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RESERVE BANK a FED, RICHMOND JANUARY 1951 W ar’s Effect on Price Levels PerCent Source D ( Mid -June Figure - tOO) Bureou o f Labor S tatistics i f f e r e n c e s in the rates of increase for im p o r- A l s o I f l T h i s ISSUC - - tant price groups since the beginning o f the Korean conflict indicate upward pressure exerted Fifth District Trend Charts---------------------Page 2 on retail prices. The article “ Cost of Living” on Useful Tools In Farm Credit------------------- Page 5 page 3 attempts a brief analysis of these recent Assets Ratios In 1950------------------------------ Page 7 price changes and points out some forces creating Business Conditions and Outlook________Page 9 further inflationary pressures both nationally and Additions to Par List___________________ Page 10 in the Fifth District. Statistical Data_________________________ Page 11 FEDERAL RESERVE BANK OF RICHMOND F AUTOMOBILE if t h d is t r ic t ------------------------- + + ------------- + + + -------------MANUFACTURING BUSINESS FAILURES seasonal correction 1949. Failures may month or two but be too long before ♦ ♦ ♦ WHOLESALE CONSTRUCTION CONTRACTS AWARDED Substantial increases in contract awards for apartments, hotels, one and two family houses and commercial buildings were pri marily responsible for raising total construction contracts awards in November 28% above October on an adjusted basis to a level 9% ahead of a year ago. EMPLOYMENT Employment levels in the district in November were 1% below the recent peak in October but were 8 % above November 1949. The slight setback in November is mainly seasonal. The supply of skill workers is tight in this area. Man power is being withdrawn to the military services and the demand for labor by Spring will put real tension to the labor market. + + + POWER PRODUCTION Adjusted electric power production in October was 1 % above September and 25% above a year ago. The trend in eletcric power production has been most persistent for many years except for small decline following the end of the war and during the recession of 1949. The trend has been up more sharply since the war period than at any time in its history. + ------------------------- Business failures in November rose 9% after from October and were 45% under November remain around the current level for the next with the favorable business outlook should not they start tending downward again. r e n d s ELECTRIC REGISTRATION New passenger car registrations in November, partly estimated, were off 15% from October but continued 11% ahead of a year ago. Initial effects of Regulation W were depressing to car sales but business has since improved. Used car prices are somewhat firmer. T DRY GOODS Sales of wholesale dry goods firms in the district dropped 7% from October but continued 59% ahead of November 1949. Peak sales of these firms occurred in August this year and the trend has been downward since but sales volumes continued higher in November than in any previous period excepting the previous three months. 2 y JANUARY 1951 MONTHLY REVIEW Cost of Living: Further Rise Indicated This Year the N R A period of the ’30’s, one of the more emotional exhortations of the N R A administrator, General Hugh Johnson, was: “ Keep prices down— for God's sake, keep prices down.” N o such agitated im precation has come from official sources in the current inflationary era though there is no doubt that there exists a comparable intensity of feeling with respect to price movements. A s defense dollars are added in increasing amounts to civilian dollars in competition for available goods, inflationary forces will indubitably be intensified. An unchecked inflation, however, would be extremely detrimental to the rearmament program and cannot, of course, be permitted. Consumer Prices at New Highs in Fifth District 3.2% since the last pre-Korean index (June 1950). 4.2% since November 1949, and 31.7% since June 1946, the last month in which the price ceilings of W orld W ar II were operative. In the whole period since the close of W orld W ar II, increases in food prices have been the “ worst offender” in boosting the cost of living. This was true during 1950 and food increases account for one-half of the total rise in consumer prices in all large cities up to October. As compared with an advance of 6.8% in food prices throuhout the country from January 15 to November 15, 1950, Norfolk had a rise of 8.1% , Richmond 7.2% , Baltimore 6.1% , and Washington 6.4% . u r in g D Indexes of consumers’ prices are computed for only four cities in the Fifth District: Baltimore, Washington, Norfolk, and Richmond. Unfortunately for purposes of comparison, the data are computed only quarterly and on different dates for the cities covered. On the basis of the experience of these four cities, it appears that in general the rate of rise in retail prices in the District since the end of W orld W ar II has been about the same as the average for all large cities in the nation. There have been, of course, divergences in certain components of the over-all indexes; in Richmond, for example, the percentage rises in rents, fuel and electricity, and housefurnishings were substantially larger than for the United Within the general price structure the movements of consumer prices attract considerable attention as one of States as a whole. In Washington, on the other hand, the factors in the stand rents rose at only half the ard of living and as a rate recorded for all large factor in the “ vicious cir cities. In Baltimore the Co n su m er Pr ic e s in th e Un it e d S ta t e s cle” of wage and price rise in apparel prices was RATE OF GROWTH IN POST-WAR YEARS increases now so obvious substantially less than the ly operative. It was wide national increase while ly opined at the beginning the price of fuel, electric of 1950 that retail prices ity, and ice rose consider would decline during the ably more than it did on year. According to the the average for all large picture in many crystal cities. balls, the drop would be A s in the case of most slight, b u t at least the large cities in the country, change would be in the the rise in retail prices “ right” direction, a n d since the Korean invasion consumers could look for has lifted the Consumers’ Source • Bureau of Labor Statistics • ward to a gradual in Price Index for each of crease in the value of the four cities reported their dollars. Like mai); other well-intended prognosti on in this District to record levels for the post-war cations, however, this one ran into a number of unex period. A s early as August retail prices in Washington pected developments, and the results have been at odds and Norfolk had exceeded the previous peaks set in the fall