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- J FED j/kA/0R ESER V E B A N K /P iR IC H M O N D (O flM fi/ fta H C U l OCTOBER 1950 RESIDENTIAL MORTGAGE HOLDINGS (MILLIONS OF DOLLARS) stimates indicate that nearly three-fourths of the mortgage loans on 1- to 4-family urban homes are held by institutional lenders. The chart above shows the importance of the various groups of lenders. The article on page 3 discusses the role that credit plays in the current building boom to gether with the purposes of real estate credit con trol. Also In This Issue------Fifth District Trend Charts„_ __Page 2 Agricultural Debt Rises __Page 8 __Page 9 ... Business Conditions and Prospects Statistical Data_________ _________ __Page 10 FEDERAL RESERVE BANK OF RICHMOND F ifth D istrict T rends FURNITURE SHIPMENTS BUSINESS FAILURES The rapid rise in business activity in a month in which few fiscal periods end resulted in a 45% decline in adjusted business failures from July to August. Although August failures were 12% above last year, rising business volume and prices should cause them to trend downward. -+ + Shipments of furniture manufacturers moved into new high ground in August by a substantial margin, rising 21% on an ad justed basis from July to a level 57% ahead of a year ago. Un filled orders at the end of August were equal to 2.3 months’ sales. - ♦ ♦ * • COTTON CONSUMPTION LIFE INSURANCE SALES The full force of large bookings of cotton goods and yarns in June and July found reflection in cotton consumption in August which, on an adjusted basis, rose 19% from July to a level 32% above a year ago. Mill orders on hand are large and still higher rates of consumption can be expected. Uncertainty regarding the war clauses in insurance policies, to gether with an added social security inducement, caused life insur ance sales to rise 39% on an adjusted basis from July to August, with the latter month 82% ahead of a year ago. Easing of the war tension may result in some set-back in the sales rate. ♦ ♦ + DEPARTMENT STORE SALES CONSTRUCTION CONTRACTS AWARDED A saner purchasing approach by consumers in August was re flected in the 9% decline in adjusted department store sales from July, but dollar sales were still 18% ahead of a year ago. Ap pliances, floor coverings, and television sets expanded their gains over last year beyond those in July. Construction contracts were booming in August 1949, but a super boom has been added; August 1950 showed a gain of 55% and set a new high monthly record. Eight months’ contract awards were 59% ahead of the same period in 1949, but seasonal factors and possible credit restrictions or controls portend declines from now on. 121 MONTHLY REVIEW OCTOBER 1950 Home Building Well on Way to All-Time Record Demand Still Rising, But New Credit Restrictions And Military Needs Will Slow Boom —Banks Playing Important Role In Home Financing homeowners and investors contracted for dusty, the high level of building activity has placed strains upon supplies of materials and labor, and these more than two square miles of housing in Fifth have been aggravated by speculative activity anticipating District states during the first eight months of 1950. stepped-up diversion to military needs. Reports indicate Covering almost 60,000 new dwelling units, residential substantial rises in building costs due to premiums on building contracts awarded from January through Aug materials and higher wages necessary to secure and re ust of 1950 far surpassed the records of recent years and tain labor. have made it obvious that 1950 will be the outstanding home construction year not only of the postwar period Thus construction again becomes one of the danger but for all time. areas of inflation. The heavy demand for hous Nationally the picture ing will of necessity be has been much the same. In i t i a l C o n t r o l M e a s u r e s faced with a decreasing New housing s t a r t s Since the outbreak of war in Korea a number of steps supply of new civilian amounted to 988,400 dur have been taken to assure the availability of goods for construction, f o r both defense purposes and to combat the inflationary pressures ing these months, a figure arising from expanded demands upon an already booming materials and manpower 54°/ greater than t h e o economy. These measures include: will be made available for total for the same months 1. Interest rates— a rise in short-term interest rates defense purposes. Price of 1949. There is no through the open market operations of the Federal Re inflation in the construc doubt that starts through serve System; tion industry would make September are in excess 2. Consumer credit— specific restrictions on the grant the transfer of materials ing of consumer instalment credit under the provisions of of the record total of 1,Regulation W of the Board of Governors of the Federal and men to defense both 025,100 reported for all Reserve System; costly and difficult unless 1949. Forecasts for the 3. Real estate credit—more stringent terms and reduced resort were had to direct year 1950 have run as funds for Government guarantee of residential mortgages, controls. A program that high as 1,400,000 dwell as directed by the President in letters to the agencies con cerned ; relies upon measures oth ing units, although re er than direct controls cently enacted real estate 4. Increased taxes—new tax legislation to provide funds for defense expenditures and to decrease purchasing power m u s t therefore include credit controls may be ex in the hands o f the public; the curtailing of the de pected to reduce the vol 5. Inventories—the requirement by the National Pro mand for construction. ume of starts in the last duction Authority that inventories of certain critical ma quarter of the year more terials in short supply be held to a “ practical working The Postwar Demand minimum” ; than seasonally. for Housing 6. Exports—the tightening of export controls by the Housing bulks large in Department of Commerce on strategic materials. The post-World War the construction industry Authority for the further restriction of real estate con II need for new homes and has played an impor struction credit is contained