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M A R C H 1963

M onetary and credit conditions in 1962 were in­
fluenced to some extent by cyclical factors. Y et the
behavior of some important financial indicators last
year differed rather m arkedly from their behavior in
the comparable stages of other recent cyclical move­
ments. T his article traces the movement of several
interest rate and banking series from the troughs of
the three most recent recessions. The purpose is to
compare their behavior over the course of the latest
upsw ing w ith their movement in the two previous
recovery and expansion periods. Frequent reference
is made to the charts at the foot of each page.
Interest rates generally rise in a
period of business recovery as loan demand quickens
w ith the tempo of business. This rather normal pat­
tern began to develop in the early months of the 1961
recovery but was modified significantly in 1962. This
is im m ediately evident from the charts at the foot
of this page.
The horizontal axes of these three charts meas­
ure the number of months from the troughs of the
three most recent recessions. Trough months were
A ugust 1954, A pril 1958, and February 1961, respec­
tively. The vertical axes show the absolute change
in yields from these recession troughs m easured in
basis points. The vertical line constructed on the
eleventh month m arks the beginning of 1962, and the
solid line to the right of this vertical represents last
y e a r’s experience.
BILL YIELDS The movement of 90-day T reasury bill
yields is showm in Chart I. These yields moved

irregu larly upw ard in 1962, closing the year 23 basis
points higher than at the beginning. T his movement
represented a continuation of a gradual upw ard creep
from the recession lowr in F ebruary 1961. Y et in
the 22 months after that trough bill rates had risen
less than 50 basis points in contrast w ith increases
of over 150 basis points in 1954-56 and almost 300
basis points in 1958-60.
One reason for this is that bill rates did not fall
as far in the latest recession as in previous ones and
consequently did not have as far to rise in the en­
suing upswing. The 1960-61 recession wras m ilder
than earlier ones and m arket factors put less down­
w ard pressure on rates generally. M oreover, for
balance of paym ents reasons, m onetary and debt
management policy actively sought to alleviate down­
w ard pressure on bill yields.
The failure of interest rates to fall as far in the
last recession is only part of the explanation for the
sm aller rise of short rates in the current upswing.
E specially important has been the posture of mone­
tary policy, which has remained relatively easy in
comparison with past periods of business expansion.
In addition, the pace of the 1961-62 advance has been
more moderate and loan demand has not been e x ­
ceptionally strong. Consequently, it has not been
necessary for commercial banks to liquidate T reasu ry
bills to meet loan demand as in the earlier expansions.
In fact, forces w orking towards lower bill yields
have been so strong over much of 1961-62 that rates
might w'ell have declined in 1962 had it not been for
the persistent efforts of the m onetary authorities and

debt m anagers. W henever feasible, the Federal R e­
serve has supplied reserves by open market purchases
outside the bill area, while the T reasury has added
significantly to the supply of bills outstanding.
Y ields
on long-term Government bonds, as shown in the
second chart, have risen relatively little since the
trough of the last recession in contrast to more sub­
stantial increases in previous expansion periods. The
reasons are essentially the same as those explaining
the sm aller rise in bill yields.
Perhaps the most interesting part of Chart II is
the portion showing the movement of long-term
yields in 1962. In previous upswings, these yields
continued to rise somewhat even after the eleventh
month of recovery, but they declined in 1962. This
can be explained in part by easy money policy and
by relatively weak loan demand. The downward
drift has also been due to the change in Regulation O
in Ja n u ary 1962. T his change has had a pervasive
effect on the capital m arkets and has been an im­
portant factor in inducing commercial banks to
lengthen their portfolios in order to increase earnings.
Bond prices rose and yields fell from Ja n u ary until
early summer, when m arkets were influenced by a
widespread discussion of the desirability of a new
combination of easy fiscal and tight monetary policies
as a solution to the dual problem of a sluggish do­
mestic economy and sticky balance of paym ents
deficits. Through Ju ly and early A ugust, prices de­
clined and yields rose. Then, as prospects of an
early tax cut faded, the m arket reverted to the previ­
ous trend, with rates declining for the rest of the year.
Changes in M oody’s A aa index of
yields on State and local government tax-exem pt
bonds are shown in Chart III. This chart points up

