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RESERVE BANK/OFIRICHMONu a n a a November 1954 MANUFACTURING EMPLOYMENT DURABLE GOODS INDUSTRIES FIFTH DISTRICT Also In This Is s u e 7~\urable goods industries of the Fifth District have maintained the approximate growth shown in the nation, but as the article beginning on page 3 describes, growth in the electrical equip ment industries of the Fifth District has been greater than in the nation. ------------ Fifth District Trend C h a rts____________ Page 2 Constitutional Limitations on State D e b t ____________________________ Page 5 Fifth District N ew s B r i e f s ______________ Page 6 Side Effects of Treasury Operations— Important to B a n k s___________________Page 7 Business Conditions and P r o sp ec ts ______Page 9 Fifth District Statistical D a t a __________ Page 11 Federal Reserve Bank of Richmond F if t h D is t r ic t TOTAL CONSTRUCTION CONTRACT AWARDS T rends BUILDING PERMITS (V A LU E) Owing largely to contraseasonal increases in residential construc tion awards and to a filip in public works and utilities awards, the total rose 13% from August to a level 34% ahead of a year ago; the nine months’ cumulation is up 8 % . Contrasts are in evidence in changes relative to a year ago and during the nine months, with the residential and commercial sectors as the main offsets to losses in some sectors of the industry. Adjusted building permits in September were maintained at the August level, which was 10% higher than August 1953. The ac cumulated figure for nine months, however, was 15% smaller than a year ago. This is in contrast to the trend in building contract awards, and the difference probably indicates the trend of activity to surburban areas. RETAIL FURNITURE STORES NET SALES COTTON CONSUMPTION Sales of furniture stores (adjusted) in the late Spring and Sum mer had given indication of improving from their low levels early in the year. September sales, however, declined 11% from August, after seasonal correction, to the lowest level of the year, but Septem ber last year was also the lowest figure for 1953. Credit sales in September and in the nine months relative to the same periods last year have held up much better than cash sales. Inventories have fallen more than sales. GASOLINE After rising to the best level of the year in August, cotton con sumption in September declined 4 % after seasonal correction, was 4 % smaller than in September 1953, and the first nine months were 7 % below 1953. The August-September drop was probably more of a statistical quirk than a renewal of a downward trend. Indications are that business will be moderately good in the last quarter of the year. CONSUMPTION NEW BUSINESS INCORPORATIONS Despite the business downturn of 1954, formations of new busi ness have continued to improve as compared with 1953. In August the number of corporations formed was 4 % larger than in July and 15% ahead of August 1953; in the first eight months of the year the gain was 3 % . The strong upward trend in the consumption of gasoline in the Fifth District was halted in 1954 and the seasonally adjusted figures this year show a flat trend. July, the latest figure available, shows a reduction of 1 % from a year ago and the first seven months of the year are even with a year ago. Estimated August figures show a slight improvement over July. 4 2 y November 1954 The Durable Goods Industries capita income in these United States is usually highest in areas where manufacture of durable goods is concentrated. W ages and salaries in these areas and in these industries usually are higher than in areas where nondurable goods industries are the chief sources of employment or where industries of either type are sparse. The following discussion focuses on the progress of durable goods industries in the Fifth Federal Reserve District and may throw some light on industrial expan sion potentialities, expansion of job opportunities, and improvement of per capita income. the latter period the District increase was 2 1% , the national increase 38% . Record of Growth From the available historical record it is clear that the durable goods industries in the Fifth District have shown substantial gains though, in the main, their growth has not equalled the national rate except in the case of machinery industries. The District story is, however, incomplete and since 1952 there have been many important installations, particularly in the electri cal equipment field in North Carolina and Virginia. P er Primary metal industries’ “ value added” in the Dis trict between 1939 to 1947 rose 132% ; in the nation the increase was 166%. In the 1947-52 period “ value added” in primary metal industries in three states of the District was up 60% compared with 57% nation ally. Much the same sort of picture is shown in metal fabricating industries in both periods: 1939-47, Dis trict up 205% , national up 2 5 1 % ; 1947-52, District up 3 6% , national up 4 6% . Latest available record for all Fifth District states is the Census of Manufactures for 1947. In that year the “ value added” by manufacture in durable goods industries of this Federal Reserve District accounted for 27.7% of the “ value added” in all manufacturing industries. This compares with a national proportion of 47.7% in the same year. Growth in “ value added” in the durable goods industries, however, was substan tial in the Fifth District, with a recorded rise of 202% between 1939 and 1947. Even so, it was somewhat less than the national growth of 233% in the same period. “ Value added” in durable goods manufacturing in dustries in the Fifth District did not increase as much from 1939 to 1947 (2 0 2 % ) as in all industries (2 0 5 % ) in the same period. This was due to the necessary restraints of the war period. In the 1947-52 period, however, growth in “ value added” in durable goods manufacturing (5 1 % ) has far exceeded the increase in all industries (3 4 % ). “ Value added” by manufacture is available from the Survey of Manufactures on eight major industrial groupings for the year 1952 for the states in the Fifth District where these industries are important. In the main, the same tendency was shown between 1947 and between 1952 as that between 1939 and 1947: the dur able goods industries in the Fifth District showed a rather substantial increase (5 1 % ) in this period, and it was somewhat less than the national increase (6 5 % ) for the same period and industries. The machinery industries, both electrical and other, are exceptions. “ Value added” by manufacture in machinery indus tries (excluding electrical) for 1952 is available for the state of Maryland only, but Maryland is by far the most important machinery producer in the District. “ Value added” in machinery industries (excluding electrical) between 1947 and 1952 rose 107% in Maryland, a far greater gain than the nation’s 64% in the same period. “ Value added” in electrical machinery industries is available for Maryland