in the Defense Production Act has been s o frequently tant role in the current of 1950 and the Executive Order issued pursuant to that demonstrated as to re construction b o o m . In Act. The accompanying article analyzes the housing boom, the financial aspects of home building, and the reasoning quire little comment, but August of this year, for behind the steps thus far taken to check inflation in this the conversion o f this example, it is estimated sector of the economy. need into such a strong t h a t private residential demand surprised many construction constituted observers. The backlog need for housing had its origin $1,250 million out of the $2,730 million construction in the low construction levels of the 1930’s and was outlay, showing a gain of $468 million over the preced further increased during the war years when private ing August. Other private construction and public con construction was held to a minimum. High marriage struction also registered gains over August of 1949, rate and greatly increased birth rates during and after but the great increase of activity was in private housing. the war created new and expanding family units. High The unprecedented construction activity has resulted income levels have led each family unit to want its own in bottlenecks. Increasing shortages of materials have home, adding yet further to the number of houses and led to “ gray” markets in strategic building supplies apartments desired. throughout the country; shortages of labor in certain This desire required funds, however, in order to be building skills have also appeared. While defense needs come effective demand and bring forth new construction. have as yet made small inroads upon the construction inr o s p e c t iv e P  FEDERAL RESERVE B A N K OF RICHMOND These funds have come partly from the savings of the war p eriod; many E bonds had been bought and many savings accounts opened for the express purpose of pro viding down-payments on homes. O f far greater im portance than these savings, however, were the loan funds available on unprecedentedly easy terms. On the basis of the guarantee and insurance programs of the United States Government, lenders have made funds available at low interest rates, for long periods of time, and at high ratios of loan to value. blossomed into a new boom in 1950 as business condi tions continued to improve and income payments rose to new high levels. The present prospect is that income payments will rise to yet greater heights and that, in the absence of restraints, the demand for residential con struction at current prices will soar to levels that cannot be matched by the resources available for private con struction activity. Control of Residential Real Estate Credit There are many ways of securing diversion of con The small or nonexistent down-payments and the struction resources to military use. One is to allow the many years allowed for loan repayment have typically rationing influence of prices to have their effect, thus made home ownership outlays no more (and sometimes permitting prices to rise to the level where a sufficient less) burdensome than rent payments. A t the same number of would-be builders or buyers of new homes are time, high income levels priced out of the market. — and more particularly, Military needs can then the relatively large gains be satisfied by meeting R e s id e n tia l B u ild in g C o n t r a c t s P e r Ye a r o f t h e lower - income the higher market prices. FIFTH FEDERAL RESERVE DISTRICT STATES groups— have made many A second alternative is more people willing to d i r e c t rationing, the Each symbol represents undertake ownership. physical allocation of re 10,000 dwelling units 1945 Similarly, t h e terms sources according to need available have made in or some other criterion. vestment real estate more A third alternative is to 1946 attractive and have en restrict, by some means, couraged merchant build the availability of funds ers to undertake largefor the purchase of new 1947 scale projects. The re construction. sults have been seen in The Federal Govern the many apartment de 1948 ment has chosen the lat velopments which num ter course. The President ber their units in the hun and Congress have voiced 1949 dreds and in the new their intention that the communities of s m a l l needed restriction of con homes erected on a field struction should be ob 1950 production-line basis un * * * * * * tained by a restriction of der Government-guaran st eidmmom credit available to pur SOURCE: F.W. DODGE CORPORATION F 'r$ f e' ^ ^ m onths teed financing. jf l9 5 0 chasers o f nonmilitary T h e significance o f new construction. mortgage terms and in come levels is amply demonstrated by the record of 1949 The key to balance in the market for new residential and 1950 as it has thus far emerged. The decline of housing lies in the financing of home purchases. Just business activity beginning in late 1948 was accompanied as progressively easier terms have added increasing by a sharp drop in residential construction. H om e build numbers of prospective builders and purchasers, so high ing continued at a relatively low level during the first er down-payments and more restrictive mortgage terms quarter of 1949, and then rose somewhat earlier than can reduce the number of would-be homeowners who are the revival of general business conditions. bidding for the use of scarce materials and manpower. Brighter employment prospects increased individuals’ President Truman took the first action in this direc willingness to undertake mortgage commitments, and at tion in mid-July as one of the early steps in the process the same time mortgage terms were further eased by new of expanding this nation’s defense efforts. The Presi legislation. The fact that construction costs had fallen dent decreased the additional insuring authority of the but little during the recession undoubtedly influenced Federal Housing Administration from $1,250 million many families to proceed with home plans rather than to $650 million and requested both that agency and the to wait for substantial cost decreases that might never Veterans Administration to stiffen the terms