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M 1rntmpmm M M H m l S i r l B il mmmr W * t & M y g r iB j m w — H K m M M im M— G w ■ 5 '" ' m u m i I .dMWWJSaSffl i l ■ « y i l W jm — liillHI'f »' » ' r k m r IV m ~ ^ s >8 ' -H W M - y f t --P1* cstA . > b utin . » n The current cyclical expansion in business, now in its 40th month, is one of the longest in this country’s history. It is exceeded in duration only by w artim e upswings and by the long, slow recovery from the abnorm ally low level reached by the economy in 1933. The advance since the recession low of Feb ru ary 1961 has been m arked by several pauses and, compared against earlier expectations for the Soaring Sixties, appears less than spectacular. Nevertheless, its extended duration invites comparison with other cyclical expansions in U nited States business history. The Business Cycle A lte rn a tin g u p w ard and downward movements in the level of business ac tivity, commonly called the business cycle, have long commanded the attention of economists. In this country, perhaps no other economic phenomenon has been studied so intensively. The National Bureau of Economic Research (N B E R ), established in 1920, has been the recognized leader in this field of study. It has dissected, in m assive statistical detail, every cyclical movement in the country’s history in an effort to isolate the factors underlying the wavelike movements in business. Despite this intensive study, current knowledge of the cycle remains disappointingly inconclusive in some important respects. One of these relates to the duration of upward and downward sw ings in busi ness. Indeed, some economists object to the use of the term “cycle” on the ground that it implies a de gree of regularity in the alternating sw ings that ex perience does not support. A ccordingly, they prefer the term “business fluctuations” to the more precise “business cycles.” Y et others point out, not incor rectly, that monumental research efforts over two generations have yet to demonstrate that the economy inevitably generates alternating ups and downs. Rather, the evidence of such alternations is em pirical, in the broader sense of the word—or perhaps better, historical. In the past, what has gone up has also come down, as if in response to some economic gravitational principle that remains unfathomed. W hether this is in fact an absolute economic principle or something that can be modified through institu tional adjustm ents rem ains problematical. 2 In any event, the N B E R , along with m any other economists, retains both the idea and the terminology of the cycle. Geoffrey H. Moore, the N B E R ’s A s sociate Director of Research, wrote re cen tly: “The business cycle is not dead . . . . It is not the same . . . cycle we have known in the past. [I t ] is like an automobile. E very new model is different, with bigger fins . . ., automatic transm ission, safety belts, and a smoother ride. But a car is still a car. W hat we know about . . . business cycles should be taken into account in any calculations of the short-run future of the economy.” Y et Moore points out that “current developments can fall outside the range of previous experience” and w arns against ascribing the characteristics of past cycles to current business movements. The following comparisons should be interpreted in the light of that caveat. Past Experience S in ce W o rld W a r I th is co u n try has experienced ten complete cyclical expansions. The present upsw ing is the eleventh. The lower chart on page 4 shows the dates of each and of the business declines that preceded them. B y far the longest of these expansions was the one em bracing W orld W ar II. It began in Jun e 1938, following a sharp 13-month recession, and ran 80 months. The ex pansion of 1949-53, which covered the period of the Korean hostilities, lasted 45 months. The average duration of the ten completed expansions is just over 35 months. Of the eight completed peacetime expansions, the 50-month upturn of the m id-1930’s was longest. N ext comes the 37-month surge in 1945-48, which exceeded by two months the 1954-57 advance. Shortest of the eight was the 10-month upswing in 1919-20. This movement, and the sharp 7-month contraction that preceded it, m arked the transition from w artim e to peacetime activity and is not alto gether comparable with the others. It is interesting that sim ilar transitional swings, though w idely ex pected, did not develop following W orld W a r II. The average duration of the eight completed peace time expansions is 2 8 ^ months. O m itting the un usual 1919-20 upturn, this average is raised to 31 months. Thus, from the standpoint of duration, the current expansion is already well ahead of the average for the period. months of contraction, w hereas the 1950’s saw 98 months of expansion against only 22 of contraction. Postw ar I vs. Postw ar II C om parison of these expansions m ay be more meaningful if the move ments between 1929 and 1945, a period of ex traordinary conditions, are omitted. In this case, the comparison becomes one