of required re­
serves. The adjustment thus proceeded even more
slowly than after the first change in regulations,
probably because banks were already in a some­
what easier position.
Country banks in the United States as a whole
apparently utilized a greater part of their released

funds immediately than did Fifth District country
banks. After each change in regulations, how­
ever, the rest of their adjustments proceeded at
about the same rate as in the District.
THE NOVEMBER CHANGE
As part of the last
change in vault cash regulations, the Board of
Governors also increased reserve requirements for
country banks from 11% to 12%, both changes
effective November 24. Consequently, the reserves
released in the form of vault cash were partially
absorbed by the higher reserve requirement.
Advance estimates were that about $57 million
of reserves would be relased as additional allow­
able vault cash at Fifth District country banks.
About $23 million of these would probably be
needed to meet the increased reserve requirement,
leaving a net gain of $34 million. Additional vault
cash released at District reserve city banks was
estimated at $27 million. Member banks in this
District thus probably gained a net total of about
$60 million of additional reserves on November 24.
For the country as a whole, the recent changes
in reserve regulations were expected to supply
about $1.3 billion of reserves. This figure in­
cludes not only the net release of reserves result­
ing from the change in vault cash regulations and
the increase in country bank reserve requirements,
but also reserves released by the reduction in re­
serve requirements for central reserve city banks
from 17^-2% to 16)4% on December 1.

VAULT CASH, TOTAL AND ALLOWABLE AS RESERVES
FIFTH DISTRICT BANKS
Reserve City Banks

11/26/5912/ 2/59

12/3/5912/9/59

9/1/60 9 /7/60

Country Banks

120
Mil,

11/24/601 1/30/60*

11/16/5911/30/59

12/ 1/5912/15/59

8/2 5 /6 0 9 / 7/60

11/24/6011/30/60*

''Estimated on basis of vault cash figures for week ended October 26, 1960




9

THE FIFTH DISTRICT
Recent weeks have brought evidence of further
erosion in Fifth District business conditions. Em­
ployment fell a little more in October than in
preceding months, but the total reduction during
the current decline is still quite small. After sea­
sonal adjustment, the number of workers holding
nonfarm jobs in October was less than 1cc below
/
the record levels of April and May. The decrease
in October, however, was as great as the total de­
crease during the previous four months. Insured
unemployment rates in recent weeks have risen in
all Fifth District states and the District of Colum­
bia. These ratios are, however, well below the
national average except in Maryland (slightly
below) and W est Virginia (definitely above).
Declines in manufacturing activity have been
more marked. Seasonally adjusted man-hours in
the District’s manufacturing industries during
October were 6% below the year’s peak in May.
The October decrease was smaller than the cut­
backs in August and September, but somewhat
greater than the declines in June and July.
FEW EXCEPTIONS
October statistics show few
areas of enterprise running counter to the general
decline. One of these, finance, insurance and real
estate, increased employment more than seasonally
for the seventh month in a row. Services scored
a better than seasonal gain, thereby resuming an
upward movement which was interrupted only by
the sharp drop last March, and smaller declines in
July and September. Employment in the trade
sector, seasonally adjusted, remained virtually un­
changed at a level about 1% above that of the first
quarter of the year, but slightly below the levels
that prevailed during the spring and summer.
The number of jobholders in other industries
moved downward from the September levels. The
current cyclical contraction in employment thus
continues. September gains of more than seasonal
magnitude in many industries proved to be tempo­
rary. In District mines, seasonally adjusted em­
ployment decreased 2.5% in October, continuing
a long-term trend.
Seasonally adjusted man-hour figures in manu­
facturing for October also revealed few departures
10



from the general downward course of business.
Three such exceptions were in the durable goods
group. These were transportation equipment and
lumber, each with marked gains over September,
and fabricated metals which gained slightly. The
increase in transportation equipment man-hours
more than offset a drop which occurred in Sep­
tember, reestablishing a definite upward move­
ment. This industry started the year in a fairly
strong position, lost ground rather steadily in the
first half, but has regained nearly all of it.
Trade sources indicate that the October rise in
lumber industry man-hours resulted from a tem­
porary improvement in demand in the middle of
the month. During most of the year lumber mar­
kets have lagged behind expectations. Consider­
able numbers of unsold new houses in some parts
of the District and elsewhere in the nation stand
as mute evidence of slack demand. They also ex­
plain why market reports indicate no current im­
provement in the lumber business. Slightly off­
setting this poor outlook, a good seasonal pickup
in sales of lumber for purposes other than house
building has recently been reported by retailers.
Among District nondurable goods manufactur­
ers, only food products and cigarettes showed sea­
sonally adjusted man-hour gains in October. The
cutbacks in other industries of this group included
declines of over 2% in the broadwoven goods
component of textile manufacturing and more than
3% in knitting mills and apparel factories.
ALL EYES ON TRADE The year’s big retail sell­
ing season is now well under way. The strength
of final demand revealed by consumer outlays for
goods and services during these final weeks of the
year may provide a basis for judging the extent
and duration of the present business adjustment.
Evidence available to date remains inconclusive.
The seasonally adjusted index of District de­
partment store sales, a sequence of ups and downs
so far this year, moved down again in November.
A preliminary estimate indicates a 9% drop from
the very good level reached in October. Current
reports on retail trade, however, suggest that total
consumer spending around the District may not

