View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F E D E R A L R E S E R VE B A N K OF R I C H M O N D



J A N U A R Y 1964

FIFTH DISTRICT
Last year was a good one in the Fifth District.
W hen the year opened, most business barometers
were already at record levels, and by December many
of the old records had been broken again.
Perhaps the most striking development has been
the sharp rise in construction outlays. Everyw here,
new office buildings, factories, stores, and homes
dot the landscape. The lengthening network of
modern highw ays has steadily reduced the incon­
venience of travel. The most spectacular project
nearing completion at the end of 1963 is the
Chesapeake B ay B ridge-T unnel—an engineering m ar­
vel spanning 17.65 miles of virtually open ocean
between the lower tip of the Delm arva Peninsula and
the N orfolk-V irginia Beach area.
Population, Employment, and Unemployment
Fifth D istrict residents benefit from m any natural
resources—coal, timber, arable land, favorable cli­
mate, w aterw ays, and other useful physical and geo­
graphical characteristics. A s with any region, how­
ever, people are the most important resource, and
progress basically depends on their numbers, energy,
and ingenuity.
D uring 1963, District population increased at an
average rate in excess of 18 thousand per month,
and passed the 17.5-million m ark about the middle
of October. According to Census estim ates for the
year ended Ju ly 1, 1963. population gains reached
56 thousand or 1.7% in M aryland, 9 thousand or
1.1% in the D istrict of Columbia, 83 thousand or
2.0% in V irgin ia, 56 thousand or 1.2% in North
Carolina, and 35 thousand or 1.4% in South Caro­
lina. W est V irg in ia’s population declined by 18
thousand, about 1%. Thus in three D istrict states,
relative increases equaled or exceeded the national
gain of 1.4%.
Toward the end of the year the D istrict labor
force reached 6.9 million. The number of workers
actually rose more rapidly than population as a
whole because of in-m igration and as a result of in­
creases in the number of young people entering labor
force age groups. Nonfarm employment increased
at an average rate of some 8.4 thousand per month,
reaching the 5-million level by m id-year. Employ­
ment surpassed the previous year’s levels in all re­
2



/363
gions of the D istrict except W est V irgin ia where
virtually no change occurred. Regional gains
amounted to 4% in M aryland, 3% in the District
of Columbia and V irginia, and 2% in North and
South C arolina compared to an increase of 2% for
both the nation and the Fifth D istrict as a whole.
Jobs were easier to find in 1963 than in other
recent years. W orkers were on the job with greater
regularity, and pay scales were selectively higher.
More money income usually meant more “real” in­
come, because w age increases typically ranged up
to 5% while price increases on consumer items
amounted to little more than 1% over the year,
becoming more apparent during the later months.
Unemployment declined significantly during the
year. The D istrict’s jobless numbered more than
one-third of a million at the start of the year but
dropped to 220 thousand in the fall. Much of the
decline was seasonal, but it was significant enough
to drop average unemployment in 1963 6% below
1962 levels to the lowest figure since 1956.
New Landmarks In v ir tu a lly ev ery sectio n of
the District, residents could view the y e a r’s tangible
achievements with pride. Dozens of projects of local
and regional importance advanced im pressively dur­
ing 1963. Among the more interesting were the con­
tinued modernization of downtown Baltim ore, the
apartm ent boom in and near W ashington, D. C., new
highw ay facilities including the B ridge-T unnel, and
new electrical utility projects and industrial plants.
The modernization of downtown Baltim ore topped
oft’ a steady advance in M aryland business. The sheer
w alls of new buildings rose beside rubble heaps
which m arked all that is left of the old. E arly in
the year, for instance, M ercy H ospital—a unique,
18-story building rising from a base 124 feet by 99
feet and expanding above the fifth floor to 141 feet
by 116 feet—-was dedicated. Elsewhere in M a ry­
land, new shopping centers and office buildings
cropped up. Numerous companies, including some
of the nation’s largest corporations, began or ad ­
vanced sizable expansion program s in the state. In
November, the new expressw ay leading northeast
from Baltim ore toward the Delaware B ridge and
the New Jersey Turnpike opened, greatly facilitating