under come, but even for them income position and prospects which they guaranteed and insured mortgage loans. and the terms of mortgage credit were of fundamental importance in the decision to build or purchase a home. Specifically, for appraisal purposes construction costs were limited to the level of July 1, 1950, and down-payA s noted, the rise in construction during late 1949 Ai * * * * * * * * ****1 *** *** ****  OCTOBER 1950 MONTHLY REVIEW the relative size of mortgage portfolios has led many banks to become cautious and selective in the extension of additional mortgage credit. Mutual savings banks constitute the fourth category of institutional lenders on real estate. Traditionally these banks have been prominent sources of mortgage credit in the states within which they operate; at the end of 1949 they held 9% of total mortgages on 1- to 4-family homes in the country as a whole, even though their operations as primary lenders are limited to the few states in which they are chartered in substantial num bers. Conservative investment policies and legal restric tions on lending activities caused a lack of willingness on the part of savings banks to meet the terms offered by competitors, and caused their share of mortgage hold ings to decline in the postwar period until 1948. Since that time, however, liberalized legal and policy restraints have allowed these banks to increase their acquisitions of mortgages relative to the total expansion. ment requirements were raised by 5 percentage points for virtually every type of mortgage loan. The Defense Production Act of 1950 authorizes the President to initiate various controls, including the con trol of real estate construction credit. On September 8, the President signed the Act, and forthwith issued an Executive Order instructing the Board of Governors of the Federal Reserve System, with the concurrence of the Housing and Home Finance Administrator, to apply controls on residential construction credit other than that insured or guaranteed by the F H A or the VA . The directive provided control by the Housing and Home Finance Administrator over the terms required by Government agencies, said terms to be subject to the same restrictions as those applied to private credit by the Board. A continuation of the preferential treatment for veterans is called for by the Defense Production Act of 1950. Financing of Residential Properties The Secondary Market for Mortgage Loans As shown by the chart on the cover, individuals look largely to institutional lenders to supply the funds that they borrow for the purpose of building or buying homes. While other holders of mortgages show impor tant dollar increases in holdings since the war, their new extensions of credit were not great enough to main tain their 1945 position in the mortgage lending field. The largest net lenders on home mortgages during the postwar period have been savings and loan associations. Organized primarily to direct the flow of savings into residential construction, the many relatively small asso ciations hold nearly a third of total mortgages on 1- to 4-family homes. This reflects an increase in the propor tion of total home mortgages held by these associations during 1946 and 1947; since then their share has remain ed roughtly constant. The largest relative increase in postwar holdings of residential mortgages has been in the portfolies of life insurance companies, which have found in mortgage loans one outlet for the vast stream of investment funds at their disposal. In addition to the making of home mortgage loans, insurance companies have been heavy purchasers of F H A insured home mortgages, and by year-end 1949 held almost 40% of all outstanding F H A home mortgages. While mortgage lending for long periods is foreign to the strict concept of the function of commercial banks, it has frequently played an important role in their opera tions. Formerly closely restricted by state and national banking law, banks have taken advantage of Federal guarantee and insurance of home mortgages to extend their activities. Within the Fifth District nonfarm real estate loans currently represent 29% of total gross loans of member banks; this, it may be noted, is equal to 122% of total capital accounts. In 1929 the same ratios were 5% and 21% — less than one-fifth the current levels. While insured and guaranteed loans do not fall under the limits upon real estate lending prescribed by the law, Although there is a limited market for the sale of con ventional loans, insured and guaranteed mortgage loans are widely saleable. The expansion of this market in the postwar period has been one of the important fac tors contributing to the overall expansion of real estate credit. Not only is a method supplied by which borrow ers and lenders widely separated are able to receive and to extend credit, but also lenders have been provided with a ready means of reducing their holdings in the event of becoming overextended. The Federal National Mortgage Association has pro vided the means of expanding and strengthening this market. Funds actually put into the market by the FN M A have amounted to approximately $1 billion net during the two past years of operation, but in addition to this $1 billion, FN M A has contribued to the willingness of other lending agencies to advance funds by standing ready to purchase the resulting mortgages. Firm com mitments were issued in some cases which virtually made FN M A a primary lender through assuring private lend ers of the saleability of mortgages prior to loans being made; this authority was discontinued in March of this year. The existence of a secondary market in insured mort gages has also facilitated the considerable extension of credit by lenders who do not intend to hold the mort gages made. In 1949 mortgage companies originated more than one-fourth of all FHA-insured mortgages and promptly sold virtually all of them to other lending agencies. Similarly, commercial banks and savings and loan associations made more insured loans than they cared to hold, being net sellers on balance. Insurance companies, on the other hand, were pur chasers of more than half of the F H A