between the post-W orld W ar I period, taken as ending w ith the 1929 crash, and the post-W orld W ar II period. A s noted earlier, these periods differ in that the sharp swing of 1918-20 was not repeated after W orld W ar II. Other differences and sim ilarities are also noteworthy. The lower chart on page 4 shows four completed expansions in each period. It is readily apparent that the four post-W orld W ar II movements were con siderably longer, averaging 2>S/l 2 months against a 20-month average for those of the earlier period. Om itting the short 1919-20 advance and the 1949-53 (K o rea) upswing, the averages are 3 2 / months for the post-W orld W ar II period and 2 3 ^ months in the earlier years. A veraging in the current expan sion at its present age would add nearly two months to the post-W orld W ar II average. S im ilarly, post-W orld W a r II contractions have been shorter than those following W orld W ar I. The three recessions between 1920 and the 1929 crash averaged 15 months in duration while the five since 1945 averaged only 10 months. The decade of the 1920’s, long considered the Golden A ge of busi ness, produced 71 months of expansion against 49 Magnitude of Swings D ata in the tab le on p age 5 show the cyclical sw ings in industrial production and GNP (for later cycles o n ly) over the period since 1920. These data show that, with respect to the relative levels from which business expansions began, the two postwar periods are roughly sim ilar. B usi ness declines in each period were relatively mild, except those preceding the 1921-23 and the 1945-48 expansions. In each of the exceptions, industrial production fell about one third. The average decline for the other two recessions of the 1920’s w as 12%, while the average drop for the three recessions be tween November 1948 and M ay 1960 was 10^4%. The course of trough-to-peak increases in indus trial production in the two periods is shown in the charts on this page. The 1945-48 cycle is omitted because of sharp industrial production sw ings related to the transition from w ar to peace. Despite their shorter duration, the expansions of the 1920’s gen erated, on the average, 40% increases in industrial output against 29% increases in the post-W orld W ar II expansions. M easuring the increases from the peak of one expansion to the peak of the next, how ever, the difference between the periods was not great, especially if allowance is made for the effects of W orld W ar II and the Korean episode. Gen erally, cyclical movements in industrial production in the 1920’s involved somewhat deeper declines and INDUSTRIAL PRODUCTION IN BUSINESS EX PA N SIO N S SEA SO N A LLY ADJUSTED % of Trough V alue 3 more rapid trough-to-peak advances, but the pace of secular increase was about the same in the two periods. GRO SS N A TIO N A L PRODUCT IN BUSINESS EX PA N SIO N S SEASONALLY ADJUSTED ANNUAL RATES Chronic Depression and W orld W a r II T he e x pansions of 1933-37 and 1938-45 were among the longest in U nited States history. Both w ere domi nated by unusual circum stances: the first, by an atmosphere of chronic depression; the second by feverish production for the nation’s largest and most sustained w ar effort. The upturn that began in 1933 followed the worst business depression in modern history. Recovery was m arked by drastic institutional changes in fi nancial and economic arrangem ents both domestically and internationally. In this country, crises between 1929 and 1933 reduced both industrial production and personal income by about one half. U nder stim ulus of extensive Federal Government activity, recovery proceeded at rates which, statistically, ap pear relatively rapid. The total trough-to-peak gain, for exam ple, w as 120% for industrial production and 76% for personal income. But despite this, the 1929 peak in industrial production was not regained until December 1936 and at the 1937 peak industrial DURATION O F C YCLICA L EX PA N SIO N S AN D CO N TRACTIO N S Contractions Expansions Number of Months 4 output w as only about 6% above the peak of eight years earlier. Government activity, directed first toward re arm am ent and then toward w ar, was the dominant factor in the 1938-45 expansion. The 1937-38 de cline, while severe, was considerably less so than its immediate predecessor. It reduced industrial pro duction by about 32% and personal income by 11%. In the ensuing 80 months of expansion, industrial production rose 183% and personal income gained 157% . The record w artim e levels of industrial pro duction were not reached again until late 1950. The Current Expansion In stitu tio n a l ch an ges significantly affecting the economy’s behavior in tervened between the 1920’s and the post-W orld W ar II period. Consequently, comparisons of re cent expansions w ith those of a generation ago, while instructive, are perhaps not as meaningful in studying current movements as comparisons between recent cycles. A ccordingly, the rem ainder of this article compares some aspects of the current expansion with other post-W orld W a r II upswings. The current