of 1948. The latest figure for Richmond shows a new with the forecasts. high on October 15, and although consumer prices in Recent data released by the Bureau of Labor Statistics Baltimore on September 15, the date of the latest release, show that retail prices reached a record high as of had not quite reached the 1948 level, it is likely that by November 15, 1950. On that date, the Consumers’ Price year end they, too, will have pushed past the former peak. Index stood at 175.6% of the 1935-39 average— a rise of One oi the immediate effects of the rise in consumer prices during October was the automatic increase in wages for a million or more workers under escalator clauses, like those in the auto industry, that tie pay rates to the cost of living. In industries where wage raises are not formally tied to consumer prices, rising retail prices (especially foodstuffs) have accentuated upward pressures on the spiraling movement of wages, costs, and prices. Although food prices are below the peak reached in July 1948, food is the highest major component of the Consumers’ Price Index (the other components are ap parel, rent, fuel-electricity-refrigeration, housefurnish•i 3 y FEDERAL RESERVE BANK OF RICHMOND ings, and miscellaneous). Price increases have raised the food index for the United States to 209.5% of its 1935-39 base, in Baltimore to 219.3, in Norfolk to 210.7, in Washington to 206:9, and in Richmond to 201.8. Con trary to the average experience of all large cities, food prices in Washington and Richmond have not risen as much, in relation to the 1935-39 base, as have prices in two other categories. In Washington the index for ap parel is the highest component of the over-all Consum ers’ Price Index, and in Richmond the highest index of prices is housefurnishings. Other major price variations in this District are found in the category of rents. Due to the lifting of state controls, Richmond and Norfolk experienced largerthan-average increases in rents last year. In the former the rise during the first ten months of 1950 was 11.7% as compared to an increase of 2% for all large cities. In Norfolk the rise of 7.1% up to November 15 was over three times the rate of increase in all cities. cessitated by the rearmament program ; at the same time the growth of the latter will augment still more the flow of personal income. Prospects: Continuation of Upward Trend The accompanying chart clearly indicates the reasons for anticipating a continued advance in the cost of living and also points up the difficulties in implementing ef fectively controls on retail prices. The trend of prices of consumer goods is influenced by price movements for raw materials, supplies, and parts used in the process of manufacturing. T w o indexes may be tised to measure such price changes : The spot market index of 16 of industry’s most important raw materials and the index of wholesale prices. Both of these have moved into new high ground since the Korean conflict began— the form er as early as August and the B LS wholesale price index in late November. In comparison to the rise of 3.1% in retail prices in the period June 15-November 15, 1950, wholesale prices advanced 8.9% , and spot prices of raw materials skyrocketed 40% , one of the sharpest rises on record. In forecasting a higher cost of living for 1951, the Bureau of Agricultural Economics recently pointed out that how high food prices would climb depended on whether or not the Administration imposed price con trols. The latter were ushered in on December 20 when the Economic Stabilization Agency requested a volun tary price freeze on all goods and services, setting De cember 1 as the effective date of the freeze and in effect asking for a rollback of any price increases made since that date which do not conform to certain “ fair stand ards” set forth by the agency. In issuing the latter, E SA warned that they should meet with “ nationwide com pliance to avoid the necessity of further mandatory price controls/' It should be pointed out that although the Central Maximum Price Regulation issued April 28, 1942, and subsequent regulations stopped the steep rate at which prices were climbing during 1941 and 1942, consumer prices nevertheless increased 11.5% from May 1942 to August 1945. In brief, restraining price rises in a military economy comes under the heading of “ Neat trick— if it can be done,” and so far the prospects are not too bright that the trick will be turned. As recently pointed out by Marriner S. Eccles in Fortune Magazine, the purchasing power of the dollar can be successfully defended only when the amount of money available to those who would spend it, including the Government, does not exceed the supply of goods and services available. Even now— be fore the proceeds of huge military expenditures of the Government have begun to flow into the markets— the amount of money available for spending is excessive, and bank credit has been expanding in recent months at an unprecedented rate. Furthermore, the fact that the econ omy is already operating at virtual capacity limits se verely the possible increase in aggregate output— the prime orthodox check to growing price inflation. Actual ly, a reduction in the volume of civilian goods will be ne Although there is no precise arithmetical relationship between these price structures, the widening gap shown on the chart indicates the pressure on retail prices to advance, and it is this situation that will accentuate the difficulties in establishing and administering price con trols on consumer goods. Indicative of this is the fact that after Pearl Harbor, retail prices lagged behind sharply rising wholesale prices for some time, then began to climb so fast that by the time price controls were im posed, they had shot ahead of wholesale prices. A major difficulty in “ putting a lid” on the cost of living is found in the legal provision which sets certain minimums for price ceilings placed on farm products. In general, the minimum ceiling price for any farm product is either (1 ) parity or (2 ) the June 1950 price, which ever is higher. A t the opening of the new year many farm commodities were selling below their parity price or below the June 1950 price and further price rises could occur for these commodities before any price ceil ing could become operative. The major commodities which w^ere either above parity or above the June 1950 price included cotton, tobacco, wool, beef cattle, veal calves, eggs and lambs. Price ceilings for these products, if set at the legal minimum, would be from 10 to 25 per cent belowr present prices. On the other hand, a large number of commodities were selling below the legal minimum price ceiling. Included in this last group were all grains (except rice), peanuts, potatoes, butter fat, milk, hogs, chickens and fruit. The spread between price increases at the retail and wholesale levels has not been as great for food as it has, say, for apparel and other soft goods. Even so, as of November 15, 1950 wholesale food prices were up 10.6% from a year earlier while food costs in the Con sumers’ Price Index were only 4.3%; higher. Unless restricted by immediate and effective controls, the tend ency for this lag to be made up at the retail end will hit the consumer where it hurts most— his breadbasket. -! 