and W est Virginia. In these states the increase from 1947 to 1952 was 145%, com pared with a national increase of 76% . Per capita income in the Fifth District has increased much more rapidly since 1939 than the national total, and the types of durable goods industries moving into this area appear to be motivated strongly by market potentials. This in itself tends to improve the per capita income level which, in turn, should improve markets and attract additional industry. Current Developments What has happened to the District’s durable goods industries in the period of moderate recession, late 1953 and during 1954? Only records available on a region al basis are those of the various states on employment by industrial classification. In the Fifth District the record is fairly complete, though not all inclusive, back to 1949 (some states do not report all the industries’ employment figures separately). The employment records show that durable goods industries in the Fifth District came out of the 1949 recession in August of that year and rose without major interruption until March of 1953. Between July 1949, the low point in durable goods employment, and March 1953, the high point thus far, there was a gain of 106,000 workers or 28% . Since March 1953, employ ment in durable goods industries in the Fifth District had declined (to July 1954) by a total of 10% . This compares with a drop of 16% from peak month of 1948 Lumber and products industries (excluding furni ture) in the Fifth District have approximately paralleled the national growth in “ value added” for these indus tries both from 1939 to 1947 and from 1947 to 1952. “ Value added” in Fifth District furniture and fixtures industries actually outpaced the nation between 1939 and 1947, but fell considerably behind between 1947 and 1952. In the former period the District gain of 256% compared with one of 230% in the nation. In 3 y Federal Reserve Bank of Richmond to the low month of 1949 for four states. Thus, the 1954 recession has been more moderate than that which occurred from 1948 to 1949. August 1954 showed a gain over July of 4,200 workers or approximately 1% , with the August 1954 level somewhat higher than that of June 1954. In 1949 when the durable goods indus try moved out of recession the August employment level failed to increase from July as much as July had fallen from June. It is premature to anticipate that the August performance heralds the beginning of a revival in the employment level of these industries though this may prove to be the case. February and March of 1950 when the total had drop ped to 13,700. From that point up to the high level of June and July 1952, employment increased 85% to a total of 25,300. Since July 1952 navy yard employ ment has slumped 20% to a July 1954 total of 20,300. Stone, clay, and glass industries employed 47,600 workers in the District at their low point in July 1949. They established their peak employment in April and again in September of 1951 at 55,500 workers. The average employment level in 1952 was lower than the average of 1951, and 1953 was in turn lower than 1952. A declining level of employment continued down through July 1954 but August recovered slightly over June. The manner in which the durable goods industries of the District have fared in the current recession is of considerable interest. Unfortunately, available figures do not permit a comparison with the 1949 performance since comparable data are unavailable for 1948. The industries are covered in order of their importance in “ value added” in the last census. Primary metals employment reached a low point of 58,400 in August 1949, rose to 67,800 in August 1951, declined to 42,200 during the steel strike in 1952, and rose thereafter to a high point of 69,300 in July 1953. From that date to April 1954 employment declined to 61,600 or 1 1 % ; since April 1954 there has been an in crease of 2,200 or nearly 4 % . The low point in employment in lumber and timber in dustries in 1949 was in July when 101,700 were em ployed. The level increased fairly steadily until March 1951 when 126,600 were employed. There has been a more or less continuous decline in employment since that date to a low figure established at 99,100 in April 1954 or a drop of approximately 21% from the March 1951 peak. The highest employment level of 1953 was in January when 110,700 were employed. The drop from January 1953 to April 1954 was a little over 10%. August 1954 employment was 2% over April. Transportation equipment industries are confined largely to Virginia and Maryland and consist mainly of employment in shipbuilding establishments and aircraft factories. T w o automobile assembly plants constitute the bulk of remaining employment. The figures do not include shipbuilding at the United States Navy Yards at Norfolk, Virginia and Charleston, South Carolina which will be covered separately. Furniture and fixtures employed 42,800 workers at the low point in 1949. Employment in the industry rose between that date and March 1951 by 14,400 or 34% . It then declined for about a year to 51,000 in March and April of 1952 and then rose to a peak of 58,400 in March 1953, a level attained again in August and September of the same year. The decline from the 1953 high point of 58,400 to 51,500 in July 1954 was 12%, about the same as the 1951-52 decline. August employment in these industries rose nearly 7% from July to the best level since March 1954. Fabricated metal products employment levels which exclude the District of Columbia and South Carolina were at their low point of 29,600 in May 1949. There was a rise to 38,900 in June 1951, some decline until July 1952 (during the steel strike) and a new rise in 1953, when a peak of 39,400 was reached in February, March, and again in August. The increase from the low point in 1949 to the high point in 1953 was 9,800 or 33% . Since August 1953, employment in these indus tries has dropped to a low of 35,500 (July 1954) or 10% below the 39,400 peak. August employment rose 6% from July to the best level recorded during 1954. Machinery industries (excluding electrical) are of relatively small importance though, as previously noted, their growth has been more rapid than national experi ence. In 1949 this group (four states of the District) employed 20,700 at their low point in November. The level increased persistently to February 1952, declined moderately to October of the same year, and rose to a high point of 33,000 in March 1953. The increase from the low point in 1949 to the high point in 1953 was 12,300 or 59% . Since March 1953 there has been a de clining trend, and there was no change of trend evident up to August 1954 when the decline from the high point amounted to 13%. Employment in the transportation equipment indus tries (excluding navy yards) was at its low point during the recession year 1949 in December at 35,200 workers. Between that date and its peak level established in sev eral different