the flow of traffic over this heavily used route.
Southw ard through the coastal areas, other spec­
tacular new projects provide obvious and dram atic
evidence of progress. H ighw ays around the nation's
capital were improved and enlarged, extending the
boundaries of accessible terrain and hastening the
transform ation of recently empty fields into bustling
residential and commercial areas. A real estate survey
showed that 13 high-rise apartm ents were com­
pleted in the D istrict of Columbia in 1963 and seven
more were under construction. A sim ilar survey is
contemplated for neighboring areas of M aryland and
V irgin ia where an even more vigorous expansion of
apartm ent houses is reportedly under way. W ash ­
ington’s crescendo of activity gives little indication
of a slowdown.
Across the lower reaches of Chesapeake B ay, the
impressive B ridge-Tunnel project advanced about as
planned during 1963 toward its opening scheduled
for A pril 15. This $200-million crossing consists of
12.2 miles of trestle at a height of about 30 feet
above typical high w ater levels, 1.6 miles of cause­
w ay and two bridges at the northern end, and two
mile-long tunnels entered from the trestle via manmade islands. The tunnels provide unobstructed
passage for ships heading northward up the B ay or
westward into Hampton Roads. This link from the
mainland to the business and recreational opportuni­
ties of V irg in ia’s E astern Shore promises to attract
tourists and to provide a significant stim ulus to busi­
ness throughout the peninsula.
Elsewhere in V irgin ia, industrial and commercial
expansion proceeded apace. Plans were advanced in
Richmond for construction of the first modern gen­
eral office buildings in some time. New plants
sprouted up in many parts of the state including
Roanoke and other business centers west of the
Blue Ridge.
W est V irgin ia, despite its lingering economic
problems, also made substantial progress in 1963—
much of it linked to coal. Production and trans­
portation costs declined another notch as additional
modern equipment was put to work mining, load­
ing, carrying, and processing the black chunks of
energy. At the same time, the demand for coal in
both domestic and overseas markets strengthened
m arkedly. To meet risin g needs on the part of elec­
trical utilities, steel producers, and other industrial
users, many mines stepped up output almost to
capacity, actually straining the labor resources of
some m ining areas. A s a result, unemployment
rates during 1963 were the lowest in years.
W est V irgin ia officials announced late in 1963 that
22 new industrial plants were begun and 29 were



expanded during the year. These figures were slightly
below those of 1962, however. Perhaps the most
spectacular project to show significant progress in
1963 was a 1,600-foot-long dam across the Stony
R iver in Grant County. The lake thus created w ill
be four miles long, w ill cover an area of 1,200 acres,
and w ill have a m axim um depth of 130 feet. A t an
elevation of 3,150 feet, it is expected to offer ideal
recreational opportunities. The wraters of the lake
w ill be used for cooling and condensation purposes
in the operation of an ultram odern, m illion-kilowatt,
thermal electric plant that will utilize large coal
reserves underlying the area and transm it its power
over ultrahigh-voltage lines. This use of the w ater
is expected to keep the tem perature of the lake near
60° F in w inter and somewhat w arm er in summer.
New business and other facilities progressed im ­
pressively in North Carolina during 1963. New bank
buildings were frequently in the news—21 stories in
Greensboro, 14 in R aleigh, and 9 in A sheville, to
name but three. Other new construction included
a wide variety of industrial, commercial, educational,
research, recreational, and residential projects. C har­
lotte w ill have a 12-story cooperative apartment
building. In Research T riangle P ark, a new textile
research center w ill be completed early in 1964.
Other new facilities increased the state’s productive
capacity in many lines ranging from tools and furn i­
ture to paper, apparel, chemicals, and textiles.
In South Carolina, spokesmen for Carolinas-

3

Accordingly, much of the rest of this article attempts
to put 1963 business into this perspective.
The accom panying charts make these comparisons.
In each chart the black line shows the upsw ing fol­
lowing the A ugust 1954 trough, the g ray line depicts
recovery following the A pril 1958 low, and the green
line represents the latest growth period, beginning in
F ebruary 1961. The vertical scales on each chart
are index numbers, percentages based on the trough
level from which each recovery period began. The
horizontal scales show the months following the
three business cycle troughs. For exam ple, October
1963 is the 32nd month of the current upswing. The
1961-1963 grow th lines end with the latest available
month for each series charted.

V irgin ia Power Associates, Inc., the cooperative ven­
ture of several D istrict power companies formed
to build and operate the P arr atomic electric plant,
announced successful completion of “low power”
tests. F ull power production began in December.
As for new construction, South C arolina added
significantly to its public facilities and witnessed
some ventures in large-scale commercial and resi­
dential building, but most of the state's new facilities
were apparently industrial in nature. M any were in
textiles and apparel. But the trend toward diversifica­
tion, prominent in South C arolina's economy since
the end of W orld W ar II, continued strongly in 1963.
A good many of the new plants under construction
during the year w ill produce metal products, m a­
chinery, electronic equipment, chemicals, paper prod­
ucts, and other items. Perhaps the largest single
program announced in 1963 was a $75-million ex ­
pansion of the state's power generating capacity to
meet fast-grow ing industrial, commercial, and res­
idential needs.
Growth W ith Stability P ro d u cts, e sp e c ially the
conspicuous creations of modern architects and
engineers, are spectacular. But processes are also
important. Consequently, it is helpful to compare
the upsw ing in District business since February 1961
with other recent periods of business improvement.
Digitized 4 FRASER
for