4 y MONTHLY REVIEW JANUARY 1951 Useful Tools in Sound Farm Credit Extension* , The Agricultural Commission of the A.B.A., in advocating more active farm programs points out that an outside-the-bank farm program can: (1) increase local farm income which in turn will increase deposits; (2) encourage frequent personal contact with potential farm customers; (3) improve loan appraisals and encour age more effective consultations concerning farmers credit needs; (U) mobilize banks1 active support of exist ing programs for raising farm income and improving rural living; and (5) provide credit facilities tailored to farmers1 needs. , ’ is the largest single industry in the Fifth Federal Reserve District and, since farm credit plays so significant a role in providing the fixed and working capital requirements for farm operation, it is clear that any re-sharpening of the old tools— or intro duction of new tools— in farm credit extension is likely to improve the results, both from the point of view of credit grantor and grantee. A large part of agricultural credit is supplied by local banks, but it is widely felt that there is considerable room for improvement both in the quantity and the quality of service rendered. A n increasing number of banks in the Fifth Federal Reserve District are interest ed in doing a better job of serving their farm communi ties. Three steps are essential if the best possible job is to be d on e: First, the directors and officers of the bank must be convinced of the worthi ness of the undertaking and be willing to modify existing bank policies as needed to fa cilitate the program. Second, the job of developing the pro gram must be entrusted to a competent individual. Third, it is important that the bank make use of all available aids for keeping up with develop ments in agriculture and with the details of the farm busi ness of each of the bank’s farm customers— such as the farm credit file illustrated on this page. Proper Banking Policy Important A g r ic u l t u r e Primary responsibility for bank operation rests with the Board of Directors, and it would seem that no Board of Directors properly performs its duties unless it directs the bank’s operations so as to furnish complete banking facilities and services for the community, in cluding the bank’s farm customers. A proper approach to this problem, and fulfilment of the bank’s opportuni ties and obligations to these customers, cannot be ex pected of the bank’s officers and employees unless proper directions and support are received from the directors. ♦This article by H. Ciremba Amick, of the Bank Relations Depart ment, Federal Reserve Bank of Richmond, is designed to stimulate the thinking* of banks with farm interests on the old but ever new problem of farm credit. < 5 h { A ny bank embarking on a new or expanded farm program should establish the policy that it is going into the field with the definite purpose of staying in it and plan all of its operations accordingly. T o fulfill this requirement, the bank must establish a loan policy which will fix farm loan maturities so as to permit repayment from the operations of the farm business. The practice of offering credit to farm customers, for example, on 90day notes is unwise and unsound for both the bank and the customer. It still takes two years to raise a twoyear-old heifer from a day-old calf, and a three-month note is not much help in financing the buying and raisof dairy calves if the note is to be repaid out of the milk checks. Outside Farm Repre sentatives In recent years many of the country banks throughout the nation, as well as other agencies extending agricul tural credit, have found it de sirable to provide adequate and proper field servicing of their agricultural loans. There is nothing new in this prac tice— banks making loans to other businesses have been following it for many years. In the larger and many medium-size banks, it is believed that such servicing should be conducted by a separate department and by individuals whose primary duties are to work with farm customers. In some medium-size and small banks it might be impractical to establish a separate farm-loan department or to hire a professionally trained specialist in agricul ture to develop the outside farm program. Quite often, however, banks of this size have designated one of their regular officers to develop their farm program and have relieved him of some of his other assigned duties. Other banks have waited until they needed to recruit a new employee and then hired a young man with a good farm background, expecting to use him both for the agricul tural work and for other bank work. Many banks have directors who are successful farmers, and often they can be of real help to the regular staff of the bank in deal ing with farm customers. FEDERAL RESERVE BANK OF RICHMOND Banks large enough to secure the services of a full time farm representative may choose one who is a recent graduate of a State college of agriculture or one who, in addition to training in agriculture, has had practical experience working with other farmers and farm groups. The fields of Vocational Agriculture, Agricultural E x tension, and the Soil Conservation Service provide kinds of experience which often are sought by banks needing an agriculture man. Outside farm representatives should not only assist in adapting bank loans to fit the needs of farm borrowers, but should spend time with the borrowers 011 their farms, assisting them in obtaining the kind of credit and other banking services they need, and providing information or management service which the borrowers find helpful. The responsibilities of an outside farm representative would include checking loans, meeting prospective cus tomers, supervising agricultural relations, taking charge of youth promotional work, advising with customers and supervising programs for individuals and, in gen eral, helping farmers individually and collectively to attain greater success through the wider use of capital in their farm businesses. By making periodic farm visits in checking loans, such a representative safeguards the loan extensions to the mutual benefit of the bank and the customer. Farm visits afford an opportunity to