months (first in June 1952 and again in April, June, July, and September 1953) employment vaulted to 71,000. Since September 1953 there has been a continuous decline through August 1954, the total amounting to 12,700 or 18%. Electrical machinery employment figures, represented only by the state of Maryland, fail to measure the actual growth that has occurred. In Maryland total employ ment by this group at the low point in 1949 was 4,600; the level moved up steadily until March of 1954 for an increase of 9,100 or 198%. From March through A u gust of 1954 there was a loss of 1,000 workers or 7 % . Employment in South Atlantic navy yards (N orfolk and Charleston) was at its post-W orld W ar II low in i 4 y November 1954 Constitutional Limitations on State Debt O o m e of the numerous records set by the postwar O economy have failed to elicit heart-felt cheers. Take the rise of state indebtedness, for example; finance officers in many states have been more than a little concerned by the record rate at which their states have been borrowing long-term funds. T o a considerable extent, of course, this was unavoidable. Aside from financing veterans’ bonuses in a number of states, bor rowing had to be resorted to for urgently needed capital projects— schools, highways, and hospitals. The back log of needs accumulated during the war increased afterward much faster than it could be worked off— and would probably have done so even though labor and material restrictions had not prevailed. with a growth of 178% for all states, W est Virginia had an increase of 282% , Virginia 383% , Maryland 592% , and North Carolina 689% . Only South Caro lina with a relatively meager growth of 89% was under the national figure. Despite these hefty increases, it is not generally argued that the debt in any of the Fifth District states has reached a level immediately dangerous or detrimen tal to credit rating. This is not to suggest, however, that their debts can continue to increase at such a pace without causing trouble. In any event, these develop ments lead logically to an inquiry as to whether the states of this District have unusually lax checks or restrictions on the borrowing authority. In most major respects, the postwar record of state financing has been just the reverse of what it was during W orld W ar II. Then, restrictions on capital projects and curtailed services in an expanding war economy resulted in declining state expenditures, increasing revenues, unusual surpluses, and debt retirement. Despite the prosperity-inducing-and-induced income levels of the postwar period, state expenditures have outrun revenues, war-time surpluses have been drawn down, and debts have mounted higher than ever before. Whereas every state in the nation lowered its debt in fiscal 1945, two-thirds of the states saw their indebted ness expand still further in fiscal 1953. Control by Voters W est Virginia is unique among the District states in requiring a constitutional amendment before state debt may be incurred. Specific exceptions are customary provisions permitting the legislature to contract debt to meet casual deficits, for refunding, to suppress insur rection, to repel invasion, and to defend the state. A s has been true of most of the other 19 states requiring constitutional amendment for borrowing, W est Virginia has experienced no particular difficulty in securing the approval of the voters for bond issues. For example, a series of “ Good Road Amendments” has been ob tained authorizing a total of $135 million in bonds since 1920, and an amendment was approved in 1950 author izing a $90 million bond issue to pay bonuses to vet erans. A n unusual constitutional stipulation requires that the “ payment of any liability other than that for the ordinary expenses of the State, shall be equally dis tributed over a period of at least 20 years.” A s in W est Virginia, the constitutions of Virginia and North Carolina place control over borrowing in the hands of the voters, but require that control to be exercised by means of a referendum rather than a con stitutional amendment. In Virginia the legislature can create debt only for casual deficits and the other four usual exceptions noted in W est Virginia. A unique provision designed to put teeth into Virginia’s consti tutional debt limitations, limits the aggregate debt that may be created by voters to 1% of the assessed value of taxable real estate. Other constitutional provisions require the creation and maintenance of a sinking fund for every loan made, a statement of the specific purpose of the debt, and the approval of each debt by a majority of all the votes cast for or against it. Perhaps the most significant aspect of the increase in state debt to record levels is the prospect for much more of the same. Completion of many a capital pro ject seems to be accompanied by a Hydra-like multipli ca tio n -tw o new ones where formerly there was but one. Just recently it was announced by the President’s advisory committee on a national highway program that $5 billion should be added to the $6 billion now spent by Federal, state, and local governments on highways in order to “ overtake the accumulating obsolescence of our present system and to meet the needs of population growth.” In 1953 aggregate state expenditures for education amounted to $2.7 billion, the largest outlay by far on any single state function— over three times the amount spent on highways, for example. And yet, it is obvious that expenditures by both states and municipalities for educational purposes will have to be stepped up, since present facilities are clearly inadequate for present needs and new and higher peaks in school enrollment are still ahead. District Debt Rises Rapidly Prior to 1936 the borrowing power in North Caro lina rested with the General Assembly and was limited only by the requirement that debt not exceed 7 j^ % of assessed values. In 1936 an amendment was approved that shifted the main power of debt creation to the Postwar increases in state debts have been particularly large among the states of the Fifth Federal Reserve District. In fact, only one of the five states had a per centage increase in net long-term debt from 1947 to 1953 that was less than the gain for all 48 states. Compared (Continued on page 12) { 5 y Federal Reserve Bank of Richmond Fifth District News Briefs Modernization of existing plant facilities to make pos sible improved quality and reduced costs have been illustrated in capital outlays of manufacturing industries in the Fifth District over the past month. Expansion and modernization programs are in progress in a variety of industries and passing of the Machine Depreciation A ct by Congress should further stimulate this trend. The American Gas and Electric Company has announced plans for the construction of a 225,000 kilowatt steam-electric generating plant unit, to cost approximately $26,400,000 at Glen Lyn, Virginia. The new unit will more than double the generating