the impact of the change in Regulation Q. Through
the first ten months of the latest upsw ing the change
in tax-exem pt yields paralleled quite closely the e x ­
perience of the 1954-56 recovery. A surge of com­
mercial bank buying after December 1961, however,
pushed these yields down steadily, and at the end
of 1962 they were almost 25 basis points below their
level at the preceding trough.
The money supply has not grown very
much during most of this cyclical upswing, and some
observers have taken this as evidence that m onetary
and credit policy has been too tight in the current
expansion. Closer attention to banking develop­
ments as a whole, and to the growth of total liquid
assets and of bank credit in particular, could well
lead to an opposite interpretation.
Charts IV through X II are designed to provide
a broader view of the results of changes in banking
activity in the most recent business expansion. These
charts differ from the earlier ones in that cum ulative
percentage changes are shown on the vertical axes.
TOTAL LIQUID ASSETS T his series is a composite of
the following six liquid asset ty p e s : (1 ) the money
supply adjusted to exclude deposits of m utual savings
banks and savings and loan associations; (2 ) time
deposits at commercial and m utual savings b an k s;
(3 ) savings and loan sh ares; (4 ) U nited States Gov­
ernment securities m aturing within one y e a r ; (5 )
U nited States Government savings bonds; and (6 )
postal savings accounts.
Chart IV reveals clearly that the public’s holdings
of liquid assets, seasonally adjusted, have grown
more rapidly than in previous expansions. Liquid
assets ceased to increase rapidly in the previous up­
swings after the fifteenth month, but liquidity in the
current cycle has continued to grow at a brisk pace

to the present time. Much of this growth can be
attributed to rapid growth in time deposits.
A s evidenced by Chart V , time de­
posits in the past have shown a distinct contracvclical
movement, rising rapidly in recessions and tapering
off or declining in recovery. In the 1961-62 expan­
sion, however, these deposits continued to move up
at a rapid rate. T heir growth reflects in part the
Federal R eserve’s policy of continued monetary ease
and in part the tardiness of the 1961-62 pickup in
consumer spending. P rim arily, however, it has re­
sulted from the change in Regulation Q. T his is
evident from the sharp break in the curve which oc­
curred in December 1961, when the change in R egu­
lation Q was announced.

m onetary policy than the money supply. In the
latest business expansion, bank credit has grown con­
siderably more than in previous upswings. From the
trough of the 1961 recession through 22 months of
expansion, it increased over 14% as compared with
an increase of only 7°/c in the two preceding expan­
sions. In 1962 alone bank credit grew by $18 bil­
lion, or 9 c/o. Changes in the composition of bank
credit in the latest upswing have also differed sig­
nificantly from those in earlier business expansions.

The money supply is defined as
adjusted demand deposits of commercial banks plus
currency and coin outside the T reasury and com­
mercial banks. Chart V I indicates that the money
supply has grown less rapidly throughout most of
the latest business expansion than in the correspond­
ing periods of previous cycles. Following a sharp
rise in late 1961, it remained virtually unchanged at
about $145 billion until October 1962. Stability in
this period resulted in part from the public’s shift­
ing of demand deposits to time deposit accounts and
in part from a drain on private deposits as large
U nited States Government deposits were accumu­
lated. Since late last year, however, the money sup­
ply has grown rapidly and has finally caught up with
its growth in previous upswings.

GOVERN M EN T SECURITIES Cum ulative changes in
commercial bank holdings of U nited States Govern­
ment securities, seasonally adjusted, are shown in
Chart V II. N orm ally banks begin liquidating Gov­
ernment securities in the early months of recovery
in order to make loans which yield a higher return.
In the latest upswing, however, little liquidation has
taken place. T his is another evidence of continuing
easy money policy and also an indication of the slug­
gish pace of the current business advance. Banks
have had ample reserves and have been able to meet
the modest loan demand without liquidating Govern­
ment securities to any appreciable extent.
Although total holdings of Government issues have
remained virtually unchanged since the fifth month
of recovery, the composition of holdings has changed
significantly. A s noted earlier, rapid time deposit
growth induced portfolio lengthening. As a fraction
of total investments, under-one-year issues and issues
m aturing within five years have decreased, while
holdings m aturing in over five years have increased.