Nondurable M anufacturing D istrict m an u factu r­
ing prospered in 1963. As noted previously, produc­
tive capacity increased in all parts of the District.
Reflecting both the new facilities and greater utiliza­
tion of the old, factory man-hours rose, though some­
times unevenly, throughout the year. Industrially
classified data show that most of the recent growth
occurred in durable goods industries. There were
some sharp month-to-month fluctuations in the non­
durables group but practically no net rise.
Buried in the man-hour data and beyond the
an alyst’s reach, at least until m easures of output
become available at a later date, lie the effects of
rising productivity. There is strong circum stantial
evidence that District m anufacturers achieved more
output per man-hour in 1963, but how much more
and in which particular industries are questions re­
quiring more information than is currently available.
Nondurable goods man-hours, nearly two-thirds of
the D istrict total, have zig-zagged along a plateau
for about 20 months. A s shown in the chart on page
3, man-hours in nondurable goods factories rose quite
sharply from the February 1961 low, but the rise was
not as rapid, nor did it last as long, as in the two
previous growth periods. Some evidence of why this
happened can be found in the size and character of
F ifth District nondurables industries.
In the food, paper, and printing industries, which
account for about one-fourth of total District non­
durables m anufacturing, man-hours late in 1963
were substantially the same as in M arch 1962. In
contrast to this stability, textile man-hours (m aking
up 42% of District nondurables) and tobacco (com ­
prising 4 % ) declined quite regularly after M arch
1962. Tending to offset these decreases, man-hours
in the apparel and chemical industries, another onefourth of the nondurable goods total, registered
strong gains. A s shown on the chart, these various

patterns combined to produce sharp changes month
to month but virtually no net increase or decline.
Conditions within industries are difficult to detect
without the aid of special studies. It is clear, how­
ever, that improvements in m anufacturing methods
and equipment have played an important role in
recent developments. A significant amount of new
investment has been devoted to modernization of
existing capacity. It is interesting to note that the
principal man-hour gains among producers of non­
durable goods centered in apparel, a fast-grow ing
D istrict industry where more automation is contem­
plated but remains to be realized, and in chemicals,
where automation reached an advanced level some
years ago and additional progress has been gradual.
In textiles, on the other hand, recent years have
witnessed significant productivity gains. T extile
firms nationally invested an estimated $650 million
in new plant and equipment in 1963, an investment
rate which is expected to continue into 1964. T ex ­
tile company annual outlays for new plant and
equipment are now nearly twice as great as in the
early 1950’s and are 25% above any previous year
except 1962.
Automation in the textile industry has been de­
scribed as “evolutionary” and significant progress of
this type was made in 1963. T extile machinery manu­
facturers have announced innovations in production
equipment and control devices with surprising regu­
larity over a period of several years. A number of
EMPLOYMENT IN NONFARM,
NONMANUFACTURING ENTERPRISES
Fifth District S e a s o n a lly A d ju ste d
"*/,

of

Trough

Value

1121
110108 -

106104

10 2

1958-1960

-

100
Months

After Trough

■i i i i i i i i I i i i i i i i i i I i i i i
0
10
Tro u g h M on ths: A u g u st

20
30
195 4, A p ril 1958, F e b ru a ry 1961.




new plants incorporating many of these began pro­
duction during 1963. A finishing plant described as
“ fu lly automated" was planned and built from the
ground up in six months. Three large, integrated
cotton mills utilizing the latest in electronically con­
trolled equipment began production in the fall.
T extile production, m easured by the seasonally
adjusted textile mill component of the Industrial
Production Index, has risen steadily this year. New
orders and order backlogs also reflected a steadily
grow ing average volume of business. W ith new
equipment, textile m ills w ill probably handle increas­
ing volume with little change in man-hours.
Growth Continues in Durables U n lik e n o n d ur­
able goods industries, D istrict durable goods pro­
ducers stepped up their activity as measured by
man-hours in 1962 and 1963. M ild fluctuations
around a line of gradual growth were, as shown in
the chart on page 4, characteristic of this group. Such
steady conduct contrasts sharply with the two pre­
vious upswings which clearly show the sharp g y ra ­
tions usually associated with cycles in durables.
(Continued on page 8)
5

Keys for Forecasting

Business Cycle Indicators
In recent ye ars, the indicator approach to business cycle an a ly sis, developed by the
N ational Bureau of Economic Research (NBER), has been cited more and more in private and
governm ent publications.

The businessm an

is confronted w ith such economic expressions

as reference dates, peaks, troughs, turning points, and leading , coincident, and lagging in­
dicators.