capacity of the Glen Lyn plant of Appalachian Electric Power Company, an operating company in the American Gas and Electric system. The W est Virginia Pulp and Paper Com pany has announced plans to install a new Fourdrinier kraft paper-making machine and other equipment at its Charleston, South Caro lina mill. The new machine will permit in creased output of linerboard, principal material used in making corrugated boxes, and kraft paper and paperboard. Cost of the equipment and new buildings in which it will be housed is expected to be between $10 and $15 million. New facilities are expected to be put into opera tion sometime in 1957. The Rheem Manufacturing Company, Baltimore, Maryland, has completed a 17,500 sq. ft. addition to existing facilities. A portion of the new addition is being used for office space and for a modern cafeteria. The remainder of the space is used for part of an assembly line to produce the company’s domestic water heater tanks. The plant manufactures approximately 10% of the nation’s water heaters. Recent completion of an ultra-modern weave room addition marked the high point in a longrange modernization program under way at the Clinton Cotton Mills, Clinton, South Carolina. The mill started operations in the late 1890’s with 5,000 spindles, 200 looms. Today it uses 81,616 spindles and 1,828 looms to produce high quality print cloths, broadcloths, twills, etc. The growth of the Clinton Cotton Mills has closely paralleled that of the Lydia Cotton Mills, a sister mill also located in Clinton, South Carolina. ' A $1,500,000 machinery modernization and plant ex pansion program is planned for the Harriet Cotton Mills, Inc., and Henderson Cotton Mills, Inc., Hender son, North Carolina. The program includes additional new machinery as well as improvements of existing machinery. Production has been increased by more than 25% at the Champion Brick Company, Balti more, Maryland, manufacturer of building brick and certain special ceramic items used in con struction, through improvements to its new tunnel kiln. Announcement has been made that Burlington Mills Corporation will erect a hosiery plant in Macon County, North Carolina. The plant will involve an ultimate investment of some $3 million and is expected to be completed and in operation by next Spring. The Nestle Company, Inc., is considering a site near Suffolk, Virginia for a new instant coffee and tea plant, and has placed an option on a 70-acre tract near that city. The plant will produce Nestle’s instant coffee, Nescafe, as well as instant tea. Need for in creased production has taxed facilities of the four exist ing plants to the limit, and the erection of a fifth plant is considered necessary to meet demand for the com pany’s products. Hinde & Dauche Paper Company, Sandusky, Ohio will construct a 160,000 sq. ft. corrugated box factory in Gastonia, North Carolina. The new plant will employ 100 to 125 persons and is expected to be in operation by June 1955. Precision manufacture of cotton textiles has been achieved by Mayfair Mills, Arcadia, South Carolina with completion of its modernization program designed to meet consumer demand for quality fabric in the new cotton finishes. The project required installation of 350 carloads of new machinery at a cost of $6 million. The Kearfott Company of Little Falls, New Jersey, will build a new electronics plant near Black Mountain, North Carolina. The plant will employ approximately 275 persons, with an annual payroll in excess of $600,000. This new development illustrates the fact that since 1947 more than $42 million has been invested by the electrical and electronics industry in more than 40 new plants and expansions in North Carolina. A t the Lynchburg Foundry Company, Lynch burg, Virginia, a new $1,250,000 addition has been constructed for the manufacture of shellmold castings. Limited production began in September, with full production scheduled for November 1. < 6 y November 1954 /f o n M A / Side Effects of Treasury Operations—Important to Banks to fluctuations in the Treasury’s working balance and pursuing its fiscal and debt management activities, its transactions in the monetary metals. the Federal Government through its fiscal arm, the Treasury, naturally and perennially exerts a potent in Treasury Cash Balances fluence on the general level and direction of economic In handling the Government’s financial operations activity. This is not surprising when it is noted that today— as for some time past— approximately 1/7 th of the Treasury uses the twelve Federal Reserve Banks the national output of goods and services is purchased as fiscal agents, and all Government receipts and ex by the Federal Government, more than 1/5 th of the penditures arising from both regular budget operations income goes to the Government in form of taxes, and and debt transactions ultimately pass through one of an amount equal to 2/5ths of total public and private these banks. From the standpoint of the commercial debt is owed by the Federal Government. banking system, the flow of funds into and out of the Due both to the sources Treasury’s accounts at the from which the Govern Reserve Banks is an unset ment acquires its vast funds tling if not potentially dis INFLUENCE OF TREASURY OPERATIONS and the uses to which those rupting factor. A build-up ON CHANGES IN BANK RESERVES funds are put, a heavy im of the Treasury’s balance at pact on the nation’s econ the Federal Reserve causes omy is inevitably exerted. a decline in member bank Through all three of its reserves and disbursements maj or financial operations from these accounts add to — t a x i n g , spending, and member bank reserves. So debt management-—the G ov long as the flow of funds ernment either directly or into the Treasury’s Reserve indirectly exerts an influ Bank accounts r o u g h l y ence on the level of invest coincides with the outflow ment, on the volume of em there is no unsettling effect ployment, on the types and on the banking system. magnitude of commodities Treasury receipts and ex and services produced, and penditures, however, do not hence on the distribution of coincide. Even though they income itself. might balance out over the / n I i In the financial arena, the -J__ I__ 1__ 1_ _J____ 1____1____1 T reasury must formulate J F M A M J J A S O 1953 and activate policies which, by their very nature, are able to affect materially the volume of money in circulation. There must be Treas ury decisions on whether funds are to be held as cash in Treasury vaults or as deposits in Federal Reserve Banks or commercial banks; on buying and selling gold and silver; and decisions in regard to new borrowing or redeeming and refunding existing debt. All of these exercise an influence on the volume of money and par ticularly those “ high-powered” dollars, the reserves of member banks. The Federal Reserve System, in carry ing out its assigned task of influencing the volume of credit— both on the cost side as well as the