Tim e deposits are not the full equiv­
alent of demand deposits. Nevertheless, in periods
when significant amounts of demand deposits are
being converted to time deposits, changes in bank
credit m ay be a better indicator of the posture of

OTHER SECURITIES T his series consists prim arily of
tax-exem pt State and local government bonds. Gen­
erally other securities form a rather stable fraction
of total investments since m any State and local gov­
ernment bonds possess lim ited m arketability. A s



Cumulative Percentage Change






Months After Trough

Chart V III reveals, however, bank holdings of these
issues have increased at a rem arkable rate over the
past two years. From the trough of the recession
through 22 months of upswing, banks expanded their
holdings of these securities by 36% as compared with
5 r/o increases in each of the two previous expansion
periods. About 22% of the increase in the latest
expansion came in 1962.

only 9% as compared with a 32% increase in 195456 and a 24% increase in 1958-60.
F inally, real estate loans have not increased as
rapidly in the current as in previous expansions.
Despite a sharp rise after the revision in Regulation
O, Chart X II shows that the percentage increase in
these loans in the current expansion still lagged
slightly behind increases in the previous upswings.

Loans at commercial banks in the present
cyclical expansion have lagged behind earlier e x ­
perience. As shown in Chart IX , the behavior of
total loans, seasonally adjusted, in the early months
of the latest upswing paralleled the 1958-60 exp eri­
ence. They soon fell behind earlier expansion rates,
however, and after 22 months of recovery loans at all
commercial banks had risen only 16%, as compared
with increases of 19% and 29% , respectively, in the
two earlier upswings.
Several factors account for the slower loan growth
in the latest experience. In the first place, the latest
business expansion has been more moderate and ex ­
penditures for inventories and plant and equipment
have increased more slowly. Moreover, corpora­
tions have lately enjoyed large cash flows and an
easier availability of low-cost funds in the capital
market. A s a result, business loans, as shown in
Chart X, increased only 13% over the first 22 months
of this recovery as against gains of 35% and 16%,
respectively, in the preceding two cyclical expansions.
In addition, the demand for consumer credit at
commercial banks has been w eaker in this expansion
than in the previous ones. A s shown in Chart X I,
consumer loans actually declined during the first
seven months after the February 1961 trough and
were below the trough level for the first full year of
recovery. A fter 22 months, these loans had grown

M onetary policy remained basically easy
in 1962. The degree of ease was considerably great­
er than in the comparable stage of earlier cyclical
movements and this greater ease wras reflected in
money and capital m arkets and in the behavior of im ­
portant banking statistics. U ntil late 1962, growth
of the money supply was slow, with the total increase
since the latest cyclical trough lagging behind the in­
crease in the comparable period of earlier business
recoveries. On the other hand, expansion in bank
credit, commercial bank time deposits, and the pub­
lic’s holdings of liquid assets continued w7ell in ad­
vance of previous cyclical upswings.
The composition of bank credit changed signifi­
cantly in 1962, with banks moving more heavily into
investments, p articularly tax-exem pt securities, and
into real estate loans. T his w7as attributable in part
to a rapid increase in time deposits and in part to
sluggish loan demand in other areas.
Interest rate movements in 1962 displayed some
notable departures from normal patterns. Y ields on
m ortgages, tax-exem pts, corporates, and long- and
interm ediate-term Governments declined, while mon­
ey m arket rates remained stable or rose slightly. This
divergent movement of long and short yields resulted
prim arily from a record inflow of savings into finan­
cial institutions, including time deposits at commer­
cial banks, and from upw ard pressure on short rates
exerted by the Federal Reserve and the T reasury.