expansion follows one of the mildest recessions on record and consequently began from relatively higher levels than other recent upturns. In the 1960-61 decline, for example, industrial produc tion fell less than 6% , compared with reductions of 8 ^ % , 9% , and 14% in the three preceding reces sions. Sim ilarly, GNP in the first quarter of 1961 was less than 1% below the previous cyclical peak, while for the three earlier recessions the comparable decline averaged about 2 l/2 c/o. Personal income actually rose during the 1960-61 recession but re corded sm all declines in the other recessions. T he left-hand chart on page 3 shows industrial production thus far in the current upturn increasing at about the same pace as in the 1954-57 and 1958-60 upswings, but at a considerably slower rate than in the 1949-53 expansion. The upper chart on page 4, which shows the com parative behavior of GNP, tells much the same story. D ata in the table on this page show that total gains in both series thus far in the present advance compare favorably w ith gains in the last twro expansions. Thus the fact that the current expansion began from relatively higher levels of activity does not appear to have retarded its comparative advance. P artly due to the same fact, the previous cyclical peaks were equaled sooner than in earlier expansions. The prerecession peak in industrial production before the current expansion was passed in the fifth month after the trough, while the prerecession high in GNP was exceeded in the first quarter after the trough. In the 1949-53 advance, the previous cyclical peak in industrial output w as topped in the sixth month of recovery and the prerecession high in GNP was passed in the second quarter. It required eight months of recovery in 1954-57 and ten months in 1958-60 to pass earlier industrial production peaks, wrhile in each case earlier highs in GNP wrere topped in the second quarter after the trough. Through the first quarter this year, gains in the current expansion had raised industrial production 17% and GNP 21% above prerecession peak levels. B y comparison, industrial production in the 1954-57 expansion rose 9% above its previous cyclical peak and in 1958-60 it advanced 7 ^ % . GNP in these expansions reached levels 22% and 1 2 ^2 % , re spectively, above earlier cyclical peaks. Peak-topeak increases in the 1949-53 upsw ing w ere much larger than in any recent expansion, approxim ately 38% for both industrial production and GNP. Concluding Comment S tu d y of e a rlie r c y c lic a l experience affords no sure means for predicting the life of the current business expansion. Y et it points up some interesting characteristics of the present cyclical movement. The current expansion appears, in perspective, as part of a new business cycle pattern that has developed in the postwar period and that features longer expansions, shorter contractions, and less pronounced sw ings than earlier cycles. In this light, the relatively long life of the current advance does not appear unusual. The upward movement since 1961 has thus far proceeded at about the same pace as the two im m ediately preceding expansions but it is still w ell behind the 1949-53 expansion, both in duration and intensity. B ut historical comparisons should not be made without reference to basic differences in the environ ment against which expansions proceed. In this con nection, the current expansion differs in important respects from its recent predecessors. Perhaps the most notable difference is provided by the recent cut in Federal income taxes, which could well provide m ajor reinforcement to the factors m aking for longevity in the current expansion. B iS I , ’« 8 f: C Y C LIC A L SW IN GS IN INDUSTRIAL PRODUCTION AN D GNP ■ Per Cent Decline in Preceding Contraction Expansion Period -............... . Duration1 Industrial Production Gross National Product* 1919-1920 10 - 1921-1923 22 31.7 - 1924-1926 27 17.9 1927-1929 21 5.9 ~ - t - t t t t Per Cent Increase Trough-to-Peak Industrial Production 24.6 Gross National Product* 30.2 - 24.0 - 64.4 Peak Value as Per Cent of Previous Peak t t t t Industrial Production - t 112.3 106.9 116.7 Gross Natio Product* - t - t t t 1933-1937 50 51.8 46.4 120.3 62.1 106.3 87.0 1938-1945 80 31.7 6.2 183.0 150.7 193.4 235.2 1945-1948 37 31.4 10.9 21.9 34.9 83.6 120.2 1949-1953 45 8.5 3.3 50.0 42.8 137.3 138.1 1954-1957 35 9.1 1.4 19.7 23.8 108.8 122.1 1958-1960 25 ? 