mortgages sold in addition to having originated 23% of 1949’s F H A mortgages. Mutual savings banks were also substantial net purchasers of insured mortgages, largely due to the  FEDERAL RESERVE BANK OF RICHMOND relaxation of restrictions on their holdings of out-ofstate-debts on real estate. In spite of these purchases, F N M A was forced to acquire $629 million to carry out its role of supporting the market. An additional source of funds for primary real estate lenders is provided by the Federal Home Loan Bank System, which provides credit through the Federal Home Loan Banks to member institutions, principally savings and loan associations. In addition to short-term unsecured advances, these banks make loans of up to 10 years’ maturity secured by first mortgages pledged by their members. activity is the insuring of loans made under Title II to finance 1- to 4-family dwellings. Until recently loans up to 95% of appraised value might be insured in the case of small dwellings, while similar coverage was available for loans up to 80% of the appraised value of larger homes. Current terms on insured loans now require down-payments five percentage points greater than formerly. Th guarantee program administered by the Veterans Administration covers loans made on homes built or purchased by veterans. Current legislation provides for the guarantee of as much as 60% of each loan, to a maximum of $7,500, with a maximum maturity of 30 years. Formerly such loans could be made for as much as 100% of the appraised value of the property; recent restrictions have reduced this loan-value ratio so that now purchasers must pay closing costs at least and in most cases 5% of the cost of the property. The volume of operation of these two agencies may be seen from recent financing. New loans on 1- to 4-family dwellings during the first half of 1950 are estimated at $6.6 billion. Of this total, approximately $2.5 billion was insured by the F H A or insured or guaranteed by the V A. Viewed on an accumulated basis, of the $40 billion of mortgage debt on 1- to 4-family houses out standing on June 30, 1950, about $16.5 billion was in sured or guaranteed by one of these two agencies. Government Insurance and Guarantee of Mortgage Loans The role of the Federal Government in insuring and guaranteeing home mortgage loans has been of major importance in influencing both the supply of mortgage funds and the demand for them. Would-be borrowers have become eligible for loans far in excess of the amounts that would have been available to them under traditional standards. Further, as already noted, the terms on which insured and guaranteed mortgage funds have been available have led many people to borrow for new homes who would otherwise have continued as tenants. In brief, home ownership has been made more Table 1 Table 2 L O A N S SECU R ED B Y 1- TO 4 -F A M IL Y P R O P E R T IE S 468 Fifth District Member Banks June 30, 1950 Amount Average Number (thousands Size of Loan of Loans of dollars) ( dollars) Insured or guaranteed by 136,231.4 4,362 31,232 FH A or V A ____________ 49,346.4 11,955 4,128 Insured by F H A _________ First lien insured or guar 85,616.9 4,692 18,249 anteed by V A _____________ Junior lien guaranteed 1,268.1 1,234 1,028 by V A _________________ Not insured or guaranteed by F H A or V A __________ 61,261 176,493.7 2,881 44,812 138,912.7 Amortized ______________ 3,100 Not amortized___________ 16,449 37,581.0 2,285 Total_________________ 92,493 312,725.1 3,381 L O A N S SECU R ED B Y 5- OR M O R E F A M IL Y P R O P E R TIE S 468 Fifth District Member Banks June 30, 1950 Number of Loans Insured or guaranteed by V A or F H A _________ _____ Average Size of Loan (dollars) 81 14,921.3 184,214 FH A or V A .................. . 427 11,391.3 26,678 Amortized ______________ 329 8,498.1 25,830 Not amortized __________ 98 2,893.2 29,522 Total_________________ 508 26,312.6 51,796 Not insured or guaranteed by Fifth District Member Bank Mortgage Holdings Member banks of the Fifth District have supplied sup plementary information on their mortgage portfolios as of June 30, 1950. The figures indicate that 44% of the dollar volume of home mortgage loans (loans secured by 1- to 4-family dwellings) and slightly more than onethird of the number of such loans are insured or guaran teed by F H A or V A (see Table 1). The proportion of insured or guaranteed mortgages held approximates the average for outstanding home mortgage debt of the nation. attractive creditwise and the borrowing capacity of indi viduals has been increased. On the supply side additional funds have become available because of the decreased risk of insured and guaranteed loans and the greater ease of disposing of such loans if the need arises. In some instances this liberalized credit reflects changed investment policies of lenders, while in the case of regulated lenders such as commercial banks and mutual savings banks, it is due to statutory changes which recognize the insured or guaranteed loan as offering less risk than conventional real estate debt. The Federal Housing Administration has issued in surance certificates covering a wide variety of residential building and repair work, but at present the bulk of its Amount (thousands of dollars) Mortgage loans guaranteed by the Veterans Admin istration accounted for almost two-thirds of guaranteed loans, and 27.8% of all home mortgage loans. F H A in sured loans accounted for 15.8% of total home mortgage loans. Smaller banks carried a much larger share of GI 16} MONTHLY REVIEW home mortgage loans, but placed less reliance on FH A home mortgages. Combination G I-FH A loans were reported separately, with the portion guaranteed by F H A treated as separate loans, and included in the total of loans insured by FH A. The portion of such loans guaranteed by V A was listed separately, amounting to $1.3 million, less than j/ oi 1% 2 of home mortgages held by Fifth District member banks. The importance of the amortized home mortgage loans is shown clearly by these data— almost 80% of the dol lar volume of home mortgages held by Fifth District member banks is in amortized loans. This is one of the important developments expected to