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FEDERAL RESERVE BANK OF RICHMOND OCTOBER 1959 Congress Looks At Ceilings Looking at ceilings this last summer was a favorite work-tim e, if not pastime, of the recently adjourned 86th Congress. No, not the ceilings in the legislative halls, or corridors, or even indi vidual offices, but the self-imposed ceilings both on our national debt and on how much interest the T reasu ry can pay on longer-term securities it sells in the m arket or on the savings bonds it sells to individuals. W hat prompted this not upward nor outward but inw ard gaze by Congress at the lim its it w as im posing? LOOK-SEE SPARKED BY PRESIDENT E a r ly la s t Jun e the President sent a message to Congress asking it to lift its ceilings, if not its eyes, heaven w ard in order to “safeguard the public credit” and permit “sound conduct of the Government’s fi nancial affairs.” In his message the President said that he was asking the Secretary of the T reasu ry to transm it appropriate legislation to accom plish these resounding phrases—legislation pro viding principally for three things : F i r s t — An increase in the regular public debt lim it from $283 billion to $288 billion and in the tem porary lim it from $288 billion to $295 billion. S e c o n d — Removal of the 3.26% interest rate ceil ing on savings bonds. T h i r d — Removal of the present 4^4% interest rate ceiling on new issues of T reasury bonds. E xplanation of the w h y of these proposals, along w ith drafts of bills, was immediately furnished Congress in more detail by T reasury Secretary Anderson, who testified further on the proposals at public hearings held by the House W ays and M eans Committee on June 10. W h y were the proposals deemed so v ital? The Secretary gave Congress a number of reasons, review ing separate ly the debt lim its and interest rate ceilings. DEBT CEILIN G H istorically a fixed lim it on the national debt came about rather casually. It dates back to 1917 when the Congress passed the Second L iberty Bond Act. P rior to the L iberty Bond Acts in 1917 Congress usually passed a new law each time the T reasu ry needed to borrow money and by setting the terms (including am ounts) and types of securities to be issued kept close control over the amount and type of debt issued. To sim plify matters, however, as w ell as in recogni tion that W orld W ar I would involve substantial borrowing, Congress in the Second L iberty Bond Act pulled together some of the unused borrowing authorizations from previous acts and authorized the T reasury to issue bonds “not exceeding in the aggregate $7,538,945,460.” Increases in the au thorized debt made necessary by W orld W ar I, by deficits during the depression years, by W orld W ar II and subsequent events, including the K orean W ar, were in turn made possible by Con gress sim ply am ending the Second L iberty Bond Act each time new debt authority w as needed. An amendment to that Act in 1941 lumped the author ization for bonds, notes, certificates, and bills into one debt figure—a ceiling on the total outstanding debt—and there has been no subsequent legal change in the coverage of the ceiling although prior to June the lim it was increased, in ten steps, from $65 billion to $288 billion. Over the years since Congress shifted its focus on the public debt from the specific securities to the m axim um amount outstanding m any argum ents have been advanced for and against a debt ceiling. Those favoring a ceiling generally stress that it provides some check on excessive spending, a check that is even more im portant in view of C ongress’s difficulties in con trolling expenditures under the present budget and appropriation process. The principal arg u ment advanced by those opposed to a debt ceiling is that it m ay hamper the carryin g out of necessary Government program s, such as national defense, in the absence of an adequate tax program. As PRO AND CO N Since 1953 the national debt has been pressing closely against the successive statutory l i m i t s e s t a b l i s h e d b y C o n g r e s s . FEDERAL DEBT AND STATUTORY DEBT LIMIT 1941-1959 evidence they cite experiences such as the cutbacks in national security spending in 1957 to stay w ith in the debt lim it, as w ell as other “manipulative practices,” including the 1953 sale to commercial banks by the Commodity Credit Corporation of certificates of interest, representing shares in a pool of price support loans. cash balance the T reasury m ay at times have to sell new issues of securities in advance of the m aturing of old securities. This could mean that for a short time the T reasu ry’s total debt might exceed the ceiling. For greater flexibility, therefore, the Sec retary called for an increase in the regular debt limit. F in ally, the Secretary noted that the $3 billion debt leeway as a minimum would provide some m argin in the event a national em ergency occurred when Congress was not in session. The need for an even higher tem porary debt lim it was related more directly to the seasonal pattern