14.1 2.5 25.2 15.3 107.5 112.4 5.9 0.7 25.0$ 21.6$ 117.6$ 120.7$ 1961- 1Based on NBER reference dates. ♦Current dollars. fD a ta not available on basis comparable with later figures. Digitized{Bfor FRASER ased on April 1964 industrial production and first quarter 1964 GNP. http://fraser.stlouisfed.org/ Sources: Board of Governors of the Federal Reserve System; U. S. Department of Commerce. Federal Reserve Bank of St. Louis THE PCRT OF C H A R L E S T O N State Pier 16, the new bulk-handling m inal, is equipped with two of the gantry cranes. pier at North Charleston Ter State Ports Authority's 5 0 -ton Located at the head of the A shley-Cooper Rivtay, Charleston harbor is but seven and one-half m iles from the open sea. Itasily accessible to ocean going vessels by w a y of w ell-defined channels antopen to traffic all y e a r. The Port of Charleston is linked to 100 m ajor w orldts by 88 steam ship lines, over half of w hich follow reg ular call schedules, ice 1950 the num ber of ships calling at the port to load and d ischarge caihas more than doubled, the valu e of w aterborne foreign trade has n early tri|, w hile tonnage has risen by about two thirds. The greater increase in valu an in tonnage reflects a grow ing concentration of trade in high valu e cargch as textiles, m achinery, and other m anufactured items. M odernized and expand ed facilities, coupled i increased ind u strializa tion in South C aro lin a an d other a re a s of the Soust, are prim e stimuli to shipping activity. Port facilities and services a re , irn, a m ajor factor in the Palmetto State's industrial growth. A recent State-ts Authority publication credits reactivation of state ports, principal am ong ch is the Port of C h arle s ton, with attracting "Fully a third of the new induslhat has located in South C a ro lin a since the end of W orld W ar II. . . ." W ood pulp is stored at State Pier 8 for later shipment to the United Kingdom. This product com prises approxim ately one fourth of foreign export tonnage handled at the Port of Charleston. W ool slated for shipment to textile m ills in South C aro lin a and other points in the Southeast is unloaded at Colum bus Street Term inal. C h arles ton is now the nation's foremost wool-importing center. Textiles m anufactured in South C a ro lin a are exported to m any countries, w ith best customers including M exico, C a n a d a , and the Union of South A frica. Columbus Street Term inal has been extensively m odernized and ex panded. Pier 8, now C harleston's longest pier, is operated as a public terminal, w hile Pier 9 is leased to a private fruit importer. North Charleston Term inal is the m ain port term inal operated te Ports Authority. Tobacco, soybeans, chem icals, w ool, and heav^chinery a re am ong the varied commodities handled at this locat BANK LOANS for HIGHER EDUCATION Loans to finance the higher education of young A m ericans have become a significant new outlet for funds for m any commercial banks. Banks have long made loans to parents to finance the education of their children but only in recent years have special program s been developed for m aking this kind of loan. The purpose of this article is to describe various types of higher education loan programs available at some commercial banks and to trace their grow th in recent years. Contributing Factors S e v e ral develo pm ents have contributed to the recent growth in bank loans to finance higher education. Foremost, perhaps, has been the large increase in the number of young people attending college. The college age population is in creasing rapidly and at the same time the percentage of this population attending college has risen. In 1960, about 22% of the young people of college age attended college, as compared with about 15% in 1950, and it is estim ated that by 1970 the figure w ill be near 29% . The number of students enrolled in colleges rose by almost 50% in the decade of the 1950’s and is expected to double in the 1960’s. The skyrocketing cost of college education also has contributed to the grow th of educational loans. A t m any schools, the cost of a year’s education has more than doubled since W orld W ar II and cur rently is risin g at a rate close to 5% per year. Trans-J lated into dollars, this means that parents w ill havi to pay well in excess of $3,000 to send their offsprin to some private colleges next year. Although th cost of attending m any good schools is no more tha: half this amount, tuition and livin g costs at all school] have risen sharply in recent years. F in ally, the public has shown an increased w illin g ness to borrow for educational purposes and moife and more banks are vigorously developing this tentially important outlet for loan funds. Indeed, t development of special educational loans is simpfly an extension of the kind of instalment lending tHat has become firm ly established at m any commercial oo jbanks. For m any years A m ericans have financed he purchase of high-priced durable goods through <?instalm ent loans. A college education, while not alogether comparable with consumer durables, is an nvestment in human capital that adds significantly o the earning capacity of its recipient. A great m any students receive financial assistance in the form of scholarships, and others are able to borrow at low cost from college loan funds. In ad dition, the Federal Government has provided scholar ship and loan funds under the National Defense Education Act. But funds from these sources m ay not be available to many students because of special eligibility requirem ents, such as scholastic achieve ment, proved financial need, or special fields of study. Commercial banks have developed special loan program s to meet the grow ing demand