availability side— must constantly take into account the potential effects of Treasury operations on bank reserves and, of course, the banking system must do so as well. 1 N D i _1__I_1 I 1 J F M A M J 1954 J A S On the expenditure side, many factors operate to make disbursements uneven throughout the year. For instance, payments rise steeply when interest and debt fall due, and payment for most goods purchased by the Government is required when delivery is made. The accompanying chart shows the monthly changes in total member bank reserves during the period since January 1953 and the share of this change attributable period of a year, wide variations occur from quar ter to quarter, from month to month, and even from day to day. Some taxes such as withheld income taxes, old-age insurance taxes, railroad retirement taxes, and most excises are paid fairly evenly over the year. Corporation taxes and nonwithheld individual income taxes, which form a large share of total tax receipts, are, however, paid on a quarterly basis. Furthermore, the Mills Plan now concentrates payment of corporation income taxes al most entirely in the first half of the calendar year. Treasury borrowing operations also cause heavy con centrations of receipts. Because the Treasury elects to go into the market infrequently for new money, bor rowing usually takes place well in advance of the time the funds will actually be spent. 1 7 y Federal Reserve Bank of Richmond In order to lessen the effect of this uneven flow of receipts and expenditures on the reserves of commercial banks, the Treasury maintains what are known as T ax and Loan Accounts in some 11,000 commercial banks qualifying as Special Depositaries. A large portion of total tax collections and proceeds of most borrowing operations (other than weekly issues of Treasury bills) are allowed to build up in these Treasury accounts. The initial effect of taxing or borrowing from the nonbank public is simply a transfer of deposits in commercial banks from individuals and businesses to the Treasury. N o immediate drain on bank reserves occurs. Funds are transferred from the commercial banks to the Reserve Banks only in immediate anticipation of being spent, and the reduction in member bank reserve balances is, therefore, short-lived. W hen the Treasury spends these funds and they are deposited with com mercial banks, reserve balances are replenished. N ot all Treasury receipts eligible for T ax and Loan credit actually flow through the depositary mechanism, but an impressive proportion does. In calendar 1953, for instance, about 60% of all receipts from eligible withheld excise taxes and savings bond sales, and near ly all eligible receipts from nonwithheld income taxes, savings note sales, and new money borrowings were credited to T a x and Loan Accounts. T ax and Loan A c counts permit banks to maintain a higher volume of investments, but since these accounts are withdrawable on very short notice, the funds involved can be invested only in short-term low-yield assets. In regulating the flow of funds into its accounts at the Reserve Banks, the Treasury occasionally, during periods of heavy tax collections, suspends T ax and Loan calls and borrows directly from the Federal Reserve System on short-term Special Certificates of Indebted ness. A s these funds are spent, banks gain reserves and the subsequent tax payments, which are sent directly to the Federal Reserve, are roughly offset in advance. for issuing gold certificates to the Federal Reserve in exchange for a deposit balance. The immediate result of the gold transaction, in any event, is a net increase in reserves of the banking system. The effect of the gold inflow can be offset by any action that decreases bank reserves in an equal amount. For instance, should the Treasury elect to rebuild its balance at “ the Fed” by drawing on its T ax and Loan Accounts or by selling securities to the public, the effect of the gold purchase would be neutralized. Debt Operations Treasury debt operations react on bank reserves chiefly as a result of their flow into and out of Treasury accounts at the Reserve Banks. Their impact depends largely on how new securities are paid for— whether credited to T ax and Loan Accounts or paid directly to the Treasury’s account at the Federal Reserve Banks. Treasury borrowing is, of course, followed by the spending of the borrowed funds which may offset the effects produced by the borrowing operations. Like wise where taxes are collected and used to retire debt, the two may net out. There is, however, frequently a time lag between the acquisition of funds and their disbursal, and in this interval pressures on bank re serves can develop. Since the effects of Treasury ex penditures have already been examined it remains to consider the effects of debt operations as such. Sales of securities to nonbank investors or to com mercial banks cause an immediate reduction in bank reserves if payment is made directly to the Treasury’s account at the Reserve Banks. Payment for the securi ties is made by check against an account at a commercial bank and when this check is cleared, the commercial bank’s reserve account at the Federal Reserve is charged and the Treasury’s account is increased. If, however, payment to the Treasury is allowed in the form of a credit to its T ax and Loan Accounts, bank reserves are not reduced until the Treasury transfers its funds from these accounts to its Federal Reserve account. W hen the Treasury retires debt held by nonbank in vestors or commercial banks, the effects on reserves are simply the reverse of those described above. Payment to the holders of the debt is in the form of a Treasury check drawn against its Federal Reserve account. W hen such checks are cleared, bank reserves are increased. The Treasury operations described above are of such magnitude that their effects on commercial banks, which constitute the financial heart of the economy, could cause serious repercussions if not properly anticipated and checked. T o minimize these effects, the ebb and flow of funds through the Treasury’s account at the Federal Reserve Banks is carefully watched and un usually large drains are delayed until the return flow from Treasury expenditures can partially offset the pressures generated. The Treasury T a x and Loan Accounts provide a convenient reservoir into which such pressures can be temporarily released. Management of Gold and Silver Stocks Commercial bank reserves are also affected by Treas ury actions involving the flow of gold and silver into and out of the banking system. The Treasury may pur chase gold from foreign countries which wish to acquire dollars or it may buy domestically mined or reclaimed gold. In general, Treasury policy with regard to gold transactions is passive— it buys all gold offered by both foreign and domestic sellers and authorizes sales to for eign governments or central banks when they wish to convert dollars into gold. W hen the Treasury