The purpose of this article, the last in the Keys for Forecasting series, is to define

briefly these terms as used in the NBER method of business forecasting.
THE BUSINESS CYCLE DEFINED
A business cycle as defined by the NBER "consists of e x p a n ­
sions occurring at about the sam e time in m any economic activities, follow ed by sim ilarly gen­
e ral recessions, contractions, and revivals w hich merge into the expansion phase of the next
cycle." Thus business cycles a re alternating and recurring m ovements. They relate to a g ­
gregate economic activity, as distinguished from the cycle of an in d ividu al statistical series,
discussed in the seasonal adjustm ent article in this series.

There are two essential ingredients

in the NBER definition: first, m any economic activities cum ulate into a composite picture of
the U. S. economy; and second, forces w orking contrary to the general course of the economy
gain sufficient strength to cause a directional change in the path of the economy.
REFERENCE DATES The "turning points", or "peaks" and "troughs", of the business cycle have
been dated for the period from 1854 to 1961 by the NBER. These dates, termed "business
cycle reference dates," m ark off 26 U. S. business cycles for the period. The cycles range in
duration from 28 months (from the trough of M arch 1919 to that of Ju ly 1921) to 99 months
(Decem ber 1870 to March 1879).
The expansion phase—the rise in business activity from the trough to the p eak—is u su al­
ly of longer duration than the contraction p h ase—the drop from the peak to the trough.
For
the 26 cycles, the a v era g e expansion lasted 30 months and the a v e ra g e contraction ran
19 months.

For the four complete post-World W ar II cycles, the disparity in length between

the two cycle phases is more evident.

Postwar expansions have av era g e d 36 months in con­

trast to an a v e ra g e contraction of 10 months.

At the time of this w riting, the last turning

point that has been dated w a s the trough of February 1961.
CO IN CID EN T SERIES

The reference dates provide the fram ew o rk for classifying individ ual

economic series into three groups according to w hether their turning points lead , la g , or coin­
cide with the turning points in general business.
roughly p arallel those in general business are

Individual series w hose peaks and troughs
termed

the

"roughly

coincident

series."

Am ong the nine most comm only used "coincident indicators" are the follow ing m easures dis­
cussed in e arlier Keys for Forecasting articles: gross national product; personal income; indus­
trial production; nonagricultural em ploym ent; the unem ploym ent rate; and the index of w h o le­
sale prices of commodities other than farm products and food.
The turning points of these in d ividu al series do not a lw a y s coincide with the NBER refer­
ence dates w hich are chosen on the basis of how the turning points of the coincident series are




BEH A VIO R O F EC O N O M IC INDICATORS
DURING RECENT BUSINESS CYCLES
A

C O IN C ID E N T SERIES
Industrial Production

Index

1 9 5 7 -1 9 5 9 = 1 0 0

clustered.

In dividu al an aly sts sometimes prefer,

how ever, to designate peaks and troughs in gen­
eral business on the basis of the behavior of a single
indicator, p articularly GNP and the industrial pro­
duction index.
LEADING AND LA G G IN G SERIES Turning points in
some series typically precede the reference dates
m arking the p eaks an d troughs of g eneral business.
These series are accordingly termed "lead ing indi­
cators."

The 12 m ajor series in this category relate

p rim arily to future production and em ploym ent. In­
cluded in this group are such m easures as m anu fac­
turers' new orders for durable goods, the a v erag e
w orkw eek in m anufacturing, housing starts, corpo­
rate profits after taxes, common stock prices, and
spot m arket prices of industrial m aterials.
On the other hand, peaks and troughs in some

A

LEA D IN G

SERIES
V a lu e of M anufacturers' N ew O rders,
D urable G oods Industries

$ Bil.

im portant economic series typically follow the turn­
ing points in general business. These series are
referred to as "lag ging indicators" and reflect chief­

A

V

ly business investm ent costs.

/1

*

Included in this group

of five m ajor series are plant and equipm ent ex­
penditures, m anufacturers' inventories, and bank

A.

v

\

interest rates on business loans.

A

,

V
\

f/

\

I/
V

1
V y

f
/

J * "

;

*.

/
\

“

1

cedes or follow s the turning points in general busi­
ness v arie s from cycle to cycle.
M oreover, the

A

f

/ K/
/ J v

V
s

The num ber of months an individual series pre­

A
/

x

✓

a v erag e length of leads and the a v erag e length of
lags at peaks differ from those at troughs. The
charts on this page illustrate the timing of the

'

L

1

turns in a coincident, a leading , and a lagging ind i­
cator relative to the NBER reference dates; the
cyclical movements shown are the past two com­

L ___

!

1

i

>

25

30

35

plete business cycles (m easured from peak to peak),
and the current cycle since M ay 1960, the latest
upper turning point that has been dated by NBER.
SOME W ARN IN G S
There is no sure-fire, short-cut
method of calling the turns in the business cycle.
The discrim inating forecaster must m ake a ca re ­
ful, detailed a n a ly sis of the statistical evidence on
hand and w eigh his evaluation ag ain st an under­
standing of the nature and causes of fluctuations in
aggreg ate economic activity.