reduce the impact on the lender of any future general decline in home val ues such as took place twenty years ago. At that time the usual mortgage instrument was a fixed payment loan of three to five years’ maturity. Only rarely was the borrower expected to pay at maturity; custom dictated a partial payment, and renewal of the balance. The sharp and continued decline in home values after 1929 (31% in four years) resulted in a situation in which the value of many properties fell below the face value of the mortgage. Amortization, which reduces the principal continuously, presents a much better tool for fighting continuous depreciation and the ever-present contingency of a fall in prices. Amortization, however, does not remove all risks from mortgage lending. With a reasonable amortization schedule, the face value of the mortgage should not be at any time in excess of the resale value of the property. However, monthly payments on principal and interest may prove very difficult to meet should unemployment on a large scale develop. Under such circumstances, in sured and guaranteed mortgages would not result in sizeable losses, but would result in lower rates of net return. Further, even insured and guaranteed mortgages would be completely frozen to the lender between the time of default and the time of final settlement. Unin sured amortized mortgages, under these circumstances, might become delinquent, and many would require re financing in order to secure continued (reduced) pay ments. Average size of home mortgage loans held by Fifth District member banks varied considerably according to type of loan. The average home mortgage loan outstand ing on June 30 was $3,381— as compared with about $2,500 in 1940. Noninsured loans outstanding were somewhat smaller than average— $2,881. The average insured or guaranteed home mortgage loan value was $4,362. V A insured or guaranteed first lien mortgages averaged almost $600 larger than F H A insured loans. The fact that insured loans averaged almost $1,500 larger than did conventional loans seems to be a strong OCTOBER 1950 indicator of the importance of such insurance to the cur rent housing boom. The equity of the home owner, as would be expected, is much smaller where guaranteed or insured loans have been obtained. As noted above, the lower equities and longer maturities enable many more people to commit themselves to the purchase of homes. In addition to the insurance feature, amortization ap pears to contribute to the popularity of these loans— amortized conventional loans averaged more than a third larger than standing loans. This suggests that both bank and customer are more willing to extend themselves on amortized than on standing loans. An other reason for the size differential is found in the tendency of small banks to adhere to the single-pay ment loan. FH A and V A financing were relatively more impor tant in the case of rental properties (loans secured by 5- or more-family properties), accounting for $15 mil lion, 56.7% of all rental mortgages (see Table 2 ). As in the case of home mortgages, the greater part of loans secured by 5- or more-family properties were amortized. Average insured or guaranteed mortgages on rental properties were $184,214— almost seven times the aver age size of noninsured mortgages, as shown in Table 2. The extent to which insured or guaranteed mortgages on rental properties exceed in value conventional mort gages on the same type of property seems to indicate that some of these loans would not have been made at all, and that the housing projects in question might not have been undertaken without the insurance feature. It is further interesting to note that non-amortized loans on rental properties averaged some $4,000 larger than did amortized noninsured mortgages. Indirect financing of mortgages by commercial banks in the Fifth District (through loans to nonbank mort gage lenders) does not appear to be of major impor tance. Direct real estate loans secured by mortgages on nonfarm properties totaled $339 million, while an addi tional $19 million was outstanding in the form of loans to nonbank mortgage lenders. Indirect financing of mortgages thus accounted for approximately 5% of total Fifth District member bank mortgage financing. Loans to nonbank mortgage lenders averaged slightly more than $5,000. In additional to mortgages on existing nonfarm real estate, Fifth District member banks had outstanding on June 30 loans of $35 million for the construction of nonfarm residential properties— slightly more than 10% of the total of outstanding nonfarm real estate mortgages. State member banks held 252 mortgages for $0.3 mil lion secured by vacant residential lots. (National banks are not permitted to make loans secured by unimproved real estate.) These loans averaged just over $1,300. FEDERAL RESERVE BANK OF RICHMOND Agricultural Debt Rises in the Fifth District increased their debts to offer vigorous competition to banks in this District. Total PC A loans increased 18% in 1949— the largest during 1949 for the fifth consecutive year. On percentage increase for principal lenders in the nonJanuary 1, 1950 farm-mortgage debt was up 5% from real-estate field. PC A ’s also increased their share of the previous year, and other farm loans had risen 10%. non-real-estate loans and at the beginning of 1950 held The increase continued in the first half of 1950, and on 22% of the total. June 30, 1950 total farm loans of Fifth District mem ber banks (excluding CCC loans) were 3% greater Banks continued in first place as suppliers of nonthan a year earlier and 19% more than on December real-estate credit and, on January 1, 1950, held 56% of 31, 1949. the total in the District. The share of the Farm Total agricultural loans ers’ Home Administra in this District have inFARM MORTGAGE HOLDINGS tion was practically un c r e a s e d substantially FIFTH FEDERAL RESERVE DISTRICT changed at 22%, but total since 1945. The farmF H A l o a n s increased M I L L I O N S O F D O L L A R S A S O F J A N U A R Y 1. E A C H Y E A R mortgage debt of $322 somewhat. In South Car 350 350 million on January 1, olina, where F H A loans 1950 is 38% more than — LIFE