Cumulative Percentage Change






WHO H O L D S T H E NATION|_ 0& 6

The relative im portance of classes of Federal G ov­
ernm ent creditors has undergone some interesting
changes in the past dozen years.

The acco m pan y­

ing chart shows the growth of the national debt
from the end of fiscal 1950 to the end of fiscal
1962, with each bar divided to indicate the am ount







within each division show the percentage of the
national debt w hich that division represents.

$ Billion


The proportion held by several classes of Federal
Governm ent






Com m ercial banks, for exam ple, liquidated G o v­
ernment securities through most of the 1950's in
order to m ake higher yielding loans.
Since 1960,
how ever, the proportional im portance of bank hold­

21 .8%



ings of Governm ent debt has increased som ew hat,
reflecting relatively easy m onetary policy and the



absence of strong loan dem and.
cam e in 1961.


A ll this increase

The proportion held by insurance com panies and


mutual savings banks declined steadily after 1950

8 . 6%

as these institutions moved more heavily into real
estate loans. The share held by in dividu als also

declined, due in part to shifts out of saving s bonds
and other Governm ent securities into stocks and
higher yielding bonds.







sS I#K

.1 8%







their proportional holdings.
Federal Reserve Sys­
tem holdings grew steadily, from $18.3 billion or
7.1% of the total in 1950 to $29 .7 billion or 9.9%
at the end of fiscal 1962.
Foreign and internation­





al investors also becam e increasingly important
holders of Federal debt through the investment of
large quantities of liquid funds acquired as a result
of persisting deficits in the United States balance
of paym ents.
The growing relative im portance of United States
Governm ent investment accounts reflects chiefly the
expansion of Social Security and Civil Service pen­
sion funds up to 1957. State and local governm ents
have become relatively larger holders of Federal
debt chiefly as a result of two developm ents.


the first place, they have them selves raised large
volum es of borrowed funds to finance capital im ­


Com m ercial



|____ I


U. S. Govt.


provements and other outlays and have invested


Com panies



the proceeds in short-term Governm ent securities

C ° rp0rIi


State and
Governm ents





M oreover,

rapid ly


State and local trust funds have been h eavy buyers
of G overnm ent issues.

Among the crucial institutional props of the present
international paym ents system is the International
M onetary Fund, a cooperative financial venture in
which more than 80 nations participate. Born in
1944 prim arily of the m onetary chaos that followed
the breakdown of the gold standard in the early
1930’s, the Fund has emerged in the postwar years
as an important key to the successful functioning of
the modern substitute for the old gold standard—the
gold exchange standard.
The International M onetary Fund is committed to
the goals of expanding the volume of world trade and
thus the domestic prosperity of member countries.
Its vast resources of gold, national currencies, and
borrowing rights in member countries, and its m a­
chinery for consulting with countries and collaborat­
ing with other international organizations are directed
toward these ends. B y providing needed support to
distressed currencies, by actively w orking for realistic
and stable exchange rates, and by seeking to elim i­
nate restrictions on payments among countries, it has
contributed to a grow ing volume of world trade and
HISTORICAL BACKG RO U N D After the gold stand
ard broke down in the early 1930’s, chaos developed
in the system of international payments. In an effort
to restore domestic prosperity, to insulate themselves
from foreign economic disturbances, and to maintain
balance in their international accounts in the face of
drastic m onetary changes, countries adopted num er­
ous controls and devices designed to allow m anipula­
tion of paym ents to and from foreigners. These
measures seriously disrupted the flow of international
trade and investment and, on balance, probably ham­
pered recovery from the Great Depression.
Sentiment for an institution like the International
M onetary Fund represented in large measure a re­
action against nationalistic fetters on foreign com­
merce. The Fund and its sister institution, the In­
ternational Bank for Reconstruction and Develop­
ment, were established at the United Nation’s Mone­
tary and Financial Conference held at Bretton
W oods, New Ham pshire, in Ju ly 1944, as a founda­
tion on which international cooperation in the field of
economic and monetary policy could be built in the
postwar period.