He realizes that com­

plete reliance on past perform ance of an individual
statistical series or a group of series is fool-hardy.
The one fact accepted by all economists is the incon­
stancy of the business cycle.

No period of e x p a n ­

sion or contraction is identical with earlier periods
in duration, in intensity, or in causation.




-1 0
Legend A
^

Note:

-5

0

5
10
15
20
Months from Trough

Peak Dates: Ju ly 1953, Ju ly 1957, M ay 1960
Trough D ates: A ugust 1954, A pril 1958, February 1961

C lassificatio n of the series and the reference dates are those
designated by the N ational Bureau of Economic Research
Series in above charts are adjusted for season al variation

FIFTH DISTRICT 1963
(Continued from page 5)
As in nondurables, however, individual industries
followed different paths over the course of the year.
F urniture, prim ary m etals, and m achinery, account­
ing for ju st under half of D istrict durable goods
man-hours, advanced quite steadily and imparted
this general trait to the entire group. Fabricated
metals and lumber, nearly one-fourth of the total,
showed no significant change over the year, while
man-hours in transportation equipment and stone,
clay, and glass, nearly one-fifth of the durables total,
trended downward. Transportation equipment manhour levels were lower at the end of the year than at
the beginning despite an all-tim e high in June.
Nonmanufacturing Sectors N o n m an u factu rin g
enterprises provide 70% of the D istrict’s non farm
jobs. Toward the end of 1963 government accounted
for 29% ; trade, 27% ; services, 18% ; transportation,
communications, and public utilities, 9% ; contract
construction, 8% ; finance, insurance, and real estate,
6 % ; and mining, 2% . The consistent growth of
employment in these enterprises is shown in the
first chart on page 5. Employment increases have
followed a steadier course in the current period of
growth than in either of the previous two. The
1954 recovery was slow for six months, advanced
sharply for fifteen, then slowed again. The 19581960 upsw ing was shorter and w eaker and also
showed some slight tendency toward fits and starts.
The present period, in contrast, shows ju st as much
progress as the 1954-1957 upswing and has behaved
more consistently. A t a point roughly comparable
to year-end 1963, the 1954-1957 curve leveled out and
turned down. No change is apparent as yet in the
current picture.
The progress achieved in 1963 is suggested by
the extent to which employment in m ajor non farm,
nonm anufacturing categories increased in the course
of the year. Between Jan u ary and October about 77
thousand such jobs were created. Government made
the largest contribution, about 23 thousand; trade
was next with 16 thousand; then services with about
13 thousand; transportation, communication, and
public utilities, about 11 thousand; contract con­
struction, about 8 thousand; and finally finance, in­
surance, and real estate, about 6 thousand. Some 15
hundred were added to m ining payrolls over the ten
month period. N early uniform relative gains en­
hanced the impression of cyclical stability. These
amounted to 2% in government, services, and trade,
and 3% in other sectors.
Digitized8for FRASER


Construction C o n structio n , a secto r of con­
siderable importance in 1963, also bears significantly
on the outlook for the future. For this reason, some
special attention is w arranted.
The second chart on page 5 clearly reveals a
strong uptrend in contract aw ards that is both a
cause (in the creation of employment and income)
and a result (reflecting demand for new facilities)
of the present growth. The data on the chart
are 12-month moving averages, used to smooth out
seasonal and random variations. Following the
eleventh month of the current upswing, some level­
ing out occurred due to slowdowns in residential
building, but the rise w as resumed after the twentieth
month as residential aw ards stabilized, and in 1963
renewed strength in nonresidential categories sharply
increased the totals. A w ard values late in the year
averaged more than 30% above the cyclical low of
early 1961. Once again, the contrast between the
present and previous growth periods is striking.
Trade T rad e g e n e ra lly co ntinued to expan d in
the D istrict during 1963 but at a somewhat reduced
pace. Since comprehensive data are not avail-