purchases gold it makes payment by check on its account at a Federal Reserve Bank. The seller deposits this check in a commercial bank and when the check has been cleared the result is a decrease in the Treasury’s account at the Federal Reserve and an increase in the commercial bank’s reserve balance. T o rebuild its balances at the Federal Reserve, the Treasury may use the newly acquired gold as a basis -{ 8 > /f & f l M f y jfan & U * November 1954 Business Conditions and Prospects the over-all economy of the Fifth District Septem ber was not quite as good a month as August. On the plus side the construction industry built up a faster pace and moderate further improvement was witnessed in many lines of manufacturing activity. Department stores and furniture stores failed to hold at their August seasonally adjusted level while regis trations of new passenger cars and trucks continued to decline. Bituminous coal output was nearly maintained at its average daily level in August but was substan tially under a year ago. Farm prices improved mod erately in the important agricultural states of the Dis trict, but the farm income outlook for this half of thd year is somewhat poorer than last year. All types of deposits of member banks at the end of September showed gains over a month earlier and both loans and investments expanded in the period. Insured unemployment in the District continued to recede through October 9 with that week 13% under a month earlier and 42% under the peak week of 1954. Insured unemployment, however, was still sharply higher than a year ago and totaled 121,900 in early October. / n Construction The building boom moved into still higher territory in September with a gain over August in seasonally adjusted contract awards of all types of 13% to a level 34% ahead of a year ago. In the first nine months of the year, contract awards for all types of building were 8 % higher than a year ago. In the District the changes in the several types of construction between August and September, adjusted, are interesting for their contrasts. Awards for apartments and hotels show a gain of 217% , public works and utilities a gain of 56% , and residen tial a gain of 22% . Commercial construction was down 23% and factory construction awards down 4 4% . Rela tive to a year ago, September residential construction contract awards were up 80% with one- and two-family houses up 79% and apartments and hotels up 107%. Although the September level of apartment and hotel awards was well above a year ago and the previous month, it is low by past historical comparison. On the other hand, the one- and two-family house awards are not only high in relation to last year and the month previous, but have only been exceeded twice in the history of the series. In the nonresidential sector, awards in September were 23% higher than a year ago, due largely to a gain of 164% in “ other” types of non residential types of construction and to a gain of 4% in educational awards which more than offset a decline of 30% in factory awards and 4 % in commercial awards. In the first nine months of this year, a gain of 34% in residential contract awards more than offset a decline of 3% in nonresidential buildings and a decline of 12% in public works and utilities to raise total construction {9 y contract awards for this period 8 % ahead of last year. Building permits in 33 cities of this District have acted somewhat differently from construction contract awards. Although the territory covered is not identical, the differences in trend probably mean that building activity is more intense outside of corporate city limits than inside them. Trade Always a key factor in the business outlook is the prospective consumer demand for goods and services. On this score, the outlook in September was not too encouraging. Sales in department stores dropped 4 % after seasonal correction from August to a level 2% below a year ago, with the first nine months showing a drop of 3% from the like period of 1953. The trend of adjusted department store sales figures has been just about level during most of the year and the September figure did not fall below the year’s range. Declines were witnessed in these adjusted sales in all states of the District except North Carolina between August and September. Sales in South Carolina were down 10%, in the District of Columbia 6 % , Maryland 4 % , V ir ginia 3 % , and W est Virginia 2 % . Relative to a year ago, however, Maryland and the District of Columbia gained 1% ; other states showed losses ranging from 1% in North Carolina to 8 % in W est Virginia. Sales of District furniture stores, seasonally adjusted, dropped 11% from August to September and were 2% smaller than in September last year. Nine months’ sales were down 7% . Sales of household appliance stores (without seasonal correction), although down 7% in September from August, were a snappy 12% ahead of a year ago. New passenger automobile registrations in August were 7% under July and 8% under a year ago for all states of the Fifth District and the District of Columbia. Three states and the District of Columbia for Septem ber showed new passenger car registrations down 1% from August and 12% under a year ago; but from August to September, gains were shown in North Caro lina ( 5 % ) , W est Virginia ( 5 % ) , and the District of Columbia ( 6 % ) . These were more than offset by a reduction of 8% in Virginia. Relative to a year ago, September registrations in North Carolina were down 20% , W est Virginia down 17% , Virginia down 7 % , and the District of Columbia up 13%. Bituminous Coal Average daily bituminous coal production for the Dis trict was 1% lower in September than in August and 18% under September 1953. For the first nine months, average daily production was down 16% from last year. Recent trends in weekly figures, however, give evidence of a seasonal expansion, the first indication of improve ment in this industry thus far this year. Federal Reserve Bank of Richmond Manufacturing A ll states of the Fifth District available for August show man-hours in manufacturing industries up 4.5% from July and down 7% from August 1953. Normally August shows a seasonal rise over July, but the inter esting part of the July-August performance this year was that both durable and nondurable goods rose by ap proximately the same amount from July. Relative to A u gust a year ago, man-hours in August 1954 were down 8.5% in durable goods and 7.1% in nondurable goods. North Carolina, only state available for September, showed man-hours up 2.3% in all manufacturing in dustries from August and 1.6% under September a year ago. From August to September, durable goods in dustries showed man-hours down 0.3% and in non durable goods industries up 2.9% . Relative to a year ago, durable goods were down 2.4% and nondurable goods down 1.5% . These North Carolina figures in dicate that the recovery which started in August carried through into September with