The specific objectives spelled
out in the F und’s A rticles of A greem ent reflect the
conviction that the monetary nationalism of the
1930’s could only diminish, over the long run, the
level of world prosperity. Among these objectives
are the elim ination of exchange controls and of such
practices as competitive exchange rate depreciation,
the achievement of stable exchange rates, and the
restoration of m ultilateralism in international p ay­
ments among the important trading countries.
Although these objectives have not been fully
achieved, important progress has been made, especial­
ly over the past five years. A gainst a background
of stepped-up international m onetary cooperation,
wTorld trade has expanded, and relatively high levels
of employment have been maintained. W hile m any
exchange rates have been altered, sometimes w ith ­
out the Fund’s approval, widespread rate m anipula­
tion as an instrument of trade policy has been sub­
stantially elim inated. M any countries continue to
m aintain some controls over capital movements, and
some countries even continue to lim it current tran s­
actions in goods and services. But since 1958,
especially among the more important trading nations,
giant strides have been taken toward greater freedom
in both trade and foreign payments. Financial a s­
sistance to countries having balance of paym ents
problems has perm itted this to be achieved with
measures less severe and more gradual than would
have been necessary otherwise. The Fund has not
been solely responsible for this progress but its con­
tribution has been significant.

The Fund has a membership of
more than 80 nations, each represented on its policy­
m aking Board of Governors. The Fund’s basic pow­
ers are vested in the Board. Among them are the
power to adm it new' members, the authority to re­
quire members to w ithdraw , the right to approve
changes in quotas, and the authority to perm it uni­
form changes in the par values of currencies of all
member countries.
V oting rights of member countries are roughly
proportional to their contributions to the F und’s
capital. Contributions in turn are related to various
factors including the size of national income and
foreign trade of members. Sm all nations are slight­
ly favored in voting rights since each nation has a

minimum number of votes plus an addition propor­
tional to its quota. Thus the relative voting strength
of large countries diminishes as new sm all members
are added.
The Fund’s Executive Directors, partly appointed
by the five important member countries having the
largest quotas and p artly elected by the rem aining
countries, are responsible for day-to-day operations.
They select a M anaging Director who conducts the
ordinary business of the Fund with the help of some
500 employees drawn from more than 50 nations.
The Fund has at its disposal the
equivalent of more than $20 billion for loans to sup­
port currencies under stress in foreign exchange
markets. These resources are made up of $3.2 bil­
lion of gold and $11.2 billion of national currencies
subscribed by member countries, plus $6 billion of
borrowing rights recently made available by 10 m ajor
industrial nations. Some of the Fund’s gold has
been invested in short-term United States Govern­
ment securities and most of the national currency
holdings is in the form of nonnegotiable, noninterestbearing demand obligations, payable at face value by
members in their currencies.

QUOTAS On admission, each member is assigned a
quota, which represents that country’s contribution
to the Fund. Quotas originally were calculated from
a formula based on such factors as the size of national
income and foreign trade of member countries, but
today they are negotiated. Quotas of large, w ealthy
countries and countries that engage extensively in
foreign trade are much greater than those of sm aller
nations having little external commerce. The quota
of the U nited States, for example, is $4,125 million,
while the quotas of Laos and Nepal are only $7.5
million each.
Quotas are broken down into gold and currency
subscriptions. The total subscription of a country
equals its quota. N orm ally, a country pays 25% of
its quota in gold and 75% in its national currency.
But the m onetary gold stock was so poorly distributed
when the Fund was established that gold subscrip­
tions then were set at the lesser of either 25% of
• quotas or 10% of net official holdings of gold and
United States dollars. Since 1948 gold and cur­
rency subscriptions of new members have been set
by the Board of Governors as fixed amounts or as
fixed proportions of official reserves. About 21%
of the quotas have been paid in gold, and about 74%
have been paid in currencies. Some $762.5 million,
roughly 5% of total quotas, has not yet been paid.
The composition of the F und’s resources is shown in
the accompanying table.

