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FEDERAL RESERVE B A N K OF R I C H M O N D OCTOBER 1961 VIRGINIA An Economic Profile Virginia is known throughout the world— known for Jamestown, for George Washington and Thomas Jefferson, for the historic battles of the W ar Between the States. But wrhat is known of present-day V ir ginia, its resources and its industry? H ow do its people earn their living, how well off are they, on what do they spend their income? H ow have these factors been changing lately ? O f these things we “ know” a great deal— page after page of facts collected by the Census Bureau, volume after volume of statistics issued by a multi tude of agencies and firms. From these many sources come the data with which one can paint the picture of modern Virginia. Here, in broad strokes, is an economic profile of the state. POPULATION Census takers counted 3,966,949 V ir perienced large population gains during the decade, while many rural counties lost population. During the Fifties, Virginia’s population grew by 20% , slightly more than the nation’s gain. The in crease was primarily the result of more births than deaths but was also aided by a small net inward migration. This pattern of population change dif fered from that of earlier decades of the twentieth century. During the first 30 years of the century the state’s population gains were relatively small be cause many people left in search of better economic opportunity. In the Great Depression poor condi tions elsewhere halted outward migration, but a rel atively low birth rate held the gain of the Thirties to 10%. Then W orld W ar II brought both a higher birth rate and a great influx of defense and govern ginians in 1960— almost six times the number found ment workers, and population rose by almost onefourth between 1940 and 1950. by the first census in 1790. They also discovered that Because the population gain of the last decade re more than half of the state’s residents now live in urban areas, which was not the case as recently as sulted from natural increase, the size of the chief Virginia’s three major metropolitan areas— working-age group, persons between 20 and 64, did not keep pace with the total growth. By 1960, this Norfolk, Richmond, and the suburbs of Washington group comprised only 53% of the population, as com — and other densely settled regions generally ex- pared with 58% in 1950. 1950. The 1960 C e n su s sh o w e d that V irg in ia n s continued to m ove to u rb a n areas. POPULATION IN 1960 The proportion of young For the first time, u rb a n ite s ou tnu m b e re d rural residents. POPULATION CHANGE, 1950-1960 POPULATION GROW TH, 1930-1960 PER CAPITA PERSONAL INCOM E, 1930-1960 V IR G IN IA and UNITED STATES V IR G IN IA and UNITED STATES D ollars Percentage increase in decade people increased from 37% to 40% and that of per sons 65 and over from 5% to 7 % . The higher per centage of nonproductive persons made the tasks of raising living standards more difficult and also re quired capital investments, particularly in schools, to meet the needs of these people. When the young persons enter the labor force, Virginia’s economy faces the further challenge of expanding sufficiently to provide adequate job opportunities. When this task is successfully accomplished, the state and nation can begin to reap the full economic benefits of a larger population. PERSONAL IN C O M E In the last three decades, V ir ginians achieved a remarkable improvement in their income position, both in absolute terms and relative to the rest of the nation. Even after adjustment for increases in consumer prices, total personal income in 1960 was four times that of 1929, the peak year of pre-Depression prosperity. On a per capita basis, income was two and one-half times higher. These real income gains, which, except for the im mediate postwar period, have been occurring rather compared with only 62% in 1929. Most of the in crease in this measure, however, had taken place by 1940, and there was no relative progress in the last decade. A t 83% , the ratio in 1960 was the same as it had been in 1950, although it had reached 85% in both 1952 and 1954. Per capita incomes vary widely among the 131 cities and counties in the state. In 1958, the latest year for which estimates are available, incomes ranged from $644 in a southwestern county to $3,080 in a small suburb of Washington, while the state average was $1,715. The higher incomes are gen erally found in urban areas. These