the major emphasis on the nondurable goods. The cigarette business in August showed considerable improvement over July when seasonally adjusted output rose 6 % to a level 1% ahead of August 1953. In the first eight months, cigarette output in the District was down 4 % from the same period last year. Man-hours in the cigarette industry in North Carolina during Sep tember were 0.2% below August but 5.6% ahead of a year ago. Cotton consumption in the Fifth District during Sep tember was not sustained at the August adjusted level and dropped 4 % during the month to a level 4 % below September 1953. Despite the September setback, the adjusted figures give fairly clear indication of a mod erate improvement in the level this Fall; indications are that October will show further improvement in the con sumption level. The North Carolina September manhour figures for textile products showed a rise of 1.2% from August with no gain in yarn and thread mills, a gain of 1.7% in broad-woven fabric mills, and a gain of 1.2% in knitting mills. Further sizeable seasonal gains were witnessed in the man-hours of North Carolina’s chemical industry, but man-hours in that state’s apparel industries receded further in September to a level 12% under a year ago. Banking Total deposits of Fifth District member banks rose $238 million or 3.6% between August 25 and Septem ber 29, 1954. Time deposits increased $56 million, deposits of banks rose $53 million, and other demand deposits rose $129 million. Total loans and invest ments in this period increased $158 million— loans were up $107 million, Government securities $40 million, and other securities $11 million. Member bank use of R e serve Bank credit dropped $6 million between August 25 and September 29 and their total borrowings were down $11 million. Seasonally adjusted debits to de positors’ demand accounts in reporting banks dropped 3% from August to September but September was 1% higher than a year ago. In the first nine months of the year, debits were at the same level as a year ago. Turn over of demand deposits in September was at the annual rate of 20.2 times compared with 19.2 in August and 20.1 in September 1953. In the weekly reporting banks, business loans appear to have achieved a belated but more than seasonal ex pansion. Real estate loans have shown a sharp trend up since mid-year. Other loans, largely consumer loans, have trended slowly upward and are currently near their all-time high levels. The rise in loans to manufacturing and mining concerns of a small group of banks has been quite sharp and is within striking dis tance of the all-time peak last Spring. Trade loans are at a new high level, but loans to commodity dealers have not shown a normal seasonal rise; and loans to sales finance companies have been trending downward since early September. Loans to public utilities are at a new high level and trending moderately upward. Con struction loans have been moving upward, but have not yet attained the peak reached last year. Loans to other types of business since the end of August have moved up quite sharply. fia n ccci November 1954 F if t h D is t r ic t STATISTICAL- DATA F IF T H D IS T R IC T IN D E X E S B U IL D IN G P E R M IT F IG U R E S Seasonally Adjusted: 1947-1949 = 100 Chg.— Latest Mo. Sept. 1954 % Sept. 1954 Aug. 1954 New passenger car registra ............ tion* ........... Bank debits .............. ................ 149 Bituminous coal production* 79 Construction contracts 188 Business failures— number 207 Cigarette production _ _ _ _ _ Cotton spindle hours __ . ... 110 Department store sales _____ 115 Manufacturing employment* __ ___ Furniture store sales _______ 90 Life insurance s a le s _________..... 171 * Not seasonally adjusted. Back figures available on request. Sept. 1953 135 153 80 167r 228 105p 115 120 106p 101 170 145 148 96 140 129 103 114 117r 112 92 166 Prev. Mo. — 7 — 3 — 1 +13 — 9 + 6 — 4 — 4 + 3 — 11 + 1 Yr. Ago. — 8 + 1 — 18 +34 + 60 + 1 — 4 — 2 — 6 — 2 + 3 W H O LESALE TRADE Sales in Stocks on September 1954September 30, 1954 compared with compared with Sept. Aug. Sept. 30,Aug. 31, LINES 1953 1954 1953 1954 Auto supplies _______________ 0 + 9 NA NA Electrical go od s____________ 0 +15 NA + 4 Hardware___________________ + 3 + 8 NA — 1 Industrial supplies_________ — 1 + 7 NA — 4 +16 —20 —13 Drugs and sundries _____ ____ + 2 2 Dry goods __________________ — 9 + 4 — 3 0 Groceries ___________________ — 2 + 3 — 5 + 3 Paper and its products____ NA NA NA NA + 7 NA NA Tobacco products___________ + 2 Miscellaneous_______________ — 9 + 8 +23 0 District T o ta l------------------- + 2 + 9 — 2 — 1 N A Not Available. Source: Bureau of the Census, Department of Commerce. D E P A R T M E N T ST O R E O P E R A T IO N S (Figures show percentage changes) Other Rich. Balt. Wash. Cities Sales, Sept. ’54 vs Sept. ’53 — 1 Sales, 9 Mos. ending Sept. 30, ’54 vs 9 Mos. ending Sept. 30, ’5 3 ____________________ — 2 Stocks, Sept. 30, ’54 vs ’53 .. Outstanding orders, Sept. 30, ’54 vs ’53 + 3 +1 — 2 + 1 — 6 + 5 — 5 0 — 9 — 1 8 31.0 45.1 42.7 Instalment receivables Sept. 1, collected in Sept. ’54 _ 11.1 15.0 14.4 — — 1 Open account receivables Sept. 1, collected in Sept. ’54 _ Sales, Sept. ’54 vs Sept. ’5 3 _____________________ + 1 1 — 4 — 1 0 Md. — 9 +2 Dist. Totals + D.C. Va. W .Va. +1 —3 — 8 37.9 18.5 40.3 14.7 N.C. S.C. —1 —3 { ii Maryland Baltimore __ ._$ 8,086,495 Cumberland __ 88,926 Frederick 168,500 Hagerstown ._ 229,923 Salisbury 61,315 Sept. 1953 9 Months 1954 9 Months 1953 $11,366,890 46,950 80,000 107,350 74,255 $ 49,640,305 570,851 982,906 2,307,769 1,253,651 $ 67,753,480 487,240 1,990,267 1,999,302 923,147 Virginia Danville H o p e w e ll__ Lynchburg _ Newport News N o r fo lk _____ Petersburg ... Portsmouth ._ R ichm ond__ _ Roanoke Staunton 387,638 260,308 4,733,443 62,054 1,106,670 151,600 715,340 1,992,605 896,376 320,300 174,022 340,294 391,689 348,742 1,335,595 115,500 222,940 2,117,148 1,051,441 100,480 2,429,206 1,972,699 8,171,442 2,347,448 11,339,542 1,690,686 5,496,433 25,005,598 8,980,740 1,466,150 3,024,041 3,208,878 3,554,567 1,909,169 13,372,621 1,486,550 6,207,471 15,193,191 13,301,864 1,599,177 West Virginia Charleston ... Clarksburg Huntington . 993,086 68,510 1,069,853 646,105 47,075 531,671 8,208,326 1,705,892 6,235,882 10,633,518 1,980,661 4,966,960 North Carolina Asheville____ Charlotte _ D urham _____ Greensboro . High Point ..._ R a le ig h ___ __ Rocky Mount Salisbury____ W ils o n ______ _ Winston-Salem 349,542 2,113,324 537,441 1,143,179 314,705 2,155,422 159,176 94,030 291,150 909,396 815,125 1,875,881 503,224 688,351 368,492 634,650 349,155 122,605 103,200 1,325,601 2,881,221 17,223,758 4,750,033 8,616,770 3,727,915 11,553,028 2,321,294 1,547,129 2,313,950 9,457,654 2,814,357 27,174,960 5,048,368 8,141,039 4,069,499 18,419,902 3,566,635 1,708,929 1,623,931 6,831,003 South Carolina Charleston C o lu m b ia __ Greenville__ __ Spartanburg 121,059 725,580 816,090 68,800 762,494 484,805 342,600 93,033 2,432,265 7,465,069 6,084,300 2,150,129 4,613,102 6,756,575 4,538,142 799,295 Dist. of Columbia Washington .... 