able, it is difficult to characterize this sector in con­
crete terms. Employment rose about 2% in the
course of the year, and the total rise since the 1961
low was 6% . Department store sales were quite e r­
ratic during the year. The 1962 high was exceeded
in 1963 in M arch, June, A ugust (the all-tim e high
to d ate), and September. However, the data showed
almost no trend at all over the year, par for the
course, perhaps, in view of the grow ing importance
of other retail outlets.
A s a somewhat more comprehensive m easure of
trade, 12-month moving averages of sales of ‘‘Group
I ” retail stores (stores with 1 to 10 outlets) have
been computed and are plotted on the chart on page
8. As in sim ilar comparisons presented previously,
the current upswing reveals more consistency and
more strength than either of the two prior recovery
periods. In the last few months, however, the data
have tended to fluctuate around a level some 18%
above the F ebruary 1961 low. W here they w ill go
from this point remains to be seen.
A griculture F ifth D istrict farm ers b egan 1963
in generally good financial shape, but a sizable num­
ber apparently reduced their savings and reserves in
the course of the year. Thus, at the end of the year
a good m any farm ers had less cash, larger debts, or
both than at the beginning.
T his was due prim arily to drought, the cost-price
squeeze, and cuts in flue-cured tobacco and cotton
acreage allotments. Drought played the villain over
wide areas, particularly in M arylan d’s dairy and to­
bacco country, in most of V irgin ia, and in counties
of W est V irgin ia and North Carolina bordering the
Old Dominion. The cost-price squeeze was felt every­
where.
P aradoxically, the dry weather checked boll weevil
infestation and provided nearly ideal harvesting
conditions so that the cotton crop w as of good
quality and 12% larger despite reduced allotments.
Tobacco farm ers, on the other hand, except those in
the Eastern North C arolina Belt, were particularly
hard hit. Drought forced many livestock farm ers and
dairym en to buy feed, and some will continue to do
so through the winter. M any dairy herds in V irgin ia
were liquidated. Most crops were significantly sm aller
than a year earlier, but livestock production, except
for dairyin g and beef cattle, continued to increase.
F arm ers’ use of mortgage and non-real estate
credit rose further in 1963, and delinquencies and
carry-overs were slightly more prevalent than in the
previous year. M arket values of farm real estate
continued to advance, adding further strength to
farm ers’ assets and equity positions.



Banking D istric t b an k in g d ata rev eal a fav o r­
able comparison between the current and previous
periods of business growth. The attendant chart
shows that average levels of loans and discounts at
Fifth D istrict member banks have increased 35%
compared to 31% in the 1954-1957 upswing, and
only 20% in the 1958-1960 expansion. Gains in the
current upsw ing have been unusually consistent.
Member banks reporting w eekly to the Federal
R eserve did not increase their outstanding credit
as much as in 1962 and were occasionally some­
what more pressed for reserves. In the first eleven
months both in 1963 and 1962, banks increased their
loans outstanding about 6% , but the loan expansion
in 1963 was made possible by a 5% reduction in
investments while investments over the same period
of the previous year remained unchanged.
The composition of loan expansion in the two
years was also quite sim ilar. Business loans rose
about 4% and consumer loans around 10%. The most
dram atic development in the past two years has been
the very substantial rise in real estate loans,
which increased 22% in 1963 and 16% the year
before. M uch of this can apparently be attributed
to the higher rates paid on time and savings deposits
and the substantial flow of these deposits into com­
mercial banks. In 1963 as in 1962, time and savings
deposits rose about 14% in the first 11 months.
9

AGRICULTURAL OUTLOOK 1
FOR 1964
Domestic demand for farm products w ill continue
to ex p an d ; exports are expected to be at record
lev els; farm output, if grow ing conditions are fa­
vorable, will remain high and could set a new reco rd ;
production expenses w ill continue to r is e ; and net
farm income w ill be lower. This, in capsule form, is
the national outlook for agriculture in 1964 as seen
by leading economists of the U. S. Department of
A griculture.
In appraising the agricultural outlook for the year
ahead, U S D A ’s analysts assumed average grow ing
conditions, no change in present farm programs for
wheat, cotton, and d airy products, and success in the
negotiations for sales of wheat and other farm com­
modities to the Soviet Union and its satellites. They
also assumed that the proposed tax cut w ill come
early in 1964.
Below, in more detail, are the forecasts of the De­
partment of A griculture.
Farm Prices, Costs, and Income The farm price
situation for 1964 promises to be much like that in
1963. Prices received for all farm products are ex­
pected to average a shade lower and prices paid by
farm ers a little higher than a year ago. Prices for
livestock and livestock products m ay show little
change from 1963, but crop prices w ill probably av­
erage slightly lower, largely because of an anticipated
drop in wheat prices.
Farm production expenses in 1964 will likely in­
crease by at least as much as in 1963. Costs for cur­
rent operating expenses such as fertilizer, purchased
feed, and the repair and operation of farm m achinery
and equipment w ill probably increase noticeably.
T axes on farm property, interest on indebtedness,
and depreciation charges are also expected to rise.
Both cash receipts from farm m arketings and
Government payments to farm ers are likely to be
lower than last year. The nation’s realized gross farm
income in 1964 w ill probably be down slightly from
the record $41 billion received in 1963. W ith farm
production costs continuing upward, realized net
farm income w ill likely be 5% or more below the
1963 level of $12^4 billion. Realized net income per
Digitized 10 FRASER
for