areas, which as already noted have experienced relatively large popu lation gains, have since 1950 also achieved greater relative increases in per capita incomes than have many rural regions. This preliminary sketch of Virginia’s economy needs to be filled in with some details on employment and sources of income. These will also cast light on the interesting developments noted— the great eco nomic growth between 1932 and the end of the war, consistently since 1932, have pulled Virginia's per the continued progress which has about kept pace capita income up to 83% of the national average, as with national growth during the last decade, and the A v e r a g e incom e o f u rb a n residents w a s g e n e ra lly h igh e r a n d g r o w in g fa ste r in recent y e a rs than incom e of p ersons in PER CAPITA PERSONAL INCOME IN 1958 □ CHANGE IN PER CAPITA PERSONAL INCOME 1950-1958 50% or more $2,000 or more □ $1,500 to $1,999 □ $1,000 to $1,499 I I Less than $1,000 rural counties. □ 25% to 49.9% I I Less than 25% LABOR FORCE 1950 and 1960 Thousands 1600 / 3.8% Unem ployed / / 1400 _ '/ 4.7% 13.5% Other / / 1200 _ / 13.2% / / 6 .3% / 7.9% Services 8.9% Agriculture / / / 1000 11.6% Self-em ployed, U n paid Family W orkers, and Domestics 13.9% Trade 17.6% M an u factu rin g / 13.4% / / 800 — / / 11.9% / \ 12.5% \ 600 - \ / 400 - 16.6% — 200 _ 8.2% Arm ed Forces _" 14.8% Civilian Governm ent 13.4% 0 1950 1960 recent widening of the income gap between rural and urban areas. EMPLOYMENT A N D IN C O M E Taken together, civil ian and military employees of Federal, State, and local governments made up nearly one-fourth of the 1960 labor force of 1.6 million. Income disbursed by governments— wages, salaries, and transfer payments such as Social Security— represented 29% of per sonal income. By either measure, government em ployment is far more important in Virginia than in the average state. The difference results primarily from the large number of Virginians employed by the Federal Government in the nation’s capital and at the naval center at Hampton Roads. In fact, the amount of Federal wages and salaries surpassed V ir ginia’s total only in two comparatively huge states, California and Texas. The great increase in the relative importance of Federal employment in Virginia was one of the major economic events of the 1930’s and 1940’s. During the last decade, however, Federal wages and salaries to civilians stayed around 11 % of total personal in come, and the proportion represented by payments to the armed forces, although spurting during the Digitized for 4 FRASER Korean W ar, is again at its 1950 level. On the other hand, State and local governments increased their share of the state’s employment and payroll, and by 1960 their wage and salary payments accounted for 6% of personal income. Second in importance to government as a source of employment and income in 1960 was manufactur ing, which employed 17% of the labor force. W ages and salaries paid by manufacturing firms have com prised about 15% of the income of Virginians each year since the end of W orld W ar II. During the last decade the number of jobs in this field increased by about one-fifth, or by slightly more than the in crease in the labor force. Trade as a whole ranked third as a source of em ployment by providing jobs for 14% of the labor force. About four-fifths of these workers were in retailing while the remainder were employed at the wholesale level. In the Fifties, jobs in the latter area increased by 16%, but in retail trade employ ment rose at almost double this pace. A s a result, wages and salaries in trade assumed a slightly greater importance and by 1960 accounted for nearly 12% of personal income receipts. Employment did not increase in all sectors of the economy, however. In one major area— agriculture — the number of workers declined by 43,000 during the 1950’s. Adoption of improved technology en abled output per farm worker to rise greatly, and employment was reduced from 13% of the labor force in 1950 to 8% in 1960. Services, a category which encompasses such diverse enterprises as laundries and auto repair shops, also employed 8% of the 1960 labor force. In sharp contrast to agricultural employment, jobs in these firms increased three times faster than the state’s labor force during the last decade. In addition, it is estimated that about three-fourths of the large group of self-employed, domestic, and unpaid family workers were engaged in providing services. The five major sectors