With only a fa ir fall season behind them retailers a re hoping that C hristm as items and attractive disp lays w ill stir consum er enthusiasm .

be this far off the previous pace. These reports,
while lacking in precision when compared with the
department store sales data, do have broader
coverage and are based on experienced insight.
SHARP COMPETITION IN CARS
In the District
as in the nation, reports on automobile sales re­
main generally favorable. As in nearly all con­
sumer markets, however, competition is steadily
mounting in the automobile sales field. One rea­
son for this development is the scramble for shares
in the compact car market. Another reason is
overproduction of 1960 models, significant num­
bers of which are reportedly still unsold. These
market conditions strongly suggest a squeeze on
profit margins too great to be readily offset by in­
creases in the number of units sold.
Sales reports on other consumer durables are
mixed, but the consensus is somewhat on the low
side of normal seasonal expectations. Home en­
tertainment equipment and electric dishwashers
are providing the most favorable reports. Laun­
dry equipment, stoves and refrigerators are ap­
parently not moving as well. Actual pessimism,
however, is scarce. Many dealers apparently con­
sider the current volume and outlook to be close
to satisfactory.
SOFT GOODS HURT BY WARM WEATHER
Some
of the current lag of District trade and industry is



explained by the above-normal temperatures which
prevailed this fall over most of the nation. Con­
sumer purchases of fall and winter clothing have
thus not come up to the volume that retailers, ap­
parel manufacturers and textile mill operators had
expected. In anticipation of good demand, knit­
ting mills reduced operations only 2°/o in Septem­
ber,when other sectors of the textile industry wrere
cutting back production by 4% or more, as meas­
ured by man-hours seasonally adjusted. Apparel
manufacturers in the District, also faced with a
less-than-seasonal volume of orders, cut produc­
tion in September by nearly 4% on a seasonally
adjusted basis. Both knitting mills and apparel
factories were forced to curtail seasonally adjusted
man-hours again in October.
The resurgence of consumer soft goods buying
which has been needed to start the chain of new
orders flowing from retailers to apparel manu­
facturers to textile mills and finishers has still
failed to appear. Inventories, especially of sea­
sonal goods, have been kept low at all levels.
Emphasis now is on the planning of spring lines.
Any pickup in consumer buying of fall and winter
clothing which may occur will, in the opinion of
industry analysts, be too late to have much direct
effect on production. Industry sources have been
predicting for several months that trade inven­
tories in certain lines of soft goods would prove
11

The District offers its grow ing apparel industry proxim ity to
textiles and easy access to eastern and m idwestern m arkets.

Acrylic fiber production is increasing steadily in order to meet
a rapidly grow ing dem and for its use a s a textile component.

to be inadequate, but demand has not yet gained
enough strength to prove them right.
INDUSTRY ROLL CALL Textile markets have re­
cently acquired a firmer tone. Gray goods for sale
from dealers’ inventories are definitely more
scarce. Having met lagging demand by reducing
output, the textile industry appears to be in a good
position to obtain satisfactory prices on the still
rather low but growing volume of new orders.
In textiles, the trend toward greater use of manmade fibers and filaments is becoming increasingly
apparent. W ithin the synthetic fiber and filament
industry, furthermore, the trend is away from
products made from natural cellulose, especially
rayon, and toward highly synthesized chemical
products such as nylon, orlon, dacron and a grow­
ing host of others’ In 1950 man-made fibers ac­
.
counted for about 20% of total fiber consumption
by weight, wool about 13% and cotton the remain­
ing 67%. The most recent figures show manmade fibers 27%, wool about 8% and cotton 65%.
Whereas consumption of man-made fibers by
weight in 1950 was about 90% rayon and acetate
and 10% other, the proportion now held by the
“noncellulosic” group is nearly 40%.
Of the plants which produce these synthetic tex­
tile materials, those now located in the Fifth Dis­
trict comprise more than 40%. To meet the needs
of this growing and changing demand, the Dis­
trict’s productive capacity for synthetic fibers is in
process of expansion and conversion.

Contract construction on balance continues to
be a source of strength. New contract awards for
nonresidential and public works projects in the
District have risen again recently. Contracts
awarded for construction of the Chesapeake Bay
Bridge-Tunnel Project raised the October total
for public works and utilities in this District to its
highest point on record. Residential awards have
strengthened but remain well below the levels of
a year ago.
Cigarette sales and shipments continue to set
new records in response to steady increases in de­
mand at a rate of about 5% per year.
Spokesmen for the furniture industry rate as
“very satisfactory” the flow of new orders booked
this fall. This year may well be furniture’s second
best, failing by a small margin to equal 1959.
Coal, like lumber, remains a soft spot in the
District economy. Conditions have changed little
during the year. Foreign shipments have been
picking up recently, but with steel production still
lagging, the output of coal remains at disappoint­
ing levels—little higher than a year ago when de­
mand was low because of the steel strike.

12




PH O TO CREDITS
C over—W ashington
Agriculture
Post—Colonial

Post

8. Colonial
Studios

6. U.
Studios

S.

Departm ent

12. Burlington

E. I. DuPont deN em ours, Inc.

of

11. W ashington
Industries—


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102