check the management practices being pursued, whether farm machinery is properly cared for and placed under shelter w^hen not in use, whether minor repairs are provided before deterior ation becomes a major problem, and whether soil and water conservation practices are being employed. A group of farmers in Pennsylvania were queried recently as to how they felt about the need for a farm loan spe cialist. They were asked if they felt it would be of any value for a lending agency to have available a farm loan specialist, trained in farm management, with whom they could talk over the use of borrowed funds. Fifty-seven per cent of the farmers who answered indicated that they thought a man with proper qualifications would be of considerable value to a credit agency. This was two and one-half times the percentage of those who opposed the idea. The majority also said that if credit agencies had this type of employee, farmers would seek his advice. Some of those questioned suggested that banks in par ticular need to employ this type of specialist. Many of the farmers questioned appeared to be not only willing, but indicated that they would appreciate having some supervision and advice if it were of good quality. stalment credit. A valuable by-product of such a pro gram will be favorable publicity which, in turn, lends itself to enlarged banking service within the community. There are many things that can be done, by whom ever is assigned to develop the farm program of a bank, as a means of keeping up with new developments in agriculture. Am ong the best ways of doing this is to cultivate a close acquaintance with the professional agri cultural workers in the county where the bank is located, and also with farmers whose practices are recognized in the area as among the best. Much also can be learned from some of the chief business enterprises serving farm ers, such as dairies, feed stores, and machinery dealers. Farm Credit Files Essential In order to promote and maintain a program of sound farm loans, with resultant benefits to both lender and borrower, the banker needs detailed information concerning the farming operations of his customer. Such information is provided by the farm credit file. Although many banks operate successfully without such files, it is clearly in the interest of better banking to maintain ade quate records. A suitable farm credit file will permit compilation of a maximum amount of pertinent informa tion in a relatively easy manner. W hile at first sight most of the credit files now available from various sources may appear unduly long and complicated, actual ly, they consist basically of a balance sheet and an op erating statement, with a few optional supporting sched ules showing the detail of some of the principal assets and providing for the insertion of pertinent comments and observations. Many banks recognize the need for adequate credit information on their farm customers. Some have devel oped their own forms for recording the information they consider necessary. Others have adopted farm credit files as developed by various institutions. W ithin the Fifth Federal Reserve District, a number of banks have adopted the one developed by the Federal Reserve Bank of Richmond in cooperation with the Committees on Agriculture of the State Bankers Associations of the five States comprising the Fifth Federal Reserve D is trict. Supplies of this file are presently available to any bank in the Fifth District, free of charge, from the Fed eral Reserve Bank of Richmond. In most farming areas, applications for loans are sea sonal, and an attempt to prepare complete credit files at the time of loan applications would retard the process of credit extension at the very peak periods of the year when the making of loans should be expedited. A ccord ingly, the farm credit manager or some other designated person in the bank should begin accumulating pertinent information on customers and prospective applicants for loans well in advance of the seasonal peaks of such busi ness. In other words, the formulation and maintenance of individual farm credit files should be a continuous process with facts and figures revised and added as they become available. Once a well-organized farm service department, through its outside farm representative, proves satisfac tory to even a few of its farm customers, its success is assured. The word of its existence and operation will quickly spread. Its acceptance will mark the beginning of an enlarged banking service to farm customers through various types of loans, including mortgages, loans for production and conservation, and personal in i 6 y MONTHLY REVIEW JANUARY 1951 Member Banks Shifted to Higher Yielding Assets in 1950 ‘‘average” member bank in the Fifth Federal R e serve District continued to shift from liquid assets and Government securities to higher yielding loans and non-Government securities during 1950. Its capital posi tion relative to total assets or total deposits continued to improve during the year and the capital/deposit ratio stood at 8.9% . Rapidly increasing loans, however, out paced the increase in total capital accounts and the ratio of capital to total assets less U. S. Government securities and cash assets continued to fall. from 53.6% in 1946 to 37.1% in 1950. A t this level, the proportion of Governments held by the average bank is lower than in any year since 1942. Only one size group of banks (those with average deposits of from $50-100 million) failed to reduce the proportion of total assets held in the form of Governments in 1950. Booming business condi tions, lower reserve require ments, and anticipation of tax increases served to bring the member banks into more fully invested positions and encouraged the shift from Government securities to other earning assets. Member bank reserve requirements during most of the first half of 1949 were four percentage points higher on demand deposits and 2 y2 percentage points higher on time de posits than during the same period in 1950, and these requirements were reduced by stages throughout most of the third quarter of 1949. Consequently the average reserves held in 1949 were considerably larger relative to assets than in 1950. This was the principal factor accounting for the decrease in the proportion of cash assets. At 23.3% of total assets, this ratio was at the lowest level for the eleven years during which it has been computed. All size groups reported lower cash assets/total assets ratios for the year, with larger banks reporting larger decreases. The average share of total assets held as loans con 1949 1950 tinued to increase in 1950, as it has in every year since the end of the war. A t 32.6% the loans/assets ratio is higher than for any year since 1941. It has not reached