In recent years the
movement toward greater freedom in m aking inter­
national paym ents has stim ulated international trade
and investment and has led to the accumulation of
large international balances that are subject to shifts
among countries. Such shifts can place great strains
on the international paym ents system and m any ob­
servers felt that larger Fund resources were needed
to meet this new situation. A ccordingly, by w ay of
supplementing the $14.4 billion of paid-in subscrip­
tions, the Fund obtained authority last year to bor­
row' up to $6 billion equivalent from 10 leading in­
dustrial nations: Belgium , Canada, France, W est
Germany, Italy, Japan, the Netherlands, Sweden,
the U nited Kingdom, and the U nited States. T his
new borrowing authority becomes operative on agree­
ment between the Fund and the countries concerned
that supplem entary resources are needed to prevent
disruption of the international paym ents system.
The Fund engages in a variety of ac­
tivities. In addition to its program s of financial as­
sistance to member countries, it conducts regular con­
sultations with member countries, collaborates with
international organizations on international monetary
problems, undertakes economic and m onetary re­
search, conducts training program s for qualified per­
sons from member countries, and publishes m any
periodic and special publications.
E xtending financial assistance to members is, of
course, the F und’s most important activity. Loans
and stand-by credits are made available to member
countries which experience or anticipate balance of

Novem ber 30, 1962




$ Million

$ Million

$ Million

United States




United Kingdom








Germ any












Ja p a n








A u stralia
















Source: International M onetary Fund.


paym ents deficits resulting in pressure on the value
of their currencies in foreign exchange m arkets. In
this sense the Fund is a prop for distressed curren­
cies. Through use of the Fund’s resources, coun­
tries supplement their own reserves of gold and for­
eign exchange. They are thereby afforded additional
time to solve their balance of paym ents problems
without resorting to measures which m ilitate against
international prosperity.
Loans are usually referred to as “draw ings.”
B roadly speaking, a member may borrow up to twice
the amount of its quota. A country seeking a loan
buys one or several currencies from the Fund, p ay­
ing the equivalent value in its own currency. The
U nited Kingdom, for exam ple, when borrowing from
the Fund might receive U nited States dollars, Ger­
man m arks, and French francs and pay to the Fund
an equivalent value in pounds at the same time.
Loans must be repaid within three to five years.
Repaym ent takes the form of a repurchase of the bor­
rowing country’s currency with either gold or any
one of 20-odd convertible currencies. It is not nec­
essary to repay the loan in the same currencies which
were o rigin ally borrowed.
A member which has agreed to an initial par value
of its currency unit and has paid its subscription m ay
borrow almost autom atically an amount equal to its
quota minus the F und’s holdings of its currency. A
request by a member for an additional 25% of its
subscription is also likely to be viewed favorably by
the Fund, provided the member is m aking reasonable
efforts to solve the problems which make the borrow­
ing necessary. But requests which carry the Fund’s
Through N ovem ber 30, 1962

D raw ings
$ Million

United K in g d o m ............................................................2,361.5
I n d i a ................................................................................


F r a n c e ................................................................................


B r a z i l ................................................................................


A r g e n t in a .........................................................................


C a n a d a .........................................................................


Ja p a n



A u s t r a l i a .........................................................................


I n d o n e s i a .........................................................................


United A ra b R e p u b l i c ...............................................


N e t h e r l a n d s ..................................................................


C h i l e ................................................................................


O t h e r ................................................................................


T o t a l ................................................................................


Source: International M onetary Fund.