of budget receipts. Even w ith a balance between expenditures and receipts for an entire calendar year, expenditures exceed receipts by substantial amounts in the last half of each year. Paym ents by sm aller corporations, paym ent of the greater portion of total liability by large corpora tions, and concentrations of individual declarations and final paym ents result in relatively high tax receipts in the first half of the calendar year and low tax receipts in the second half. These fluctu ations, according to Secretary Anderson, might mean that at interm ediate points the cum ulative deficit might well exceed even the proposed per manent ceiling. Secretary Anderson led off his discussion of needed increases in the debt lim its last June by noting his general approval of some sort of restriction. “The existence of a restrictive debt lim it plays an important part in our struggle for fiscal soundness” because it focuses attention on the part of the public, E xecu tive Department, and the Congress on the prob lems of sound Government finance. As his prede cessor, Secretary H um phrey, had put it, breaking through the debt ceiling is like breaking through a sound b a r rie r: “there is an explosion when you go through it and there ought to be one.” Three main reasons for an increase in the per manent debt lim it were advanced by Secretary Anderson. F irst, the financing of budget deficits engendered by the 1957-58 recession w as expected to bring the public debt to approxim ately $285 billion on June 30, 1959—$2 billion over the regu lar debt ceiling existing at the time of the Secre ta ry ’s testimony. A second reason advanced was to enable the T reasu ry to have enough leeway, in terms of its cash balance, to be more flexible in its borrowing operations. Strangely enough, the T reasu ry has the same problem as many individu als or businesses in m aintaining a sufficient cash balance for working purposes so as to avoid too frequent borrowing, or at least to avoid borrowing at inopportune times. To m aintain an adequate THE SECRETARY'S REASON S INTEREST CEILIN G ON SA V IN G S BONDS In his message to Congress the President said that im proving the terms of savings bonds so as to make them more attractive would “ . . . strengthen the contribution of the program both to habits of thrift throughout the Nation and to a better structure of the public debt.” Secretary Anderson spelled out these reasons in testifying before the House W ays and M eans Committee. The Secretary stressed the contribution to thrift Because Treasury spending exceeds receipts by larg e amounts during h alf of the year, a higher debt limit is tem porarily necessary. $ Bils. B U D G E T R EC EIP T S—S E M IA N N U A L FISCAL YEARS 1956-1960 50 40 30 20 10 0 1956 p. Prelim inary _________________________________________________ 1957 )et Message. 1958 1959 1960 habits by purchases of E and H bonds on payroll savings plans. Alm ost half of current sales are accounted for by purchase on payroll savings plans by some eight million Americans. “ M any of these savings grow out of the payroll plan, savings which would not take place in such volume if it were not for the savings program .” The discipline of paycheck deductions to buy savings bonds has helped many sm all savers to save regularly. As of last Jun e more than $42.5 billion of E and H bonds were outstanding. A s to the debt structure, the Secretary pointed out that the savings bond program puts more of the public debt in the hands of long-term investors who hold on to their savings in this form. “Few people realize that the average dollar invested in these bonds stays w ith the T reasury approxim ately seven years.” T his cuts down the T reasu ry’s need to turn to short-term inflationary borrowing. NEED FOR HIGHER RETURN The need for in creasing the interest return to make savings bonds more attractive was related to the fact that cash-ins were outrunning sales in 1959 and by increasing amounts. T his in turn reflected the worsening competitive position of such bonds as an outlet for savings. The rate of interest return on E and H bonds had become much less favorable, in com parison with savings accounts as well as with other types of securities—both Government and private. To improve im m ediately the competitive posi tion of savings bonds interest-wise the T reasury proposed a higher rate—at least l 2 °/c per annum / more— on new bonds if held to m aturity, and on future earnings of outstanding bonds if held to m aturity. The Secretary noted this would result in equitable treatm ent of all bondholders; it would leave present holders little incentive to cash bonds and buy new ones—an operation costly to both the investor and the T reasury. INTEREST CEILIN G ON OTHER TREASURY BONDS Ju st as in the case of the debt ceiling, the interest ceiling on all new issues of T reasury bonds (other than savings bonds) traces back to the transition from the pre-W orld W ar I financing practices in which the Secretary of the T reasury had little discretion to the broadening of the T