the 40% which was typical of the immediate prewar period, nor is it likely to reach this level under conditions confronting the banking system in the near future. Loans comprised a larger share of total assets for each size group of banks in 1950. T w o factors account for most of the shift in the rela tive importance of loans of average banks— the change from the mild recession of 1949 to the boom of 1950, and the trend away from Governments into loans, which has continued since 1945. Five years ago the average ratio of loans to total assets was 14.1% ; in 1950 this ratio had more than doubled. The average ratio of real estate assets to total assets increased slightly in 1950, to 1.0%. This ratio fell off constantly during the war period as total assets were expanded and building needs were largely ignored, but increased in 1949 and again in 1950. The average capital/deposits ratio continued to in crease, as it has each year since 1946, and, at 8.9% , was higher than at any time since 1943. A number of banks T h e Since 1945 Fifth District member banks have been constantly increasing the proportion of assets held in non-Government securities. This average ratio has in creased from 4.3% in 1945 to 5.9% in 1950. T o some extent the heavy buying of municipals since mid-year, These were the major trends revealed by analysis of made presumably in anticipation of tax increases, served 1950 ratios computed on call dates of December 31, to increase this ratio. This increase, however, repre 1949, June 30, 1950, and October 4, 1950. These ratios, sents chiefly a continued adjustment of investment port to be included in the 1950 Operating Ratios statement folios to include a larger proportion of non-Government for release later, are arithmetic averages of individual securitiese, which yield a banks’ ratios, and hence dif higher return per dollar in fer materially from percent vested. Although this in ages computed from dollar A V E R A G E A S S E T S R A TIO S crease in holdings of nonaverages. A s each individual FIFTH DISTRICT MEMBER BANKS Government securities was bank is given equal weight 100% general throughout the Dis regardless of size, t h e s e trict, banks with less than ratios are more nearly typi 75% $1 million in deposits and cal of the ratio of an “ aver banks with from $25-50 mil age” bank, and more indica lion i n deposits reported tive of the action taken by 50% slight decreases in average typical banks in the District holdings of other securities than the aggregate dollar 25% as a ratio to total assets. figures. Throughout most of 1950 Fifth District member banks reduced their holdings of Governments absolutely as well as relative to total assets, thus providing funds to meet a rapidly expanding demand for loans, despite the relatively smaller increase in deposits. The average ratio of Governments to total assets has fallen consistently FEDERAL RESERVE BANK OF RICHMOND have been able to re-establish the traditional 1 to 10 ratio. The capital/assets ratio has similarly increased over the past five years, and now averages 8.1% for Fifth District member banks. A s previously suggested, holdings of loans and nonGovernment securities have increased more rapidly than have total capital accounts of Fifth District member banks, and the ratio of capital to “ risk assets” (total assets less U. S. Government securities and cash assets) again showed a decline in 1950. The average capi ta l/“ risk assets” ratio reported was 22.0% , as com pared with 26.9% in 1942 (the first year in which this ratio was com puted), and 37.9% in 1945. A ll size groups with less than $50 million in deposits reported increases in the ratios of capital/assets and capital/deposits in 1950. Banks with $50-100 million reported a decline in each of these ratios, while banks with over $100 million in deposits reported no change in either ratio. A ll size groups reported a decline in the capital/“ risk assets” ratio with the largest declines in banks with over $25 million in deposits, and in banks with less than $1 million in deposits. tion of average assets held during the entire year. Once the ratios for the individual banks have been computed, they are aggregated, and then divided by the number of banks in each group, thus giving the average of the individual ratios. For purposes of comparing ratios of individual banks with those of groups of banks, average ratios are much more satisfactory than if they were computed from the dollar amounts obtained by lumping together all individual bank reports. The reason for this is that if dollar aggregates were used, one bank with deposits of $100 million would influence ratios ten times as much as would a bank with deposits of only $10 million. Thus a banker who wishes to know the ratios of an “ average” bank, as opposed to the ratios of the banking system as a whole (which are so largely influenced by the larger banks), will find the operating ratios more useful. Use of Operating Ratios Operating ratios presented in the operating ratios statement can be very useful to individual banks for purposes of comparison as to the distribution of assets within their bank relative to the distribution for an “ average” bank, or for comparison of earnings from any particular source or expenses on any particular item with those of an “ average” bank. The average ratio of time deposits to total deposits showed a very slight increase from 34.1% to 34.2% in 1950. Techniques of Computation The operating ratios statement is sometimes criticised on grounds that it implies that the performance of the “ average” bank is to be used as some sort of “ goal of attainment” , or as a “ standard of achievement” . This, of course, is not intended. It is assumed that bankers, as do other businessmen, wish to have available for purposes of comparison the operational records of an “ average” bank, of similar size and in the same state. If this record is made available annually, as it is in the operating ratios, annual comparisons of changes in the various items can also be made. It is assumed that indi- The ratios presented in this article and in the operat ing ratios statement (to be released later) are computed from the averages of three call report dates in the case of assets, and from reports of earnings and dividends for the entire year in the case of earnings and expenses. As the earnings for the year are derived from assets subject to frequent change, it is felt that the rates of return are more comparable if computed relative to average assets for the year. The ratios are computed on the assump tion that the average of assets at year-end, mid-year, and fall call report dates gives a reasonable approxima Continued on page 10 A V E R A G E A SSE T S R A T IO S , F IF T H D IS T R IC T