holdings of that member’s currency beyond 125% of
its subscription require substantial justification. T hey
are likely to be favorably received, however, when
accompanied by a program of monetary and fiscal
policies aimed at establishing and m aintaining a
realistic exchange rate. The Fund m ay also waive
the 200% of quota lim itation on drawings.
W hile the Fund has total resources of over $20
billion, this amount does not represent the m axim um
volume of loans that can be outstanding at an y one
time. Loans are made only to countries suffering
balance of payments deficits, and all countries can­
not sim ultaneously have deficits. A deficit in one
country implies a surplus in some other country or
countries. A s a rule, probably no more than onehalf of the total resources could be outstanding in
loans at one time. Since beginning operations in
1946, the Fund has made total advances of $6,745.8
million. A t present $1,611 million in loans is out­
standing, most past drawings having been repaid.
In recent years member
countries have come to depend more on stand-by a r­
rangements than on actual drawings. Most draw ­
ings today, in fact, are made against such arran ge­
ments, wrhich resemble line-of-credit agreements at
commercial banks. Members enter into agreem ents
with the Fund under which drawings m ay be made up
to specified lim its and within agreed periods. The
member must observe the conditions of the agree­
ment, however, to be eligible to make drawings. The
Fund insists, for example, that borrowing countries
adopt sound exchange, monetary and fiscal policies.
Stand-by arrangem ents made since their inception
in 1952 amount to $5,517 million, but only $1,565
million has been drawn against them. M ost of the
agreements have expired or have been cancelled. A t
present, about $1,500 million is available under stand­
by arrangem ents.

Another important activity of the
Fund is its program of frequent consultations with
member countries. Members which m aintain ex ­
change restrictions on payments for current transac­
tions are required to consult annually with the Fund.
A t these meetings efforts are made to assist members
in progress toward elimination of m ultiple exchange
rate systems and liberalization of exchange controls.
W hile m any countries continue to rely upon m ultiple
currency practices and more or less stringent ex ­
change controls, the trend seems clearly to be in the
direction of greater freedom in exchange markets.
Inflationary domestic policies have been an important
cause of the failure of m any countries to free inter­
national payments.

Changes in m anufacturing employment reflect op­
posing forces, both of which are aspects of economic
growth. Factory jobs tend to increase to meet the
grow ing demand for goods as population grows and
living standards rise. Technology’s steady improve­
ment of method and machine has the opposite effect.
Over relatively short periods these trends m ay be
obscured by more abrupt movements associated with
business cycles. But over longer periods factory em­
ployment w ill tend to rise if demand increases faster
than productivity and w ill fall if the reverse occurs.
ing the past decade m anufacturing employment has
continued to rise in the Fifth D istrict even though
the national trend has been slightly downward. In
1953 the number of jobs in D istrict factories returned
to the W orld W ar II high, 1,353,000. The figure
fell below this level again in 1954 and 1955 but
moved to new highs in 1956, 1959, 1960, and in 1962
when it reached 1,466,000. For the nation as a
whole, private m anufacturing employment crested at
17.6 million 20 years ago in response to the stern
demands of w ar. Thereafter the figure declined to
a postwar low of 14.4 million in 1949, recovered in
1950, and has fluctuated since 1951 between a high
of 17.5 million in 1953 and a low of 15.9 million in
1958. B y 1962 it was back up to 16.7 million. In
general, the country appears to have been in a period
of transition during which the effects of rapid prog­
ress in m anufacturing technology caught up w ith and
began to outdistance the impact of grow ing demand
for manufactured goods.

combinations of human and mechanical resources to
get more output per unit of input.
Between 1954 and 1961 factory man-hours changed
little, purchases of electrical energy representing m a­
chine utilization rose sharply, and value added by
m anufacture, adjusted for price changes in order to
approxim ate physical output, followed a risin g path
about halfw ay between them. The chart on this
page shows these trends through 1960 (1961 data
were not available in time to be included) for the
Fifth D istrict and the nation with all data converted
to percentages of 1954 levels. D istrict man-hours
and value added paralleled national figures from 1954
through 1957, wdiile D istrict power use lagged. After
1957, however, the D istrict overtook and passed the
nation in growth of power utilization, moved sig­
nificantly ahead in man-hours, and m arkedly ahead
in value added.
E lectric power has steadily replaced manpower
in the processes of production. In the D istrict the
typical m anufacturer increased his use of electricity
from 7.3 kilowatt-hours for each production worker
man-hour in 1954 to 11.0 in 1960 and 11.7 in 1961.
The figures were a little higher for the nation—7.7
in 1954, 12.1 in 1960, and 12.8 in 1961. In the