INSURANCE are particularly impor the $233 million out FARMERS HOME ADM. 300 300 tant, F H A ’s share fell standing five years ear from 50 to 43%. lier. Similarly, other ag 250 250 ricultural loans at the be For the District as a ginning of 1950 totaled i o t h e r s ,;v ; ; whole little change was I (JO IN T -ST O C K LAND BANKS, $110 million, a gain of 200 200 observed in the propor ■'4 SAVINGS BANKS, INDIVIDUALS, 80% over the 1945 figure tions of farm-mortgage AND, MISCELLANEOUS L E N D E R S ) I of $61 million. These in debt held by principal 150 150 creases parallel increases lenders. Proportions held in other regions in realby agencies of the Farm 100 100 estate and non-real-estate C r e d i t Administration, debt. the Farmers’ Home A d ministration, and insured Commercial banks were 50 50 commercial banks declin active agricultural lenders ed slightly while t h e during 1949. In each shares held by life insur state in the District farm1940 1942 1944 1946 1948 1950 ance companies and indi mortgage loans of banks viduals and others in rose, and at the end of the creased. In North Caro year banks held over $81 line and South Carolina, however, banks were able to million in farm mortgages as compared to about $77 million a year earlier. Non-real-estate loans (excluding increase their share of farm-mortgage debt. CCC loans) to farmers by banks also rose and on Janu Increases in farm debt in the Fifth District appar ary 1, 1950 totaled about $62 million, a gain of $5 mil ently stem from rises in land values and increased in lion during 1949. Fifth District member bank holdings vestment by farmers in livestock and machinery and of all farm loans (excluding CCC loans) were 4.9% of equipment. To the extent that such expenditures result gross member bank loans and discounts on December 31, in greater production and income, the welfare of 1949 and 5.5% on June 30, 1950. farmers is improved by incurring debt for these pur poses. Production Credit Associations apparently continued F armers r8 ] OCTOBER 1950 MONTHLY REVIEW Business Conditions and Prospects goods and yarns, which are somewhat variable in their movement, have overall nearly returned to the peak levels established early in 1948. Late in September, however, the price upsurge appeared to have run its course, with resales of certain types of goods being offered below producers’ levels. x p a n s i o n of industrial production has taken place ’ in recent weeks in the Fifth Federal Reserve Dis trict, but seasonally adjusted trade levels receded some what in August from the scare-buying levels of July. Construction activity in August rose substantially over July. This was contrary to the usual seasonal tendency and probably due to rushing planned projects in antici pation of control measures, as well as diversion of man power and materials. An encouraging development during recent weeks has been evidence of returning normalcy in the retail mark ets, and thus a reduction in the scale of hoarding pur chases. Department store sales, seasonally adjusted, dropped 9% from July to August but were still 18% ahead of that month last year. Similar slackening of activities has been witnessed in furniture stores. House hold appliance stores, on the other hand and contrary to seasonal tendency, continued their sales expansion into August and September. This latter trend is due to the almost certain cut back in television production in the near future. Passenger car sales in July were slightly below the June level, while truck sales rose in that month. Used car prices, which had strengthened early in August, were weakening by the end of that month and continued weakening into September. In the Fifth District, people buying cars on credit may have financed them in part from redemptions of savings bonds. These redemptions rose during both July and August, while new sales of these bonds declined to the lowest level since Novem ber 1941. Automobile trade levels for the rest of the year should show good increases over similar months last year, but the lack of urgency in buying of most other products is a fortunate development— it takes pressure off rising prices and may aid credit controls in holding price rises to proportions necessitated by rising wages. Wholesale trade in the District continued upward in August with the exception of electrical goods and groc eries. The former were probably in short supply, and the latter was a result of more people becoming con vinced there would be no serious shortages. The upward sales trend in most wholesale lines indicates that retail ers count on higher trade levels during the fall. Outstanding at the production level was a gain of 19% from July to August in consumption of cotton in Fifth District mills to a level 32% ahead of a year ago. Mills have sold output of goods and yarns for the rest of 1950, and there has been some business in print cloths and sheetings into 1951. Employment in the industry is rising, and it is probable that mills will be on a threeshift basis, if they can secure the manpower for such operations. It is expected that a further rise in output will be witnessed between now and spring. Prices of E There was substantial buying of cotton domestics at the retail level in July and August, but this too appears to have been of a hoarding nature and will probably be at the expense of such sales in the months ahead. Most cotton goods have shown no inordinate gains at the retail level. There is little doubt that the overall demand for cotton goods will be heavy over the next six months, though it may not be as heavy as had been previously anticipated. This factor, together with the over-exten sion of converters and their need for cash, may be the motivating factor in the easier situation, particularly in print cloths. Bituminous coal production in August (following the July holidays) rose 20% after season correction to a level 22% ahead of a year ago. Soft coal consumption is running slightly ahead of last year, and users are ac cumulating stocks. Consumption will be upward in com ing months, and stocks are still at a fairly low level. The combination of rising consumption and stockpiling should cause considerable