M E M B E R B A N K S , 1950 (BY SIZE OF BANK) (All Ratios are expressed in percentages and are in all casesi arithmetic averages of individual bank percentages) Deposit Classification in Millions of Dollars— — Under 1 1-2 36 94 Number of Banks in Deposit Group— ______ Distribution of Assets Percentage of Total Assets 24.1 23.0 Cash Assets__________________ 35.5 U. S. Government Securities— __________ 37.1 -__ 5.4 5.9 Other Securities____________________________ 32.3 34.6 Loans ____________ .9 1.0 Real Estate Assets— Other Ratios In Percentage Total Capital Accounts to Total Assets_____ Total Capital Accounts to Total Assets Less U. S. Government Securities and Cash Assets ________________________________ Total Capital Accounts to Total Deposits— Time to Total Deposits_______________ __ 2-5 169 5-10 72 10-25 64 25-50 50-100 Over 100 All Banks 18 13 11 477 23.3 35.8 6.5 33.3 1.0 23.3 36.4 6.7 32.4 1.0 22.3 41.7 4.5 30.3 1.0 23.6 35.0 5.2 34.4 1.4 24.3 46.2 4.2 24.1 .9 26.6 42.5 4.5 25.1 .9 23.3 37.1 5.9 32.6 1.0 10.1 8.9 8.1 7.9 7.2 7.3 6.1 5.8 8.1 28.8 11.3 36.5 23.0 9.8 38.0 21.0 8.8 36.2 20.8 8.8 34.9 21.8 7.8 30.2 19.6 7.9 26.9 21.9 6.5 17.5 21.5 6.2 15.2 22.0 8.9 34.2 * 8 y ! MONTHLY REVIEW JANUARY 1951 Business Conditions and Outlook activity in the Fifth Federal Reserve Dis trict continues basically strong. Despite the fact that retailers’ and wholesalers’ inventories the country over are high in relation to their sales volume, there has been no apparent effect evidenced in the soft goods industries of this District. It is obvious that textiles of all types are not going to be in plentiful supply in the months ahead and, as a consequence, fabricators are quite willing to build up inventory at this time. It is probably fortunate in this period of transition from civilian production to military production that this in ventory accumulation can be effected. It has, however, had its consequences on the expansion of commercial and industrial loans of the banks and it has kept a rather constant upward pressure under the prices of most of these goods. Employment Levels u s in e s s B The over-all employment situation in the District ap pears for the time being to have leveled off due in part to seasonal tendencies in tobacco and food industries and in part to selective reductions in construction employ ment which have been no more than offset by expansion in the other employment outlets. Even so, the employ ment situation is tight in the District and undoubtedly some out-migrations are being experienced. The step-up in manpower requirements for the armed services will begin to put real pressure on the labor supply in the spring and it is apparent that a great many more women must be brought into the labor force. Personnel requirements at military installations and in shipyards and aircraft factories are being stepped up and more of the same can be expected in due course. Trade figures are again expanding after seasonal cor rection with soft goods in the forefront of the rise and with automobiles, appliances, and furniture holding at a surprisingly good level. Despite the heavy inventory position of retailers, as measured by the department and furniture stores in this District, sales of wholesalers are holding remarkably high, even though modest set-backs occurred in the seasonally adjusted figures from October to November in drugs, dry goods, electrical goods, and hardware lines. Relative to a year ago, sales of whole salers are up in all lines, with tobacco products up 2 % , groceries up 59r, drugs up 29% , and all others more than 40% . Construction Still High Although somewhat under its peak level of the sum mer, the construction industry is still being maintained at a very high level. Building permits in 30 cities of the District in November were 27% higher than the same month a year ago, with IS cities showing gains and 15 losses. Announcements of new plant construction have been substantial in recent months and every week brings further news of such constructions. Prominent among these are a combed fabrics mill in Greenville, South Carolina, for $4 million; additions to a rayon finishing plant at Old Fort, North Carolina, $1 m illion; new spun rayon plant in Raeford, North Carolina, $7.5 million; improvements to ore piers at Baltimore, Maryland, $1 m illion; enlarged plant, Danville, Virginia, $3.5 m illion; machinery plant at Towson, Maryland, $1 million; meat packers distribution plant, Norfolk, Virginia, $1 m illion; new machinery mill at Gastonia, North Carolina, $1 mil lion ; additional cotton mill facilities, Clinton, South Carolina, $1.25 million; new building and machinery, Greer, South Carolina, $3 m illion; expansion at Gaffney, South Carolina, $1.2 million; expansion of telephone facilities, $3.6 million. The above does not take into account the expansion of DuPont’s plant in Camden, South Carolina, and a new orlon installation at Kinston, North Carolina, nor additional facilities for dynel pro duction by Union Carbide at Charleston, W est Virginia, and many others for which details are lacking. Lumber Firmer The lumber industry’s price structure has firmed up following a considerable weakness in October and N o vember and new orders have established a better relation ship with production and shipments. There are indica tions that some retailers have become somewhat anxious over the future supply situation and have indicated a willingness to add to yard stocks. November weather conditions in this District were not favorable for log ging, but for the time being supply and demand seem to be fairly well in balance. The heat has been taken off the hardwood market, but thus far the price structure is still firmly held. Furniture manufacturers have re duced their hardwood purchases to some extent. Pay scales in the lumber industry are such that it may be among the first to find its workers moving into other industries. Sales of department stores of this District rose more than seasonally from October to November, but those of furniture and household appliance stores show a con trary trend. These latter sales, nevertheless, remain in a high area, despite the fact that they are slightly below last year’s level. Department store inventories are high by past standards and this has found its reflection in preChristmas clearances. Announcements of clearance sales in the early days following Christmas are quite general, with prices marked to assure their success. The trade outlook in this District is viewed quite optimistically by retailers, despite the fact that smaller and smaller quan tities of durable goods will be available for sale. Apparel Manufacturing Growing Growth in apparel manufacturing in this District con tinues with a resolute persistence. In recent years