PRODUCTIVITY RISING W hen large, diverse groups
of people pool their resources of capital, labor, m an­
agement skill, technical and scientific knowledge, and
market insights to produce and sell, they create an
organism of great com plexity. Changes in any of
its productive factors or in any pertinent aspect of
its m arket w ill change its mode of operation. The
purpose alw ays is to offer the customer the best
product at the lowest price. No sum m ary treatm ent
of these relationships can adequately explain or even
describe them. But comprehensive statistics that are
readily available can shed some light on the w ay in
which manufacturers in general are shifting their


productive with respect to labor. T his industry
achieved a level of $9.66 for price-adjusted value
added per man-hour in 1954 and raised this figure
to $16.00 by 1961. Tobacco m anufacturers, second
in productivity, raised value added per m an-hour
from $6.57 in 1954 to $11.45 in 1961. O ther im ­
portant D istrict industries listed in order of declining
productivity per man-hour are : foods; transportation
equipm ent; prim ary m e tals; m ach in ery; p a p e r;
stone, clay, and g la s s ; fabricated m e tals; fu rn itu re ;
lu m b er; te x tile s; and apparel. The textile business,
near the bottom of the list according to value added
per man-hour, w as high in rate of improvement.
W hen emphasis centers
on rates of increase in efficiency w ith respect to labor,
tobacco and chemicals change places at the head of
the list, and textiles rank third. The tobacco indus­
try raised price-adjusted value added per man-hour
three-fourths between 1954 and 1961. Comparable
increases amounted to two-thirds in chemicals and
one-half in textiles. Other industries ranked as fol­
lows : foods; transportation equipm ent; a p p a re l;
stone, clay, and g la s s ; lu m b er; p ap e r; prim ary m et­
als ; fu rn itu re; m ach in ery; and fabricated metals.

process, as the chart above shows, productivity with
respect to labor advanced sharply. Price-adjusted
value added per man-hour rose 35%> between 1954
and 1961 in the D istrict and 33% in the nation as a
whole. Physical productivity with respect to electric
power declined, of course, as shown by the lower
lines. But between 1954 and 1961 the price of fac­
tory labor rose about 30% while the price of indus­
trial power dropped nearly 5% .
In only seven years manufacturers as a group have
improved methods and equipment sufficiently to in­
crease output per unit of labor one-third. Since this
is a national average, m any have raised productivity
at a substantially faster rate. The fact that pro­
ductivity rose more rapidly locally than nationally
suggests that the District has a good share of the
more progressive industries.
Some m ajor industries that
have achieved large gains in productivity are wrell
represented in the Fifth District. Since rates and
ratios can confuse as easily as clarify, it is helpful to
make pertinent comparisons first and then look at
the num erical values involved.
Industries differ in productivity. Some create
high value per man-hour, some low, the differences
reflecting competitive conditions, internal technology,
and many other factors. Industries also differ with
respect to rates at which they are able to raise pro­
ductivity. A n industry with lowr productivity m ay
showr the biggest gain in a given span of time.
Of the nation’s m ajor industries with impor­
tance in the D istrict, chemical plants were the most


The ranking of D is­
trict industries shifts again when the rate of increase
in purchases of electric power is the criterion. H ere
the striking fact is that chemicals rem ain at the top,
but tobacco products and textiles drop to the middle
and the bottom of the range. Between 1954 and
1961 chemical plants raised purchases of electric
energy 98% . The apparel industry occupied second
place with a 95% gain. Most industries raised
power purchases between 40% and 60% . The figure
for tobacco products w as 56% , for textiles 23% .
M anufacturing as a whole raised price-adjusted
value added per man-hour one-third while increasing
purchases of electric power three-fifths. T extiles in ­
creased value added per man-hour one-half while
power purchased rose less than one-fourth. F ab ri­
cated metals provide a sharp contrast w ith a 40%
gain in power purchased accompanied by a mere 9%
rise in value added per man-hour. The rapid changes
that have occurred within industries and the wide
variations that exist between the various industry
groups provide convincing evidence of the dynam ic
nature of the nation’s m anufacturing enterprise.

Cover—M arcellus W right & Son, Architects.