expansion in coal production in the next several months. Sawmills have enjoyed an unusually active summer this year. Demand has been extremely heavy, and prices of southern pine have moved into new high ground by a wide margin. In late September, however, there was some easing in prices, probably anticipating a cut-back in building regardless of the demand factor. Important in pushing pine prices to new high levels was the car shortage on the West Coast occasioned by military needs in Korea. As a result Douglas fir mills on the West Coast built up substantial stocks. Anticipating that these stocks might soon reach the market could have been a factor in recent price easing. There is no unanimity of opinion as to the necessary or desired cut-back in the housing field. Some indica tions point to an annual rate of 900 thousand units. Others guess as low as 750 thousand; but there will probably be enough housing to cover requirements under somewhat tighter financing terms. Demand for lumber, however, will probably be very high due to the require ments of the rearmament program. Furniture factories are still going at capacity in this District, and prices generally have been raised from 5 to 10%. The cut-back in housing probably will not have the same effect on furniture, though lowered demand due to lessened housing construction would logically come Continued on page 12  FEDERAL RESERVE BAN K OF RICHMOND PRINCIPAL ASSETS AND LIABILITIES UNITED STATES AND FIFTH L A S T W EDN ESDAY OF M EM BER BANKS D IST R IC T F IG U R E S LOANS LOANS AND INVESTM ENTS B ILLION S OF DO LLARS MONTH OF 5th Dist. 2.0 DEMAND DEPOSITS, ADJ. U.S. GOVT. S EC U R IT IES u s. . BILLION S OF DO LLARS BILLIONS OF D O LL A R S 40.0 TIME DEPOSITS TOTAL DEPOSITS B ILLIO N S OF DO LLARS B IL L IO N S OF D O LL A R S BILLIO N S OF D O LL A R S 20.0 Latest Figures Plotted: Data Partly Estimated Fif,h District, August 30,1950 United States, July 26 ,1950 51 R E P O R T IN G M E M B E R B A N K S — 5th D IS T R IC T D E B IT S TO I N D IV ID U A L A C C O U N T S (000 omitted) (000 omitted) August 1949 8 Months 1950 8 Months 1949 756,548 $ 6,663,740 $ 5,929,600 1,184,622 25,894 19,643 28,817 975,160 20,206 16,612 25,923 8,311,652 180,150 141,918 218,690 7,535,510 164,681 136,180 208,833 54,909 340,811 173,447 96,340 32,161 138,743 40,937 39,566 165,677 43,775 244,104 147,007 67,353 23,109 133,859 35,370 29,276 139,687 399,230 2,204,433 749,267 663,024 120,105 1,087,656 272,147 136,166 1,099,882 359,421 1,820,300 729,533 561,081 113,904 976,442 251,741 124,664 998,500 64,961 108,538 97,467 53,217 53,226 99,672 71,297 39,961 490,298 824,845 703,136 389,110 460,081 770,459 604,542 341,220 24,792 28,185 40,757 33,758 200,652 22,206 551,513 105,585 20,881 23,164 33,585 28,643 165,631 21,767 506,730 84,450 189,011 192,383 310,035 236,564 1,617,269 168,318 3,825,936 781,096 170,649 176,194 275,916 247,072 1,369,783 156,051 3,789,487 706,611 41,343 143,393 32,455 62,586 29,459 $ 4,848,559 36,020 121,052 26,874 53,471 26,000 $ 4,070,413 319,513 1,017,259 235,321 461,787 208,623 $34,218,564 346,469 1,045,555 227,634 443,777 200,795 $31,242,685 August 1950 Dist. of Columbia Washington Maryland Baltimore Cumberland Frederick Hagerstown North Carolina Asheville Charlotte Durham Greensboro Kinston Raleigh Wilmington Wilson W inston- Salem South Carolina Charleston Columbia Greenville Spartanburg Virginia Charlottesville Danville Lynchburg Newport News Norfolk Portsmouth Richmond Roanoke West Virginia Bluefield Charleston Clarksburg Huntington Parkersburg District Totals $ 866,035 $ ITEMS Total Loans___________________ Business & Agricultural____ Real Estate Loans__________ All Other Loans____________ Total Security Holdings---------U. S. Treasury Bills_________ U. S. Treasury Certificates__ U . S. Treasury Notes________ U. S. Treasury Bonds________ Other Bonds, St’ks & Secur. Cash items in Process of Col. Due from Banks_______________ Currency & Coin_____________ Reserve with F. R. B a n k Other Assets___________________ Total Assets_________________ Total Demand Deposits______ Deposits of Individuals _____ Deposits of U . S. Govt--------Deposits of State & Loc. Gov. Deposits of Banks __________ Certified & Officers’ Checks.. Total Time Deposits___________ Deposits of Individuals_____ Other Time Deposits________ Liabilities for Borrowed Money All Other Liabilities__________ Capital Accounts_______________ Total Liabilities____________ Sept. 13, 1950 $1,037,661** 475,503 235,512 338,811 1,763,152 144,651 42,757 341,691 1,068,385 165,668 291,297 205,340* 73,042 450,621 56,136 $3,877,249 $2,996,039 2,272,628 88,367 133,860 451,001* 50,183 610,593 564,058 46,535 7,800 23,787 239,030 $3,877,249 Change in Amount from Aug. 16, Sept. 14, 1950 1949 +205,259 + 44,495 + 100,278 + 33,502 2,011 + 32,469 + 9,030 + 75,746 + — 80,950 + 10,465 — 15,924 + 58,467 — 39,462 — 191,862 +298,660 + 20,269 33,135 — 191,363 4,326 + 19,539 + + 45,787 + 33,660 + 22,666 + 50,770 8,583 + 3,915 + 1,835 + 17,311 + 2,253 + 4,353 + +152,061 +218,341 +160,317 +200,447 +154,548 + 89,914 4,842 + 28,465 + 3,231 + 3,255 + + 5,545 + 65,997 — 3,647 + 8,634 — 1,800 — 3,714 — 1,954 — 3,198 154 — 516 + — 9,150 + 7,800 1,094 + 634 + 1,600 + 13,174 + +218,341 +152,061 *Net figures, reciprocal balances being eliminated. **Less reserves for losses on bad loans. r 101 MONTHLY REVIEW OCTOBER 1950 S E L E C T E D F IF T H D IS T R IC T B U SIN E S S IN D E X E S A V E R A G E D A IL Y 1935-39=100--S E A S O N A L L Y A D JU STE D August 1950 Automobile Registration1------------------------------------------------------Bank Debits— -----------------------------------------------------------------------Bituminous Coal Production________________________________ Construction Contracts Awarded___________________________ Business Failures— No.