4,138,962 4,460,953 42,865,444 60,825,019 District Totals ..$35,330,798 $32,028,316 $265,195,485 $310,522,860 F U R N IT U R E S A L E S * (Based on Dollar Value) Percentage change with correspond ing period a year ago STATES September 1954 9 Mos. 1954 +14 Maryland ...................................— .....— 1 0 Dist. of Columbia ............................ — 4 Virginia .......... ................... ............. ..... — 4 + 8 — 13 West Virginia ..................................... — 16 North Carolina____________________ — 8 + 4 South Carolina .................................... — 8 — 2 District .. ............................. — 5 + 3 IN D IVIDU AL CITIES Baltimore, Md........................................ + 14 — 1 Washington, D. C................................ 0 — 4 Richmond, V a........................................ — 6 + 4 Charleston, W . V a................................ —23 — 13 * Data from furniture departments of department stores as w furniture stores. v Federal Reserve Bank of Richmond Constitutional Limitations on State Debt (Continued from page 5) between them have almost completely nullified those provisions.” Although the Maryland legislature may borrow with out limitations on the amount, there are two pertinent constitutional provisions of importance: one limits the maximum maturity of loans to 15 years, the shortest required by any state; the second requires the levy of a specific tax (in practice a state property tax) to assure payment of interest and principal. voters, to be exercised by means of a referendum. The legislature may, however, borrow for purposes other than for incidental needs and for violent emergencies. It may create new debt up to an amount not in excess of two-thirds of the amount by which the state’s debt was reduced in the preceding biennium. Beyond that point, the electorate takes over. South Carolina and Maryland are the two states in the District in which the power to create debt is held by the legislature. Actually, the South Carolina con stitution stipulates that any proposed debt must be sub mitted to the voters for their consideration, approval requiring two-thirds of the votes cast. However, as Professor Ratchford has stated in American State Debts, “ The legislature and the courts of that state, F if t h Comparisons of constitutional provisions governing state borrowing do not indicate that those of Fifth District states are particularly lax or less restrictive than those of most states. Apparently the principal causes of postwar debt increases are to be found in economic conditions, wants and desires, rather than in constitutional provisions. D ist r ic t B a n k in g D E B IT S TO D E M A N D D E P O S IT A C C O U N T S* (000 omitted) Sept. Sept. 9 Months 9 Months 1954 1953 1954 1953 Dist. of Columbia $1,069,023 $10,420,152 $ 9,685,939 W ash in gto n ______ $1,183,935 Maryland Baltimore _________ 1,363,837 1,386,608 12,812,555 12,730,039 Cumberland______ 25,516 24,236 213,755 227,699 F red erick _________ 22,456 23,252 201,126 209,732 Hagerstow n______ 37,321 38,604 323,552 339,179 Total 4 Cities _ 1,449,130 1,472,700 13,550,988 13,506,649 North Carolina A sheville__________ 68,232 61,075 556,014 551,668 373,774 382,490 3,147,105 3,276,539 Charlotte _____ ___ D u r h a m __________ 117,777 168,237 848,692 942,289 Greensboro________ 124,947 114,684 1,068,448 1,067,308 High P oin t**_____ 44,986 43,488 381,389 NA Kinston ___________ 60,504 58,875 227,764 235,838 Raleigh __ _________ 197,351 190,439 1,697,480 1,684,455 W ilm in gton ______ 50,907 51,584 422,686 424,377 Wilson ___________ 68,398 72,411 223,194 224,128 W in ston -Salem ___ 180,207 172,629 1,360,502 1,356,124 Total 9 Cities __ 1,242,097 1,272,424 9,551,885 9,762,726 South Carolina Charleston ________ 73,067 74,371 662,996 705,544 Columbia _________ 171,126 154,088 1,484,034 1,428,979 Greenville_________ 119,059 110,313 980,880 1,008,185 Sp artan b u rg _____ 70,628 74,302 566,462 590,214 Total 4 Cities __ 433,880 413,074 3,694,372 3,732,922 Virginia Charlottesville ____ 33,955 30,381 283,070 250,697 Danville___________ 57,968 46,366 331,466 339,221 L ynchburg____ _ _ _ 51,585 49,594 441,972 436,675 Newport News ___ 47,251 47,605 423,332 433,575 Norfolk __________ 251,712 260,238 2,282,640 2,303,469 Portsmouth ______ 31,860 30,544 288,193 275,412 R ichm ond_________ 734,725 692,085 5,470,012 5,527,486 Roanoke __________ 117,090 123,716 1,044,342 1,091,543 Total 8 Cities 1,326,146 1,280,529 10,565,027 10,658,078 West Virginia Bluefield __________ 38,613 43,803 345,712 393,968 C h arleston________ 149,882 179,359 1,493,415 1,530,869 Clarksburg ________ 30,411 32,172 278,978 301,372 Huntington ______ 66,656 67,463 611,758 632,598 Parkersburg______ 28,558 34,584 268,689 274,916 Total 5 Cities __ 314,120 357,381 2,998,552 3,133,723 District Total ______ $5,949,308 $5,865,131 $50,780,976 $50,480,037 * Interbank and U. S. Government accounts excluded. ** Not included in District totals. N A Not Available. *1 12 S ta tistic s 50 R E P O R T IN G M E M B E R B A N K S (000 omitted) Oct. 13, 1954 Items Change in amount from Sept. 15, Oct. 14, 1954 1953 Total Loans _______ ... ___ ___ $1,489,948** Bus. & Agric. .. ........... .............. 657,025 290,014 Real Estate Loans All Other Loans _____ __ 561,115 + + + + Total U. U. U. U. + 54,428 — 10,370 — 13,097 + 63,220 + 14,845 — 170 — 10,866 — 8,623 + 7,306 + 35,581 + 86 + 126,310 + 159,627 + 3,947 — 172,278 — 8,065 +301,168 + 34,855 + 10,084 — 15,221 +131,470 Security Holdings ____ _ 1,926,223 S. Treasury Bills ________ 110,638 S. Treasury Certificates _ 101,941 S. Treasury Notes .... 353,823 S. Treasury Bonds __ 1,097,843 Other Bonds, Stocks & Sec. .. 261,978 Cash Items in Process of Col. _ 357,360 194,096* Due from B a n k s________________ 86,664 Currency and Coin __ ____ _ Reserve with F. R. Banks ____ 529,230 Other Assets ...... .................. ........ 63,035 Total Assets _________________ 4,646,556 Total Demand D ep osits________ 3,548,049 48,398 20,617 3,661 24,174 93,458 17,355 25,676 52,271 + 4,131 — 11,472 + 4,486 +245,093 Deposits of Individuals_____ 2,551,891 Deposits of U . S. Government 176,345 + 25,575 + 170,633 + 34,444 + 72,727 + 72,406 Deposits of State & Local Gov. 185,694 + 5,675 + 22,128 Deposits of Banks ................... . Certified & Officers’ Checks _ 573,721* + 27,890 + 42,197 60,398 — 397 744,554 1,563 704 + 64,545 + 55,638 + 8,907 Total Time Deposits ___________ Deposits of Individuals _____ 659,044 — — ____ 85,510 — 859 Liabilities for Borrowed Money 0 — 6,700 All Other Liabilities .................... 55,913 298,040 + + 2,236 867 Other Time Deposits . Capital Accounts ____________ _ Total L iabilities_____________ !$4,646,556 + 126,310 * Net figures, reciprocal balances being eliminated. ** Less losses for bad debts. y + + + + — 542 — 21,000 + 10,632 + 20,283 +245,093