for credit to finance the costs of higher education. T he de velopment of such program s has been stim ulated by various state student loan guaran ty program s and by U nited Student A id Funds, Incorporated, a private, nonprofit organization that endorses loans to students to meet educational expenses. In addition, many banks have developed their own special education loan programs. State Loan G uaranty Plans A n um ber of sta te s have established special authorities for the purpose of guaranteeing bank loans to students for educational purposes. The oldest such authority in existence is the M assachusetts H igher Education A ssistance Cor poration, which was organized in 1956. Since that date, program s have been established in a dozen or more states and there is every indication that more states w ill follow in the future. The accom panying table provides some information as to the number and scope of state loan guaranty programs. The data in the table, however, are sub ject to certain lim itations. F igures showing the number and dollar amounts of loans represent, for the most part, cum ulative totals from the beginning of the various program s to the most recent date for which information w as available. For this reason, the older program s, such as those in M assachusetts and New Y ork, appear much larger than those begun more recently. M oreover, information is not avail able for program s in several states, and some newly established program s m ay not be included. Conse quently, the figures do not represent total loans under all p ro gram s; they are sim ply the totals for individual state programs. Although the various state plans differ in detail, all have certain common characteristics. In almost all cases, some enabling legislation wTas enacted by the state legislature, although in some instances the guaran ty funds are provided by the state while in others they are obtained from contributions of indi viduals, businesses, and private foundations. Gen erally, the loans are made by commercial banks and in m any states bankers associations actively sponsor the programs. In almost all of the state programs, the loan is made on the student’s signature, but in some states the parent or guardian m ust acknowledge or approve the loan if the student is below some specified age. Borrow ers usually are required to be residents of the state enrolled in an approved educational institution. The m axim um amount that m ay be borrowed in any year ranges from $500 to $1,500 in various states, w hile the m axim um total loan lim it for any student runs from $1,500 to $7,500. Repaym ent begins after graduation and the m axim um term thereafter m ay be from three to six years. In most programs, interest charges range from 4}/2% to 6% simple interest per year while the student is in school, although in New Y ork the H igher Education A ssistance Corporation bears all of the interest costs while the student is in school. In some states, interest rates remain the same after graduation, but in others interest costs rise as the interim notes are converted into an instal ment note. For the most part, the state authority sim ply gu ar antees repaym ent of part or all of approved educa tional loans by commercial banks, although in some instances the authority itself makes some loans to students. The guaranty usually covers 80% to 100% of the unpaid loan balance. Some program s require the lending bank to remit to the guaranteeing au thority a guaranty fee based on the amount of the original loan and on the renewal note. United Student Aid Funds, Incorporated T h is private nonprofit corporation was organized in Indi ana in 1961 and was so successful in its first year that it extended its operations to other states in 1962. A s the accom panying table shows, by the end of F ebruary 1964 U S A F had extended its operations to 49 states. On that date it had endorsed more than 42,000 loans for students in 607 colleges, in an amount in excess of $23 million. But even more im pressive than the present scope of U S A F ’s operations is the rate at which they have grown. For example, in the short period between June 30, 1963, and February 28, 1964, the number of loans endorsed in creased from ju st under 17,000 to almost 42,500, while the dollar volume jumped from $8.4 million to $23.1 million. U S A F raises and invests funds which form the reserves against its endorsement of loans to students for educational purposes. A portion of the funds used come from the deposit of reserve funds by partici pating colleges and universities, but additional re serves are raised by voluntary state committees. In STATE LOAN G U A R A N TY PLANS From start of program to M aine H igher Education A ssistance Foundation .............................. M assachusetts H igher Education Assistance Corporation .......... ........ November Num ber of loans Am ount of loar 1963 3,701 1963 18,239 8,845,475 603,402 $ 1,365,203 M ichigan H igher Education A ssistance Authority ......................... 1963 863 N ew H am pshire Higher Education Assistance Foundation .......... 