it has been more pronounced in Virginia and the Carolinas than in its old established location in Maryland. It is i 9 y FEDERAL RESERVE BANK OF RICHMOND Outlook Stronger particularly pronounced in South Carolina where the industry in a period of three years has practically doubled. Loans of all member banks in the Fifth District were at a new high level on November 29. On this date, these loans totaled $1,927 million, a gain of $31 million during the month and a gain of $332 million over a year ago. Total deposits of $5,785 million were down $15 million from a month earlier but $293 million higher than a year ago. The gain came largely in demand de posits, with time deposits showing a gain of only $9 million above last year. The weekly reporting banks show commercial, industrial, and agricultural loans con tinuing their upward trend. They also show real estate loans and other loans, largely consumer, to be leveling off. The trend of sales of Series E Savings Bonds is still downward, but redemptions have fallen more than sales in recent months. The change in the fortunes of the Korean war late in November has had its repercussions on the economy of the Fifth Federal Reserve District. Whereas formerly it had not appeared that the impact of defense expendi tures would be too substantial on the District, it is now apparent that it is going to be much greater than under the previous conditions. The District’s shipyards, mili tary installations, and aircraft factories will, it appears, require a substantially larger number of workers and the soft goods industries, which had shown some tend ency to level off, are now likely to be called on for as nearly a full production output as they can deliver. Prices of many of the District's products, which had given some indication of reacting, or at least leveling off, have again firmed and the production outlook the Dis trict over seems to point to as near capacity levels as can be obtained. Member Banks Shifted to Higher Yielding Assets in 1950 Continued from page 8 been doing during the same period of time. Each Fifth District member bank receives annually an operating ratios statement, with the ratios for the individual bank computed and enclosed for convenience. It appears that many banks use these ratio statements for purposes of policy determination, and they are discussed at meetings of officers and directors. For banks which desire them, an appropriate number of additional copies of this statement, together with the enclosure giving the individual bank’s ratios, can be obtained on request when it is released. vidual banks will not only appraise the results of their own operations during the year, but will simultaneously appraise the performance of the “ average” bank. Of course no ratio can show the quality and flexibility of assets held, nor the ease with which these assets can be liquidated. N o suggestion is intended that individual banks should be satisfied with an average record, nor that they should use it as a goal of any sort. W hat is intended is that individual banks should have available for informa tional purposes records indicating what other banks have ADDITIONS TO PAR LIST The Peoples Bank of Iva, Iva, S. C., opened for business on January 2, 1951, and was added to the Federal Reserve par list on its opening date. The bank is in the territory served by the Charlotte Branch of the Federal Reserve Bank of Richmond, and its combined transit number-check routing sym- The First State Bank and Trust Company, Besse mer City, N. C., including its branch at Mount Holly, N. C., has agreed to remit at par for all checks received from the Federal Reserve Bank effective January 2, 1951. Both banking points are in the territory served by the Charlotte Branch of the Fed eral Reserve Bank of Richmond. The combined trans it number-check routing symbol of the Bessemer City office is T3 u b o lis ^ p -. The officers of the new institution are Dr. C. D. Evans, President, J. W . Simpson, Sr., V ice Presi dent, and J. P. Patterson, Vice President and Cashier. and the symbol of the Mount Holly • Branch is 66-925 531 U 0 h f JANUARY 1951 MONTHLY REVIEW PRINCIPAL ASSETS AND L IA B IL IT IE S U N ITED STA TE S AND F IF T H OF M EM BER BANKS D IS T R IC T LAST WEDNESDAY OF MONTH FIGURES 5th Dist. BILLIONS OF DOLLARS U.S. GOVT. S E C U R IT IE S LOANS LOANS AND IN V E S T M E N T S BILLIONS OF DOLLARS ✓ US 5th Dist. BILLIONS OF DOLLARS 4.0 U.S. 80.0 United States /> Fifth District Fifth District 111111,1t-LLU 20.0 DEMAND DEPOSITS, ADJ. TIM E DEPOSITS BILLIONS OF DOLLARS BILLIONS OF DOLLARS TOTAL D E P O S ITS BILLIONS OF DOLLARS 5th Dist 8.0 --------- u. s. 160.0 United States Fifth District Data Latest Partly Estimated Figures Plotted Fif,h Dis1rict • Nov 2 9 • 1950 United States, Oct. 2 7 ,1 9 5 0 D E B IT S TO I N D IV ID U A L AC C O U N TS (000 omitted) November 1950 Dist. of Columbia Washington Maryland Baltimore Cumberland Frederick Hagerstown North Carolina Asheville Charlotte Durham Greensboro Kinston Raleigh Wilmington Wilson W inston-Salem November 1949 11 Months 1950 11 Months 1949 $ $ 739,503 $ 9,650,080 $ 8,143,552 1,166,593 26,220 19,118 30,979 977,624 20,830 17,467 24,564 11,807,127 256,201 199,265 313,165 10,486,122 227,058 188,765 284,980 57,523 340,553 107,216 99,666 19,464 178,580 40,096 28,658 179,532 46,638 262,414 104,190 85,339 16,770 127,970 28,660 21,007 150,927 569,164 3,290,695 1,191,825 963,820 235,910 1,598,691 394,422 312,983 1,648,910 502,209 2,609,813 1,140,463 797,577 212,556 1,386,450 344,113 258,436 1,450,004 67,837 110,427 106,383 69,863 57,276 99,926 83,811 51,478 697,037 1,168,340 1,020,056 597,753 635,355 1,074,931 857,609 494,814 25,949 52,698 46,586 39,810 196,511 24,004 534,077 107,793 23,081 42,398 36,756 27,044 182,821 20,091 471,603 87,794 267,137 369,823 447,647 343,074 2,215,378 238,695 5,592,287 1,111,472 240,282 311,886 390,081 332,742 1,908,150 215,547 5,341,382 979,180 955,058 South Carolina Charleston Columbia Greenville Spartanburg Virginia Charlottesville Danville Lynchburg Newport News Norfolk Portsmouth Richmond Roanoke West Virginia Bluefield Charleston Clarksburg Parkersburg 42,636 149,246 31,877 64,174 26,752 25,286 116,759 24,748 54,397 22,682 453,013 1,456,452 334,054 649,974 294,497 District Totals $ 4,945,879 $ 4,051,854 $49,688,947 Total Demand Deposits______ Deposits of Individuals ____ Deposits of U. S. Govt_______ Deposits of State & Loc. Gov. Deposits of Banks __________ Certified & Officers’ ChecksTotal Time Deposits________ Deposits of Individuals Other Time Deposits_______ Liabilities for Borrowed Money All Other Liabilities________ Capital Accounts_____________ Total Liabilities.