reasu ry’s au thority in the F irst and succeeding L iberty Bond Acts. The F irst Liberty Bond Act in A pril, 1917, set a 3^2% ceiling on new bonds, the Second Act in September, 1917, increased this to 4°/c, and the T hird and Fourth Acts (A p ril and Ju ly , 1918) called for a ceiling. T his latter ceiling has held ever since on all new T reasury bond issues, 4 which includes all issues m aturing in more than five years. In discussing the 4 ^4% ceiling, Secretary Anderson pointed out, “U ntil recently, the trend of interest rates in the past 25 years has made the 4 ^ -percent ceiling a somewhat academic problem.” W h y ? Because it should be remem bered that interest after all is sim ply a price—a price determined basically by the supply and de mand for credit. In the 1930’s the depressiondiminished demand for funds on the one hand, and a sw elling supply of funds on the other hand, resulting from a substantial inflow of gold into this country, had depressed interest rates to un usually low levels. In the 1940’s to assist in the financing of W orld W ar II the Federal Reserve System supplied billions of dollars of funds to meet essential demands and kept interest rates at artificially low levels—well below the 4^4% ceil ing. Supplying these funds, however, resulted in additions to the money supply far outrunning the flow of goods and services, with a conse quent build-up of inflationary pressures—pressures which erupted in the postwar period. NO LON GER AN A CA D EM IC PROBLEM To try to regain some measure of control over these infla tionary pressures, the Federal Reserve, beginning in 1951, ceased supplying all the funds demanded in expansionary periods, such as the present one. As a result interest rates again have been more responsive to free m arket forces of demand and supply for credit, resum ing their more traditional role in allocating resources. A s m arket forces have been m arked recently by unusually strong demands for credit by business, Government, and indi viduals, interest rates have risen sharply—cur rently to the highest level in m any years. Thus the 4^4% ceiling is no longer an academic problem for the T reasury. To compete for funds in the m arket the T reasu ry must sell securities at attractive rates, and in the present m arket this means rates above 4 /4%. M arket conditions have made the 4^4% ceiling a barrier to borrowing— other than on short-term securities not subject to the ceiling—and, according to the Secretary, a “barrier to effective debt m anagem ent.” It is a barrier to effective debt management since it forces the T reasury to do all of its borrowing on short term securities where it is not subject to the rate ceiling and can compete interest-wise. T his means reliance on borrowing that must be renewed at short intervals ; the T reasury must constantly take its hat in hand and ask for funds. Even more im- C O M P A R ISO N OF YIELDS O N M A RKETABLE TREA SURY SECURITIES A N D INTEREST RATE C EILIN G , SEPTEMBER 1, 1959 Per Cent 5 .0 0 4.7 5 - 4 .5 0 4.2 5 4 .0 0 Dots show yield on each issue of over one y e a r m aturity. 3.75 J— i— i— i___ i___i___i___l___ i i 10 C u rv e reflects g en e ra l re lation ship of these yie ld s an d y e a rs to m aturity 15 20 Y e a rs to M aturity 25 30 35 * A p p lies to Treasu ry bonds issued w ith a 5 y e a r or long er m aturity. O n most Treasury securities the market has established yields above the 4’/4% rate the Treasury is allow ed to offer on longer issues. portant, it can only ask for short-term funds and this has serious inflationary implications. For issuance of the T reasu ry’s short-term debt gen erally involves selling such securities to commer cial banks— except when nonbank demand is un usually strong—and this in turn means that bank deposit money increases and m ay press on the m arket for goods with possible inflationary price rises as a result. In the President’s words, “The piling up of an excessive amount of short-term debt poses a serious threat that m ay generate both the fear and the fact of future inflation at an unforeseeable tim e.” How did Congress respond to the President’s appeals and the T reas u ry ’s proposals? Congress responded almost im m ediately to the debt ceiling proposal, took action near the close of the session on the interest ceiling on savings bonds, and made no change in the in terest ceiling on other T reasury securities. D uring the latter part of June, Congress passed a bill raisin g the permanent debt ceiling to $285 billion ($3 billion less than requested) and raising the tem porary debt ceiling to the requested level of $295 billion, at least for the 1960 fiscal year. The unw illingness to raise the permanent debt ceiling beyond $285 billion reflected the fact that the pub lic debt was not expected to exceed that amount on Jun e 30, 1959, and that the outlook for fiscal 1960 was for a level of budget receipts sufficient to cover budget expenditures. Considerable Congressional debate arose this C O N G R ESS LIFTS CEILINGS summer over the interest rate ceiling proposals and by