farm is not expected to fall as much as total income,
however, because of a probable continued decline in
the number of farm s.
Supply and Demand Conditions Total carry-over
stocks of farm commodities are expected to be down
slightly in 1964. There w ill probably be increases in
cotton, tobacco, and peanut stocks, but the carry­
overs of wheat, feed grains, soybeans, and dairy
products are expected to decline. Food supplies are
ample, although reduced supplies of both fresh and
processed fruits and fresh, canned, and frozen vege­
tables are in prospect for the 1963-64 season.
Growing business activity both at home and abroad
points to expanding markets for the nation’s farm
products in 1964. Domestically, the demand for farm
products w ill be sustained by continued growth of
the general economy, further expansion in employ­
ment and consumer income, and a grow ing popula­
tion. The extent of the improvement in domestic de­
mand w ill depend in large measure, however, on the
size and tim ing of the proposed cut in personal and
corporate taxes.
Foreign demand for United States farm products
in 1963-64 is brighter than at any time in the nation’s
recent history. Total shipments of farm products to
export markets are expected to rise to around $6.0
billion. This would be 15% above a year ago and a
new high. The magnitude of the increase w ill depend
on whether or not the anticipated exports to countries
in the Soviet Bloc m aterialize. E xport demand is
supported not only by strengthening economic activ­
ity abroad but also by record gold and dollar hold­
ings in most countries which pay dollars for United
States farm products. Dollar sales, which are ex­
pected to account for the bulk of the increase in farm
exports, m ay hit a new peak of $4.2 billion. This
would amount to around 70% of the total value of
all farm exports and should contribute to an easing
of the balance of payments problem.
Outlook For Commodities H ighlights in the out­
look for m ajor F ifth D istrict commodities and com­
modity groups shape up about like th is :
Tobacco: The 1963-64 supplies of flue-cured and

burley, the leading cigarette tobaccos, are larger than
those of most of the past several years by sizable
amounts. Flue-cured supplies are the highest since
1956-57, while the burley supply is the largest on
record. C arry-overs of both types are the largest
in five years. The supply of M aryland tobacco is up
slightly from a year earlier, but supplies of V irginia
fire-cured and sun-cured tobaccos are down.
Both cigarette output and consumption rose to new
highs in 1963. Despite these facts, domestic use of
flue-cured tobacco declined slightly and consumption
of burley was up only about 1% over that of the
previous year. A grow ing population and continuing
high levels of income favor a further increase in
cigarette consumption in 1964. The amount of to­
bacco used per 1.000 cigarettes, however, apparently
continues to decline. Consumption of smoking and
chewing tobacco will probably change little from 1963
but the downtrend in the use of snuff is expected to
continue. W hether the outlook for tobacco products
w ill be affected by the U. S. Public H ealth Service’s
A dvisory Committee report on smoking and health,
scheduled for Jan u ary 1964, is problematical.
E xports of flue-cured tobacco in 1962-63 declined
11% from a year earlier and were the second sm all­
est in eight years. B urley exports, however, increased
about one-sixth and were at record levels. Tobacco
exports in 1963-64 are expected to rise moderately.
Favorable factors contributing to this expectation
are the better quality flue-cured available from the

1963 crop, sm aller flue-cured crops of m ajor foreign
producers, and lower stocks of U nited States fluecured in the U nited Kingdom.
W ith the current supply-dem and situation, fluecured tobacco farm ers face a 10% cut in acreage a l­
lotments in 1964 on the heels of a 5% cut in 1963.
M arketing quotas and acreage allotments for burley
and other types of tobacco w ill be announced by
February 1. Prices of 1964-crop tobaccos w ill be sup­
ported on the same basis as in the past several years.
Present indications are that the 1964 support levels
will be up about 1% over those in 1963.
Cotton: The large 15.5-million-bale cotton crop
produced on the nation’s farm s in 1963 is expected
to be 1.7 million bales larger than estim ated dis­
appearance in 1963-64 and m arks the third consecu­
tive year in which production has exceeded use. Total
disappearance of cotton this season is estim ated to
be around 13.8 million bales, about 2 million bales
larger than a year earlier. Both domestic mill con­
sumption and exports are expected to increase. Con­
sumption by United States m ills is estimated at 8.8
million bales. This is 400,000 bales larger than a year
earlier but 200.000 sm aller than in 1961-62. Cotton
exports during 1963-64 are expected to total about
5 million bales, well above the relatively low level of
3.4 million bales exported last year. Reasons for the
anticipated increase are a moderate upturn in foreign
consumption, reduced production in foreign coun­
tries, sm aller inventories in both importing and other

Farm production expenses, which have trended u pw ard in both the District and the nation for more than a decade, are expected to
continue to increase in 1964. They now take a much larger proportion of realized gross farm income than they did ten yea rs earlier.