1963 331 154,981 N ew Jersey Higher Education Assistance Authority .................... 1963 4,886 3,522,518 N ew York H igher Education A ssistance Corporation .................... 1963 107,191 80,123,855 North C aro lin a Bankers' Student Loan Plan ................................... (College Foundation, Inc.-Banks lend to Foundation w hich m akes loans to students) 1963 188 78,750 2,951,303 O hio H igher Education A ssistan ce Commission .............................. ........ Rhode Island Higher Education Assistance Corporation Ja n u a ry V irg in ia State Education Assistance Authority ................................... in m ....... m n jj | .. jj ... m 1963 3,963 1964 2,315 1,496,884 1964 4,843 2,780,839 146,520 $101,923,210 UNITED STUDENT AID FUNDS, INCORPORATED June 30, 1963 December 31, 1963 February 28, 1964 Number of States , .................................................. 44 45 49 ............................................ 470 583 607 Number of Colleges Num ber Banks ................................................. 3,039 4,100 4,200 Num ber of Loans ................................................... 16,962 33,503 42,414 $8,439,875 $18,620,488 $23,083,563 of Amount of Loans ................................................... http://fraser.stlouisfed.org/ Source: The Am erican Bankers Association; United Student Federal Reserve Bank of St. Louis A id Funds, Incorporated. addition, foundations, businesses, and individuals make contributions. The reserves maintained by U S A F equal 8% or more of all outstanding loans. Like the state guaranty programs, U S A F and p ar ticipating educational institutions make use of the loan facilities of commercial banks in carryin g out the program. A ny student at an approved college who has completed his freshman year can qualify for participation. N orm ally, the loan process begins when the student seeks financial assistance at his college. T he ap propriate college official provides him with the neces sary U S A F application forms and indicates on the forms approval of the college. The student takes these forms, together w ith a letter of introduction from his college, to his local bank. If the bank loan officer approves the loan, an in terim note is executed by the student and forwarded to U S A F which endorses it and returns it to the bank. The student m ay not borrow more than $1,000 per year ($2,000 for graduate students) and a maxim um of $4,000 in total. The interim notes m ature after the student is scheduled to graduate, at which time they are converted into a single payout note. The latter is norm ally payable in monthly instalments over a three-year period, but the term m ay be longer if necessary to keep the monthly paym ents below $100. The interim notes m ay not carry a rate in excess of 6 % simple interest per year, and the m axi mum charge on the instalment note is $3.00 per $100 per year. The student signs the notes, but the signatures of his parents m ay be required if he is a minor. In ap proving the loans, p rim ary consideration is given to the applicant’s character, financial need, and ability to perform college work. H is prospects are much more important than his present financial situation. These loans are designed to supplement, not replace, normal loan facilities, and the bank need not approve such loans when the applicant or his fam ily is eligible for regular bank credit. In the event of default, the bank is expected to make a reasonable effort to collect. If such efforts fail, U S A F pays the full amount owed to the bank. Individual Bank Plans L ittle inform atio n is available as to the exact number of banks having their own specialized college loan plans or the dollar volume of loans made under these plans. A recent survey made by the Am erican Bankers Association drew re sponses from 605 banks, of which 185, or about 31% , indicated they had formalized college loan plans. These banks had about 31,000 loans outstanding at 10 the end of 1963, am ounting to approxim ately $62 million. Numerous other banks indicated that, while they had no formal plan, they held a substantial num ber of instalment loans that had been made to fi nance college education. The individual bank plans differ from the loan guaranty plans in several important respects. F irst, the loan is usually made to the parent or guardian rather than to the student, and much more importance is attached to the financial capacity of the borrower. Second, repaym ent begins shortly after the initial funds are advanced rather than after the student leaves college. Indeed, some banks include a savings feature in the program whereby the parent accum u lates funds in a savings account by regular monthly paym ents while the student is in high school. W hen the student enrolls in college, the bank disburses funds out of the savings account until it is exhausted and then begins to advance its own funds to meet the student’s college expenses. Since the bank bears all of the credit risk in m aking these loans, the interest cost m ay be greater than for the guaranteed loans. There