late A ugust no action had been taken. On A ugust 25 the President sent another special message to Congress again urging removal of the interest rate lim its both on savings bonds and other new issues of T reasury bonds, resting much of his case on the grounds that failure to remove these lim its would necessitate excessive reliance on short-term financing with grave consequences to the purchasing power of the dollar. Following the President’s plea, Congress voted to perm it the T reasury, not unlim ited authority to increase the interest on savings bonds, but immediate authority to increase rates up to 4 so that the T reas u ry ’s proposals in this area could take effect. Despite the P resident’s special plea, the Congress rejected the request for the removal of the interest rate ceiling on longer-term marketable bonds. It did, however, pass a bill perm itting advance re funding of outstanding issues with the privilege to the security owner of postponing the tax liability or credit on the sw a p ; this does not solve the T reasu ry’s problem in operating under the 4 Y ^ o ceiling but would perm it debt lengthening more readily if interest rates decline. Congress, therefore, concluded its long 1959 session—long in part because of its long look at ceilings— with higher ceilings on the national debt and savings bond interest rates, but with the T reasury still facing the critical problem of bor rowing some $85 billion over the next year—all on a short-term basis unless interest rates decline. 5 On August 1 about 10% of the 3,40 0 m iles of interstate hig hw ays proposed for the District had been completed and an additional 20% w a s under construction or aw aitin g bids. The nation also had 10% of the 41,000-m ile program completed and had 13% REDRAWS THE MAP under construction. The District has spent or obligated $486 million in Federal and state funds for engineering, right-of-w ay, and construction since the program started in 1956. New con struction of the interstate system had been threatened recently by inad eq uate funds. Continuation of the program is assured, how ever, by a one-cent increase on October 1 in the Federal gasoline tax to be used for this purpose. H A G ER STO W N IBALTIMORE A S H IN G T O N , D. C. H U N TIN G TO N CH ARLESTO N RICH M O N D N EW PORT NEWS N ORFOLK \ W IN STO N -SALEM G R EEN SB O R O DURHAM RA LEIGH A SH EVILLE CH ARLO TTE G R EEN V ILLE INTERSTATE COMPLETED CO LU M B IA INTERSTATE UNDER CONSTRUCTION OR PARTIALLY COMPLETED CH ARLESTO N PORTSMOUTH BANKing on AUTO a survey by the Ric Electronic com puter—W achovia Bank and Trust Com pany L ast year 12 billion checks. . . B y 1970, 22 bil lion. To handle this avalanche of paper, the banking industry is banking on automation and p articularly on a new revolutionary method of check handling. Other businesses w ith a back breaking paperwork load are w atching closely the development by the banking industry of M IC R — M agnetic Ink Character Recognition. T his method provides for reading of the original data by m a chines as well as by men, and thus has broad significance for all record-keeping jobs. John and Jan e Public also are becoming fam iliar with the M IC R language—the strip of specially designed A rabic num erals at the bottom of this page—as more and more banks prepare for mechanization by issuing checks with this type of numbers im printed in magnetic ink. The adoption by the American Bankers A sso ciation of this common language for checks and a standard location for depositors’ account numbers on checks is a m ajor break-through in bank opera tions. These decisions were not finalized until December 1958 and represent several years of in tensive study and research. Equipment m anu facturers are producing m achinery that autom ati cally w ill read checks, sort them in any order, and perform bookkeeping tasks. Equipment to meet the needs of varied sizes of banks has been de signed—from the semiautomatic electronic book keeping machines to system s linked to a high -speed electronic computer. But bankers have not been sitting on their hands w aiting for a common-language-machine system for checks. Great strides have been made in other procedures for speeding up the handling of checking accounts as well as such areas of bank operations as consumer loans, m ortgages, and trust accounts. Banks have used punched card account ing methods for years and were among the first industries to use computers. Because of the rapid changes taking place in all areas of bank mechanization, the Richmond Fed canvassed the larger D istrict banks on their pres ent status and future plans for automation. Every bank with deposits over $25 m illion was asked to fill in a short questionnaire. The usual splendid cooperation of D istrict banks resulted in a reply from every one of the 70 banks surveyed. Here are the results of the survey. WHO'S AUTOM ATED E very shade of bank mech anization showed up in the survey—from the deep hues of a computer now in use and having under consideration the highest powered equipment for reading