FARM PRODUCTION EXPENSES
FIFTH DISTRICT

Per Cent

UNITED

STATES

11

exporting nations, and the Commodity Credit Cor­
poration’s export sales program which makes United
States cotton prices competitive in world markets.
Despite the increased disappearance, the carry-over
of cotton next A ugust 1 w ill probably total around
13.1 million bales. This would be 1.9 million bales
above last A ugust and the third successive year that
the cotton carry-over has increased. It would also be
the largest carry-over since the record high of 14.5
million bales in 1956.
Peanuts and Soybeans: Supplies of peanuts are
5% above a year ago and the largest since 1948-49.
Once again, supplies are sharply larger than domestic
needs for food and farm uses, and the CCC w ill ac­
quire the surplus under the support program. C ivilian
consumption of peanuts per person has risen in re­
cent years, climbing from 5.8 pounds in 1955-56 to
7.0 pounds last year. The same rate of consumption
per capita is expected to continue during 1963-64.
This means that, w ith increased population, total con­
sumption of peanuts w ill increase slightly. Though
both total civilian consumption and crushings under
the CCC diversion program are likely to rise during
1963-64, the carry-over of peanuts is also expected
to increase. Prices to grow ers in 1963-64, as in re­
cent years, w ill probably average near the loan rate.
The 1963-64 supplies of soybeans are at a record
733 million bushels, about 10 million larger than last
year. Farm prices for soybeans are expected to con­
tinue strong and w ill probably average about $2.60
per bushel, or around 35 cents above the support
level. There are indications that the entire 1963 crop
m ay be needed to meet demand. C rushings are ex ­
pected to be larger, and exports may hit a new high.
C arry-over stocks next fall w ill probably be very
small again.
Poultry and Eggs: The outlook for 1964 points
to increased production of both eggs and poultry
The increase in egg production w ill likely be small,
with most of the increase coming during the first
half of the year. E gg prices early in 1964 will there­
fore probably be lower than a year earlier. T hey are
likely to show a greater seasonal rise than in 1963,
however, and for the year as a whole are expected to
average only slightly below the 1963 level.
B roiler output w ill probably be about the same
as a year ago during the first half of 1964, but pro­
duction is expected to rise in the second half and
for the year w ill likely average higher than in 1963.
B roiler prices the first half of the year w ill probably
be held down by the availab ility of large supplies of
beef. Competition from red meats m ay lessen late in
the year, broiler prices w ill likely strengthen, and for
12



1964 as a whole they m ay average close to the 14.6cent level received in 1963. A sm all to moderate ex ­
pansion in turkey production is likely in 1964, and
turkey prices during the main m arketing season w ill
depend largely on how much producers expand pro­
duction. W ith only a moderate increase, prices may
average as high as in 1963.
Meat Animals: H og raising is expected to be
slightly more profitable this year than it wras in 1963.
Slaughter of hogs w ill likely drop below year-earlier
levels before the second quarter and w ill rem ain be­
low the rest of the year. H og prices w ill probably
continue under year-ago levels this w inter, but they
are likely to be a little higher in the spring as slaugh­
ter supplies decline. Prices for the year as a whole
are expected to average slightly higher than in 1963.
L ittle change from 1963 is anticipated for cattle
and lamb prices. Cattle m arketings w ill rise again in
1964, but demand prospects for beef continue to be
favorable. W ith large m arketings and little change in
average prices, cash receipts from cattle and calves
can be expected to increase.
Dairy Products: Farm m arketings of m ilk w ill
likely increase a little in 1964, and commercial de­
mand m ay be slightly higher. M arketings w ill again
exceed commercial use, and excess dairy products
w ill continue to move into the CCC. Farm prices for
dairy products w ill probably average about the same
as in 1963. Cash receipts m ay increase slightly, but
net income from d airyin g w ill likely decline because
of the continuing rise in production expenses.
District Farm ers and The Outlook Much of the
decline in the nation’s farm income in 1964 is ex­
pected to be concentrated on farm s where income
from wheat comprises a significant part of total re­
ceipts. W h eat’s contribution to total cash farm in­
come in the F ifth District is small by comparison
with its relative importance in the nation. This, plus
the fact that drought played a significant role in re­
ducing F ifth D istrict farm income in 1963, suggests
that, given average grow ing conditions, District
farm ers in 1964 should fare better in comparison
with 1963 than those in the nation as a whole. In­
come of flue-cured tobacco farm ers w ill, however, be
affected considerably by the 10% cut in allotments.

PH O TO CREDITS
Cover—N ew port N ew s Shipbuilding and Dry Dock Co.;
Bethlehem Steel; The Cham pion Paper and Fibre Com ­
pan y;
N ational C oal Association;
Liggett & Myers
Tobacco C om p an y; The State Road Commission of
West V irg in ia; Am erican Cotton M anufacturers Insti­
tute, Inc.;
Martin Com pany.

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