appear to be great variations in the rates actually charged, however, with charges ranging from $2.25 to $6.00 per $100 for a one-year note repayable monthly. These charges, which are made only on the amounts actually ad vanced, must conform to local statute. F in ally, terms on these loans usually are shorter than those on guaranteed loans, although there m ay be great variations in actual practice. A s mentioned earlier, repaym ent begins shortly after the initial funds are advanced and terms of most loans under these program s do not exceed six years. Sum m ary S p ecial p ro gram s developed to m eet the grow ing demand for funds to finance college training are further evidence of the flexibility of com m ercial banks in adapting to changing demands for credit. They also reflect a grow ing acceptance of the idea that a college education is not something to be reserved for an elite few, but is rather to be con sidered the minimum educational preparation for a useful and productive life. W ith such new credit facilities, the extent of an individual’s education need not be lim ited by his or his fam ily’s immediate fi nancial capacity. The various program s described in this article are based on the principle of maxim um utilization of private initiative and private resources. T heir growth to date suggests that the private sector, with minim al cooperation from government, can make a significant contribution to the solution of financing problems in higher education. THE FIFTH DISTRICT j K ------------------------------------ W Recent developments suggest new strength in Fifth D istrict business as the current upswing moves firm ly along in its fourth year. Seasonally adjusted bank debits, following a M arch decline, rose 4% in A pril to a new all-tim e high. R etail trade, disappointingly sluggish in M arch and A pril, apparently took on new life in M ay. Estim ates based on data for the first three weeks of the month indicate an increase in de partm ent store sales about 5 % greater than the normal seasonal gain, and trade reports suggest con tinued improvement over much of the D istrict. A pril gains in nonfarm employment were slightly less than seasonal, perhaps because the rise to normal seasonal strength occurred earlier than usual this year. F ac tory man-hours also rose less than seasonally in A pril, affected perhaps by local labor shortages. B u ild in g s B u rgeo n Fifth D istrict contractors con tinue to work aw ay at a large and grow ing backlog of business. B uilding perm its and contract aw ards are still at high levels, v irtually assuring no slackening of the pace in the months imm ediately ahead. S ea sonally adjusted building perm its rose 12% in A pril and, in the first four months of the year, averaged 30% higher than for the same period last year. Con struction contract aw ards mounted rapidly in M arch to a level that has been exceeded in only two prior months. The increase raised the first quarter total to a record level, one-third higher than in the same months last year. Seasonally adjusted construction employment rose in A pril but remained slightly below the all-tim e high reached in February. As in the case of some m anufacturing industries, reports suggest that construction employment statistics m ay reflect shortages of certain types of skilled labor. C ig a re tte s B ounce B ack D istrict c ig a re tte pro duction, which declined one fifth in F ebruary follow ing the Surgeon G eneral’s report, made a partial re covery in M arch and returned to late 1963 levels in A pril. Cigarette man-hours, which paralleled the F eb ruary decline in output, resumed near-norm al levels in M arch and A pril. Federal cigarette tax col lections, reflecting factory shipments, dropped 12% in F ebruary to a level 20% lower than in F ebruary 1963. Collections then rose 11% in M arch and a further 14% in A pril, roughly matching production increases in those months. Following the recovery that occurred in M arch and A pril, monthly collec tions were again at about the December 1963 level but still 3% below A pril 1963. F u rn itu re R o lls On T h e fu rn itu re in d u s tr y ’s present rosy outlook contrasts sharply with the un certainties besetting the cigarette business. The strength and endurance of furniture demand has been a bright spot in District m anufacturing throughout the current upswing. Each of the past two years has been hailed in turn as a record year. D istrict furniture output increased about 15% in 1962 and an additional 10% in 1963. The evidence available so far suggests that this y ear’s gain w ill be in the neighborhood of 15%. Significant improvements in productivity are indicated when the increase in pro duction is compared with the rise in man-hours. W hereas output is now running about 40% above the 1961 level, man-hours are up only 28% . This y e a r’s increase in output over last year appears to have been achieved so far w ith only a 4% increase in man-hours. T e x tile O utlook C lears C onditions in the te x tile industry, which provides one in every three D istrict factory