m agnetic ink characters to the light shade of the “w ait and see” approach to the problem. The question then arises as to how to define an automated bank. In sum m arizing the survey re sults, the word “autom ated” w ill be used to describe a bank using semiautomatic bookkeeping machines or the equipment usually pinpointed as data processing—the conventional punched card tabulating equipment or an electronic computer. As expected, the larger the bank, the higher the degree of automation. T w enty of the 25 banks with deposits $100 million and over have some Electronic posting m achines—Southern Bank & Trust Com pany Punch of this equipm ent: 3 use an electronic com puter; 18, punch card equipm ent; and 14, the sem iauto matic posting machines. Only 2 of the 20 confine their automation to these latter machines. The sm aller banks—-those with deposits ranging from $25 to $100 million—were, of course, less auto mated, but their showing was nevertheless im pressive. Nineteen of these 45 banks have in stalled electronic posting machines, and 1 bank uses punched card equipment. duced several years ago. Around 85% of the 39 automated banks and around one-half of all the reporting banks use this equipment for demand deposit accounting, with regular checking accounts having a slight edge over the special checks. Some banks are using this equipment as a step toward further automation of their checking accounts. These machines can be linked to other automated check-handling equipment or to a standard dataprocessing system. Also these machines require numbering the depositors’ accounts—prerequisite for the M IC R equipment. WHAT'S USED FOR WHAT Alm ost all of the rec ords required in performing the services by banks for their customers have been tackled with punched cards. For example, they are used to keep track of loan repayments, trust accounts, Christm as and vacation club accounts. T heir use is also popular for internal bank operations— such as in calculating the payroll, in analyzing the bank’s securities portfolio, and in performing other cost accounting duties. D istrict banks reported payroll, consumer loans, and trust accounting as the three most popular applications; club accounts and m ortgage loans tied for fourth place. Punched cards are even being used for check ing accounts—the No. 1 paperwork job of banks and, currently, the least mechanized. Three Dis trict banks use regular punched card equipment and two others an electronic computer for their special checking accounts; and one bank has its regular checking accounts on a computer. Most banks, however, have left this area of operations to electronic posting machines intro card equipm ent—Union Com pany of M aryland WHAT'S ON THE DOCKET Movement towards a fully automated bank is evidenced by the number of banks with equipment under active considera tion. Of the 19 banks with punched card equip ment, 9 are considering the installation of an electronic computer and 12 an electronic check sorter. Of the other 20 automated banks, 5 have a check sorter and 1 a computer under consider ation. Over half of the nonautomated banks plan use of electronic posting m achines; half of these banks are in the deposit size class $25-$50 million. Most D istrict bankers indicated a strong and grow ing interest in bank mechanization. T heir comments pointed out that today is a period in the banking industry for exploring, exam ining, evaluating, and planning for data-processing sys tems that w ill enable it to serve customers and a grow ing economy still more rapidly and efficiently. A d e t a i l e d st at ist ic al c o m p i l a t i o n o f r e p l i e s to t h e Bank A u t o m a t i o n S u r v e y is av ai labl e o n r e q u e s t . 5E ; ID I > Trust 9 The Fifth District Probably the most frequently repeated state ment on business conditions in the past three months w a s : S o j a r , t h e e f f e c t s o f t h e s t e e l st ri ke h a v e b e e n c o n f i n e d to a j e w i n d u s t r i e s a n d to a r e l a t i v e l y fezv cities. T h e i m p a c t o n g e n e r a l e c o n o m i c a c t i v i t y h a s b e e n f a i r l y light. The applicability of this generalization to the Fifth D istrict is indicated by the latest em ploy ment figures. The number of nonfarm workers on payrolls, which does not include w orkers on strike, eased downward .9% from the Ju ly total when adjusted for seasonal tendencies. The de cline w as due entirely to the effects of the steel strike on m anufacturing, mining, and transporta tion. Employment in other lines—construction, service industries, government, and finance, in surance and real estate increased. The number on the A ugust payrolls of stores and other trade organizations remained unchanged. Furtherm ore, the decline in total employment in the D istrict centered in M aryland and W est V irgin ia, the principal locations of the D istrict’s steel plants and bituminous coal mines. There were over 28,000 steelworkers in M aryland and 8,000 more in W est V irgin ia (m ostly in Fourth D istrict counties) on strike