---------------------------------------------------------Cigarette Production________________________________________ Cotton Spin dip Hours Department Store Sales2-----------------------------------------------------Electric Power Production_________________________________ Employment— Manufacturing Industries1__________________ Furniture Manufacturers: Shipments2--------------------------------Life Insurance Sales________________________________________ July 1950 June 1950 275 355 154 408 86 239 138 332 300 139 297 290 268 372 118r 507 122 236 133 393 304 138 306 317 394 138 701 67 283 359 ___ 371 441 August 1949 204 329 113 453 60 253 129 305 262 137 237 242 % Change-—Latest Month Prev. Mo. Year Ago — + + + — + 3 6 17 38 45 20 + 31 + 20 + 22 + 55 + 12 + 12 — 9 + 1 — 1 + 21 + 39 + + + + + 18 19 5 57 82 1 Not seasonally adjusted. 2 Revised Series— back figures available on request. B U IL D IN G P E R M IT FIG U R ES August 1950 August 1949 W H O LE SA LE TRADE 8 Months 1950 8 Months 1949 3,940,970 29,340 51,790 185,915 90,855 $ 58,476,105 824,400 1,637,171 2,682,486 1,268,791 $ 32,362,415 342,440 645,917 1,676,255 1,083,541 Maryland Baltimore $ Cumberland Frederick Hagerstown Salisbury 7,440,050 107,585 151,575 201,246 320,959 Virginia Danville Lynchburg Norfolk Petersburg Portsmouth Richmond Roanoke 382,383 2,801,857 1,445,830 289,018 1,038,505 2,226,076 1,404,537 163,978 221,256 713,050 119,420 180,485 2,172,200 784,167 2,361,196 5,291,130 10,308,403 4,470,131 3,270,519 18,015,826 12,814,636 1,814,637 3,289,458 7,868,366 1,051,690 1,114,122 12,475,915 7,775,945 West Virginia Charleston Clarksburg Huntington 656,378 176,225 1,286,343 3,283,929 102,025 1,442,512 10,433,281 1,288,748 5,364,756 8,101,289 791,895 3,982,798 North Carolina Asheville Charlotte Durham Greensboro High Point Raleigh Rocky Mount Salisbury Winston-Salem 359,715 2,771,519 2,209,958 1,657,868 527,200 3,349,180 294,961 311,177 1,298,849 193,276 1,275,574 1,000,635 470,870 284,575 910,900 87,820 100,100 375,757 3,435,535 21,030,413 12,379,946 9,246,742 2,934,294 12,514,765 3,375,463 2,473,737 8,951,982 1,886,401 14,823,065 5,681,375 7,248,112 1,980,357 5,569,325 1,021,868 872,537 5,859,797 South Carolina Charleston Columbia Greenville Spartanburg 283,800 823,720 3,715,400 2,176,162 138,349 400,245 684,429 234,027 2,110,563 7,495,802 8,496,074 4,557,825 2,986,621 4,427,018 7,276,110 2,812,568 $ Dist. of Columbia Washington 4,852,791 8,855,335 47,943,232 $ 28,493,784 $285,453,952 L IN ES +31 - 4 |-29 -24 -61 -72 - 1 +29 + 9 +17 +45 — 17 — 1 — 14 + 2 + 17 + 13 +44 — 9 — 6 — 9 + 2 — 6 + 13 — 5 +11 + + 7 2 +34 + 15 + + 2 7 R E T A IL F U R N IT U R E SAL ES Aug. 1950 vs. 1949 STATES Maryland (7).. District of Columbia (7).. Virginia (19).. West Virginia (1 0 )_ North Carolina (10) South Carolina (1 0 ). District 8 Mos. 195 vs. 1949 +16% +40 +23 + 35 + 30 + 18 (6 3 )______ h 9% -12 -10 -14 -14 -11 +27 + 11 + 16 +40 +23 + 30 + 13 +19 +53 IN D IV ID U AL CITIES Baltimore, Md. ( 7 ) ________ Washington, D. C. ( 7 ) _____ Richmond, Va. ( 6 ) ________ Lynchburg, Va. ( 3 ) _______ Charleston, W . Va. ( 3 ) ____ Charlotte, N . C. ( 3 ) _______ Columbia, S. C. ( 3 ) ................ b 9 -12 - 6 -13 - 3 -12 bio Number of reporting firms in parentheses. -----------------♦ + ♦ — C O T T O N C O N S U M P T IO N A N D ON H A N D — B A L E S Aug. 1950 Aug. 1949 408,990 350,335 731,818 D E P A R T M E N T S T O R E O P E R A T IO N S (Figures show percentage change) 601,111 Fifth District States: 978,750 4,553,230 Sales, August ’50 vs. August *49 Sales, 8 mos. *50 vs. 8 mos. ’4 9 Stocks, August 31, ’50 vs. ’49.— 807,840 663,008 1,144,250 4,568,889 676,397 3,946,463 Spindles active, Aug. 31, U . S.. 20,540,000 Orders outstanding, August 31, ’50 vs. ’49________ Current receivables August 1 collected in August ’50_______ Instalment receivables August 1 collected in August ’50... ........ 19,745,000 Sales, Aug. ’50 vs. Aug. ’49___ Sales, 8 mos. ’50 vs. 8 mos. ’49 Source: Department of Commerce. [ii] Balt. Wash. Other Cities Dist. Total +16 Rich. 561,607 3,935,139 United States: Cotton consumed_____________ Cotton on hand Aug. 31, in consuming establishments.. storage & compresses______ | 61 -33 -69 -67 -12 -38 -19 -58 -21 -40 Number of reporting firms in parentheses. Source: Department of Commerce. •♦ + ♦ ■ Cotton consumed____________________________ Aug. 31 July 31 1949 1950 District Totals (2 1 7)_____ $198,459,716 Cotton Growing States: Cotton consumed______ Cotton on hand Aug. 31, in consuming establishments.. storage & compresses.__ ___ Stocks on August 31, 1950 Auto supplies ( 8 ) _____________ Electrical goods ( 7 ) __________ Hardware (1 1 )_______________ Industrial supplies ( 5 ) _______ Drugs & sundries (1 7 )______ Dry goods ( 9 ) ________________ Groceries (5 6 )________________ Paper & Products ( 6 ) ________ Tobacco & Products ( 9 ) _____ Miscellaneous (8 9 )____________ 51,637,879 District Totals $ 44,560,867 Sales in August 1950 compared with August July 1949 1950 +21 + 5 +21 + + 1 5 +16 + 2 + 11 +16 + 6 +13 +17 + 3 + 11 + 79 +60 +69 +39 + 65 29 48 48 41 42 17 19 17 14 Md. +16 + 1 D.C. +16 + 2 Va. W .V a. N.C. +18 +26 +13 + 4 +11 + 5 17 S.C. +13 + 4 FEDERAL RESERVE B A N K O F RICHMOND Business Conditions and Prospects Continued from page 9 later on. Regulation W may also affect some purchases and have a retarding influence. New housing, however, will be completed in large volume for the rest of the year, and furniture demand should therefore continue at a high level. Cigarette output has responded in substantial fashion to the general rise in business activity, due more to in ventory accumulation on the part of wholesalers and re tailers than to any marked change at the consumer level. Cigarette prices have been raised and, with tobacco costs also at new high levels, further price rises might occur. The employment situation in July was again affected by the widening of plant vacations and, consequently, did not respond to the demand that became evident in that month. The upward trend in August (textile, ap parel, and seasonal food and tobacco industries account ed for the bulk of the increase) indicates an improved situation all along the line— even shipyards have added moderately to their payrolls. Before year-end the labor force will probably have been expanded considerably by the rehiring of women while, at the same time, men are being called to the armed services. On balance, the em ployment situation should be as full as can be practically effected, continuing for many months into the future.