— ______ 435,952 1,398,463 305,828 600,478 271,037 $43,825,815 H untington 51 R E P O R T IN G M E M B E R B A N K S — 5th D IS T R IC T (000 omitted) Change in Amount from Dec. 13, Nov. 15. Dec. 14, ITEMS 1950 1950 1949 Total Loans_________________ +250,385 $1,129,051** + 25,627 Business & Agricultural____ 542,465 +135,215 + 21,501 Real Estate Loans________ 8,224 244,233 + 37,459 + — All Other Loans____________ 354,574 + 80,742 4,057 — Total Security Holdings______ 1,689,473 13,123 — 115,906 — U. S. Treasury Bills _______ 110,887 6,418 — 33,033 U. S. Treasury Certificates 33,888 —212,276 + 11,690 U. S. Treasury Notes _____ 338,633 7,627 +294,137 + — U. S. Treasury Bonds ______ 1,031,915 28,860 — 186,575 Other Bonds, Stocks & Secur. 174,150 + 21,841 2,838 + — Cash Items in Process of Col__ 282,852 40,334 + 28,781 Due from Banks______________ 207,587* + 26,659 + 22,888 Currency & Coin______________ 79,072 + 5,853 8,961 + — Reserve with F. R. Bank_____ 470,881 1,865 + 23,717 Other Assets___________________ 56,514 1,629 + 3,520 + Total Assets______________ $3,915,430 3,783 +223,009 + $3,038,081 2,293,479 62,825 154,007 478,433* 49,337 607,620 551,682 55,938 1,900 25,921 241,908 $3,915,430 + + — + — — + — + + 8,194 37,198 15,765 11,476 18,806 5,909 1,390 11,191 9,801 3,100 91 170 3,783 ♦Net figures, reciprocal balances being eliminated. ♦♦Less reserves for losses on bad loans. iiiy +207,053 + 165,172 — 16,042 + 7,027 + 39,486 + 11,410 + 4,254 + 531 + 3,723 — 5,450 + 4,459 + 12,693 +223,009 FEDERAL RESERVE BANK OF RICHMOND S E L E C T E D F IF T H D IS T R IC T B U SIN E S S IN D E X E S A V E R A G E D A IL Y 1935-39=100— S E A S O N A L L Y A D JU S TE D Oct. 1950 Automobile Registration1.. Bank Debits_______________ Bituminous Coal Production_____ Construction Contracts Awarded.. Business Failures— N o.___________ Cigarette Production-------------------Cotton Spindle Hours_______ Department Store Sales2___ Electric Power Production.. Employment— Manufacturing Industries1.. Furniture Manufacturers: Shipments2------Life Insurance Sales_______________________ 388 139 570 74 234 158 313 150 _ 271 Sept. 1950 Nov. 1949 259 411 161 462 68 206 163 312 327 151 401 279 Nov. 1950 245 395 151 606 65 231 155 332 323 150 387 341 198 317 127 521 135 233 144 304 274 139 310 269 % Change— Latest Month Prev. Mo. + — — + + + — + — + — Year Ago 6 6 14 23 9 14 3 0 1 1 4 3 23 22 9 9 45 0 10 3 25 8 44 1 + + + + — + + + + + + 1 Not seasonally adjusted. 2 Revised Series— back figures available on request. B U IL D IN G P E R M IT F IG U R E S November 1950 November 1949 11 Months 1950 11 Months 1949 4,750,580 24,625 50,820 143,450 280,539 $ 76,472,075 1,055,590 1,987,416 4,308,100 2,563,355 $ 47,439,030 511,015 825,652 1,993,898 1,832,472 84,057 259,217 48,166 1,415,045 147,028 194,457 1,377,152 2,717,398 5,637,263 5,891,572 1,736,501 14,764,393 5,028,525 3,854,141 31,006,694 16,089,934 2,239,011 4,807,958 1,103,674 11,337,951 1,772,410 1,658,961 16,159,711 13,084,849 590,998 62,800 171,000 494,267 100,023 280,540 12,725,810 1,622,048 6,898,994 9,607,860 1,134,131 5,151,628 North Carolina Asheville 121,193 Charlotte 3,522,861 487,337 Durham Greensboro 727,151 150,970 High Point Raleigh 1,127,185 291,384 Rocky Mount Salisbury 53,660 Winston-Salem 819,763 196,055 1,935,991 381,240 809,825 784,260 540,425 264,097 145,380 508,572 3,989,895 28,181,336 16,237,867 15,364,450 4,156,926 15,876,235 3,976,547 3,757,747 11,522,827 4,183,204 21,814,365 8,354,940 10,154,425 4,765,643 8,633,640 1,718,175 1,495,988 7,532,911 South Carolina Charleston Columbia Greenville Spartanburg 148,882 225,818 1,072,440 842,857 3,011,163 9,772,990 10,383,624 5,803,408 3,750,394 6,642,589 9,411,290 4,993,167 Maryland Baltimore $ Cumberland Frederick Hagerstown Salisbury 6,078,195 27,840 207,050 441,427 977,525 Virginia Danville 2,759,913 Lynchburg 229,175 Newport News 36,803 Norfolk 930,555 Petersburg 76,483 Portsmouth 132,650 5,828,536 Richmond Roanoke 413,852 West Virginia Charleston Clarksburg Huntington 276,085 342,960 475,050 56,015 $ Dist. of Columbia Washington 4,396,728 4,856,701 65,734,072 73,429,869 District Totals $ 31,813,144 $ 25,079,907 $389,411,498 $287,540,811 W H O LE SA LE TRADE Sales in November■ 1950 compared with Nov. Oct. LINES 1949 1950 Auto supplies ( 8 ) ________ + 24 0 Electrical goods ( 6 ) ______ + 62 — 6 Hardware (1 2 )___________ + 23 — 1 *0 Industrial Supplies (6) + 53 — 12 Drugs and Sundries (14).. + 12 — 3 Dry Goods (1 0 )___________ + 24 — 15 Groceries (6 2 )____________ + 4 + 4 Paper and Products (7) ... + 33 + 6 Tobacco & Products (10) _. + 6 + 5 Miscellaneous (9 5 )_______ + 22 — 7 District Totals (230).... + 18 — 4 Stocks on November 30, 1950 compared with Nov. 30, Oct. 31, 1949 1950 + 6 + 1 + 11 + 19 + 18 + 6 — 2 — 7 + 9 + 2 + 17 + 3 0 + 17 + + + 16 17 16 + + + ~5 4 3 Number of reporting firms in parentheses. Source: Department of Commerce. -♦ + + R E T A IL F U R N IT U R E SALES Percentage comparison of sales in periods names with sales in same periods in 1949 STATES November 1950 11 Mos. 1950 — Maryland ( 7 ) ______________ 14 4 District of Columbia (7).... 6 12 + Virginia (1 8 )_____________ 5 10 + West Virginia (9) ________ 9 16 North Carolina ( 1 5 ) ______ + 10 + 14 South Carolina ( 5 ) _________ 12 7 District (6 1 ) ____________ 4- 9 — 3 IN D IVID U AL CITIES _ Baltimore, Md. ( 7 ) _________ 14 4 + Washington, D. C. ( 7 ) ____ 6 + + 12 Richmond, Va. ( 6 ) _________ — 10 4 + Lynchburg, Va. ( 3 ) _______ + 27 + 16 Charlotte, N. C. ( 3 ) ______ 14 8 + Number of reporting firms in parentheses. + + *+ ♦- C O T T O N C O N S U M P T IO N A N D ON H A N D — B A L E S Nov. Nov. 1949 1950 Fifth District States: 514,878 401,481 Cotton consumed____ Cotton Growing States: Cotton consumed____ 915,134 702,959 Cotton on hand Nov. 30, in consuming establishments 1,654,418 1,314,058 in storage & compresses . 6,982,528 10,553,647 United States: Cotton consumed__________ 1,008,872772,216 Cotton on hand Nov. 30 in consuming establishments 1,832,015 1,457,072 in storage & compresses.. 6,995,538 10,568,091 Spindles active, Nov. 30, U.S.„20,751,000 20,315,000 Aug. 1 to Nov. 30 1950 1949 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 change) 1,843,423 1,507,389 3,278,970 2,605,735 3,620,351 2,869,475 Sales, Nov. ’50 vs. Nov. ’49___ Sales, 11 mos. *50 vs. 11 mos. ’49 Source: Department of Commerce. Sales, Nov. ’50 vs. Nov. ’49_____ Sales, 11 mos. ’50 vs. 11 mos. ’49 Stocks, Nov. 30, ’50 vs. ’49_____ Orders outstanding, Nov. 30, ’50 vs. ’49_______ Current receivables Nov. 1 collected in Nov. 1950_______ Instalment receivables Nov. 1 collected in Nov. 1950________ m y Rich. + 8 + 7 +25 Balt. Wash. — 1 + 3 + 2 + 2 +18 +15 Other Cities + 3 + 7 +13 Dist. Total + 2 + 4 + 17 + 62 +19 + 37 +40 + 36 31 52 50 43 45 18 18 16 14 Md. + 3 + 2 D.C. - 1 + 2 Va. W .V a. N.C. + 6 + 3 + 1 + 5 +11 + 4 18 S.C. + 8 + 6