at mid-September. Over 4,000 more workers in other industries in the former state and 10,000 in W est V irgin ia were One of the serious effects of the prolonged 10 also unemployed at that time as a direct conse quence of the steel strike. Slight gains in employment, on the other hand, occurred in V irginia, N orth Carolina, and South Carolina. In V irgin ia, for exam ple, only 500 steelworkers were out on strike, and gains recorded by both m anufacturing and nonmanufac turing industries raised total nonfarm employment to an all-tim e high. Unemployment, as a per cent of the Old Dominion’s labor force, dropped sharply to 3.6% in A ugust from 4.1% in the pre ceding month. M AN U FACTU RIN G M AN-HOURS DOW N The m ark of the steel strike on economic activity in the Fifth D istrict is more clearly discernible in the record of hours worked in m anufacturing plants. The total in A ugust, adjusted for seasonal in fluences, declined 1.5% below the preceding month’s figure. The most severe losses, of course, occurred in prim ary metals and fabricated metal products. However, declines showed up also in such other durable goods industries as furniture and stone, clay, and glass. Despite favorable order backlogs in the textile and apparel indus tries, tem porary operating adjustm ents resulted in declines in man-hours worked in A ugust in certain divisions of the industries. In all instances man- steel strike has been the slump in carloadin gs of bituminous coal at District mines. hours exceeded by moderate m argins year-earlier figures. The over-all strength of the textile in dustry, however, was reflected in a rise in total man-hours worked in North C arolina’s factories. In this state, where textile m ills employ over 50% of all m anufacturing workers, the significant eco nomic indicator, man-hours, rose slightly during A ugust contrary to the declines in the other four D istrict states. Contributing to the rise in North Carolina were substantial gains in cigarette fac tories and in lumber and wood mills. "CH RO N IC LABOR SURPLUS" AREAS The De partm ent of Labor has classified 70 areas in the nation as centers of “chronic labor surplus” be cause of their relatively large unemployment in the past five years. The list included 17 m ajor industrial centers, two of which—Charleston, W . V a. and A sheville, N. C.—are in the Fifth District. The report pointed out that coal mining, textile, and auto industry towns bear the brunt of chronic unemployment. To be listed, an area must have had at least 50% more unemployment than the national average during four of the past five years. A ll the areas in the report released by Sec retary of Labor M itchell fared worse than the rest of the nation during the 1957-58 recession and are laggin g far behind in the climb up from the bottom of that business setback. Thus, while the country has recovered about 93% of the recession job losses, the report states that the 17 chronic unem ployment areas have regained only 31% . FURNITURELAND, U .S.A. Furniture m aking has been one of the m ajor pacesetters in the recovery of the D istrict economy from the 1957-58 reces sion. From the low point of the recession until A ugust 1959 total man-hours worked in all m anu facturing plants in the District increased almost 10%. In furniture factories the extent of the re covery, as measured by man-hours, was almost double that— 19%. The latest reports indicate that new orders received by District furniture plants in A ugust declined from the record amount booked in Ju ly but remained, nevertheless, at a relatively high level. Since they outran shipments, unfilled orders rose to what was probably an alltime high. O rders, production, and shipments were all about one-third greater in the first eight months of this year than they were in the same period last year. North C arolina and V irgin ia are the leading producers of wood household furniture in the nation, m aking almost 50% of all the dining room and bedroom wooden furniture in the country. District furniture operations have expanded faster since the recession than have operations in all m anufacturing industries. T his area is also important in the production of upholstered furniture, North C arolina being the second largest producer among all states, with about one-tenth of total output. Active interest of buyers at the October South ern Furniture and R ug M arket in the H igh Point A rea would help to m aintain new orders at the advanced levels attained through the first three quarters. B uyers from all over the nation are in specting exhibits of the D istrict’s furniture m akers this month at showings in such other centers of the industry as D rexel, H ickory, Lenoir, Lexington, Morganton, Thom asville, and W inston-Salem in North C arolina and M artinsville in V irginia. C O A L UPTURN ANTICIPATED D aily production of bituminous coal by District mines averaged 450,000 tons in the first nine weeks of the steel strike. This was 20% , about 113,000 tons, below the high point for the year reached in June. R e firing the furnaces in steel m ills following settle ment of the strike should give rise to an upsurge in coal production. It was reported at m id-Sep tember that steel companies were placing some orders for coal in anticipation of the inevitable conclusion of the long drawn out labor-m anagement dispute. In any case there was an increase in carloadings in the week ended September 19 to a high for the period of the strike. 