jobs, show signs of settling down after an unusual period featuring a variety of problems. In M ay 1961, President K ennedy proposed a 7point program to deal with a complex cumulation of textile problems. Since that time the textile in dustry, among others, has been accorded increased depreciation allowances, an investment credit against income taxes, and some relief from pressures of over seas competition. Also, new research has been sponsored by the Department of A griculture to aid cotton grow ers and users by reducing cotton produc tion costs. The most significant change, however, was the reduction on A pril 11 of 6.5 cents a pound in the effective price paid for cotton by domestic textile mills. This was enough to offset most of the competitive disadvantage to domestic m ills result ing from a price support program which pegged the domestic price 8.5 cents above the world price. The long-standing cost disadvantage associated with two-price cotton, and uncertainty as to how long it might last, contributed to substantial changes in the industry. For one, synthetic fibers increasingly 11 found their w ay into m arket sectors form erly domi nated by cotton. Intensified foreign and domestic competition hastened the obsolescence of old and un economical facilities and became an important factor in raisin g new capital outlays to record levels. W ith large amounts of w orking capital tied up in cotton inventories, which would decline in value as a result of proposed revisions in the cotton program , m ills strove for greater efficiency in production scheduling and inventory control. L ast fall, the textile industry granted 5% w age increases, sharing the benefits of greater efficiency and the expected reduction in the cost of cotton. V irtu ally all of these developments had the effect of strengthening the industry for the long run. Now that the adverse domestic effects of the cotton export subsidy have been offset, many a cloud which hampered the industry in the recent past m ay turn out to have a silver lining. Textile Prices Reflect Change T he tech n ical and legislative developments of the past few years have strongly influenced basic m arket conditions. T his is perhaps best revealed in the statistics for the cotton sector of this large and complex industry. The data for this sector are more complete than for the industry as a whole, and provide a basis for some significant generalizations. W holesale prices are a good index of the changing balance between supply and demand. They reflect 12 the complex forces on both sides of the m arket. Four relevant wholesale price series are presented in the accom panying chart. The decline in basic cotton textile prices during the 1960 recession is im m ediately apparent. Cotton cloth prices fell sharply and did not turn up again until Ju ly 1961. B y M arch 1962 about one third of the 1960 decline had been re covered, but the situation weakened and declines resumed early in 1962. They continued until the m iddle of 1963 when responses to the combination of factors mentioned earlier began to produce a better balance between supply and demand. Y arn prices followed much the same pattern but with a relatively shorter, more shallow' decline in 1960, a sharper recovery in 1961, and subsequently a steeper decline. Cotton housefurnishings continued their 1959 price rise wrell into 1960, then remained stable during the rem ainder of the 1960-1961 reces sion. W hen business improved in 1961, home goods prices sagged at first but paralleled cloth and yarn prices from then on. D uring the whole period, ap parel prices (including other fibers as wrell as cotton) moved slowly and irregu larly upward. Cotton goods imports, in response to the high prices prevailing at the start of the year, reached a record level in 1960. In 1961, when falling prices made U . S. m arkets less attractive to foreign sup pliers, imports dropped 25% . In the last quarter of 1961, the Geneva short-term import stabilization plan went into effect and was followed a year later by the long-term arrangem ent. Consequently, the recent volume of imports reflects economic factors modified by these arrangem ents. Although domestic prices in 1962 stayed wrell below 1959-1960 levels, cotton goods imports jumped 63% , prompted by firm er de mand here as well as lower costs overseas. Imports m aintained about the same levels through 1963 and have shown some tendency to rise so far in 1964. Cotton goods prices again show signs of stabilizing, having perhaps weathered the uncertainty generated by discussion and ultim ate passage of the new law. Domestic demand is strong but in good balance with production. Productivity is risin g and textile m ills plan record outlays this year for more cost-cutting equipment. For the textile industry the immediate future looks better now than it has for some time. PHOTO CREDITS C over—N ational Cotton Council of A m erica; Coxe Studio, G reen ville, S. C .; The Cham pion Paper and Fibre Com p any of Am erica 2. Com pany South C aro lin a State Ports Authority. 6. & 7. The Cham pion Paper and Fibre