1 1 Overseas shipments of coal through D istrict ports for the first eight months of this year were one-third less than last year. This is a m ajor cause of the coal industry’s difficulties, since e x ports accounted for one-fourth of the coal mined in the D istrict in 1958. The over-supply of coal in Europe continues, and 12-15 mines in the Ruhr V alley w ill close voluntarily over a tw o-year period in an effort to solve the problem of surplus production. T his would close down from 6 to 10 million tons of the R u h r’s annual capacity of 130 million tons. TEXTILES The most common trade report on the textile m arkets since early Ju ly has been, “B uying continued slow with only limited sales.” About the middle of September reports began to change to read, “A pickup in the pace of trading is evident in the textile m arkets.” This increased buying took place especially in print cloths but combed goods and some synthetics also sold well. These sales were for delivery in the first quarter of 1960 and brought m ills into a fairly good sold-ahead position on print cloths for that period. Even before this, however, backlogs of unfilled orders had continued through the summer at relatively high levels in most D istrict mills. The September pickup in m ill sales also in cluded synthetic fabrics. Rayon, acetate, and nylon goods sold in moderate quantities for first quarter delivery before the flurry subsided toward the end of September. This m arket had been very slow and some secondhand goods had sold at prices below m ill levels. These m ills generally have good backlogs of orders for the rest of this year. Backlogs of orders at yarn m ills are at very high levels. M ills are almost solidly booked for fourth quarter, and carded yarns are in especially tight supply. Prices of carded yarns are, of course, firm as spinning mills find it increasingly difficult to fill orders for early delivery. The Carded Y arn Association in Charlotte reports that on September 5 its members had backlogs of orders equal to 10.61 times stocks on hand. This compares wT backlogs that were 5.72 times stocks ith on hand at the same time last year. Inventories at spinning m ills were at low levels—equal to only 1.11 w eeks’ production on September 5 compared with 2.22 w eeks’ production last year. Back-to-school demand for children’s clothing and seasonal demand for women’s and men’s w ear have kept knitting m ills busy. Backlogs of orders 12 at most m ills are quite large, and some trouble meeting deliveries has been reported. Most mills knitting seamless hosiery are booked for the rest of the year. Seasonal conditions have brought about an improved demand for full-fashioned hosiery. CON SUM ER SPEN DIN G STRON G Seasonally ad justed sales by D istrict departm ent stores in Ju ly and A ugust added up to near-record volumes, topped, in fact, only by the total of the peak month of A ugust, 1958. Incomplete w eekly figures in dicate that sales in September m ay have fallen off. It is likely, however, that the total for the month was above the year-ago figure. The September decline appeared to be centered in the Baltim ore area and undoubtedly w as a consequence of the thinning pocketbooks of the 28,000 steelworkers on strike from Bethlehem ’s giant Sparrow s Point mill. F urniture store sales also displayed consider able strength in A ugust by holding close to the record-high volume of the preceding month. A d justed for seasonal variations, the A ugust index of District furniture store sales w as at the second highest point in 1959. The total for the first seven months of the year was more than onefourth greater than last year. BAN KIN G The big news in D istrict banking is the continued boom in bank loan demand. Loans of 20 of the D istrict’s largest banks climbed an impressive 1.4% the first four weeks of Septem ber—the fastest September rise in m any a day. The m id-Septem ber loan-deposit ratio— quite a good indicator of loan demand— reached an aver age of 48% at all District member banks after a 3 percentage point jum p in one short year. H eavy loan pressures have also led the banks to tap the Federal R eserve’s discount window relatively frequently and to liquidate substantial amounts of investments. B y mid-Septem ber, Dis trict member banks had cut their Government holdings enough to reduce Government securitydeposit ratios to only 29°/o of deposits. A year before the ratio w as over 32% . PH O TO CREDITS Cover—Architect of the C ap itol and Trust C om p any pany - Union Trust 8. W achovia Bank 9. Southern Bank & Trust Com Com pany of M aryland C h esap eake and Ohio R a ilw a y Com pany Furniture C om p any. 10. 11. Drexel