thus far discussed— gov ernment, manufacturing, trade, agriculture, and serv ices— employed 82% of Virginia’s labor force in 1960. Another 4% was unemployed, and the rest worked in one of the many remaining fields— trans portation, communications, public utilities, construc tion, finance, insurance, real estate, and mining. W ith the exception of transportation and mining, these activities increased their share of the labor force during the last decade. Employment in trans portation increased only slightly and thus declined in relative importance, while mining joined agricul ture in experiencing an actual decline in the number of workers. In addition to wage and salary payments, some of the income originating in each of the sectors dis cussed was in the form of returns to proprietors for their labor, management, and capital investment. The chart below shows the dramatic decline in the rela tive importance of this category of income during the postwar period. For the last five years, however, proprietors’ income has stabilized at just over 10% of total personal income. Property income is another category that has sig nificantly less relative importance now than it did in the prewar era. Since the war, however, it has grown, though with rather large fluctuations, at about the same rate as total personal income, in most years comprising about 10% of the whole. M AN U FA CTU R IN G While postwar growth in the important manufacturing sector approximated the state average, the various industries within this group exhibited greatly varied trends both in employment and in the value of goods produced. The basic sources for this information on different industries are the Censuses of Manufactures taken in 1947, 1954, and 1958. The last of these provides a fairly up-to-date picture of the relative importance of the various industries; in fact, the findings are just now being published. Taken together, the censuses divide the postwar period into two parts, which also permits investigation of recent changes in manufacturing trends within the state. The “ value added” by manufacturing is basically the value of the final product less the cost of ma terials ; this measure avoids double counting, since the goods produced by one industry are often the “ raw material” for another. For Virginia, the 1958 Census found value added at over $2 billion. The measure showed growth of about 55% from 1947 to 1954 and 31% from 1954 to 1958, an average close to 7% per year in both periods. The number of em ployees in manufacturing rose by about 11% during the first of these periods and by 5% in the second. By both measures, growth in Virginia manufacturing was a trifle below the national pace during the earlier span but substantially better in the recent period, during which national manufacturing employment actually declined slightly and value added rose by only 20% . It is interesting to compare the performances of Virginia's major industries with these averages and SOURCES OF PERSONAL INCOME, 1929-1960 Per Cent of Total 100 Other Labor Income a n d Net Transfer Paym ents Property Income 90 Proprietors' Income 80 70 Other W a g e s a n d Sa la rie s 60 50 Services 40 30 20 State a n d Local Governm ent M ilitary Federal Governm ent 10 Civilian Federal Governm ent 0 1930 1935 http://fraser.stlouisfed.org/ W ages and Salaries Federal Reserve Bank of St. Louis 1940 1945 1950 1955 Income other than W ages and Salaries 1960 M A N U F A C T U R IN G Em ployees, 1958 Industry Per Cent o f Total Num ber Textiles 34,843 13.8 Food 31,312 12.4 Chem icals 31,111 12.3 Lumber 21,994 8.7 A p p a re l 21,604 8.6 Transportation Equipment 16,871 6.7 Furniture 16,428 6.5 13,404 5.3 11,070 4.4 Tobacco Pulp and Paper Fabricated M e tals 9,031 3.6 Stone, Clay, a n d G la s s 7,840 3.1 36,622 14.5 252,130 100.0 Other Total Percentage Change, 1954-1958 1— Textiles — Food 1 V Chem icals 1- ■ "H 1 WKm | Lumber I Em ployees V alu e A d d e d 1 A p p a re l ■ Transportation | Equipm ent ■ a z n Furniture ■ H ■ ■ I----- Pulp a n d Paper 1 1 Fabricated M e ta ls Stone, C la y , G la ss ■ i i and ^ 1 1 Other i -1 0 1 c 1 + 20 1 1 +40 1 1 +60 1 1 1 + 80 + 110 V alu e Added, 1958 A m ount (M illion s o f Dollars) Per Cent o f Total Textiles 217 10.2 Food 238 11.2 Chem icals 459 21.6 Industry Lumber 73 3.4 A p p are l 78 3.7 6.2 Transportation Equipment 132 Furniture 104 4.9 Tobacco 267 12.5 Pulp and Paper 130 6.1 Fabricated M e tals 79 3.7 Stone, Clay, a n d G la ss 75 3.5 277 13.0 2,130 100.0 Other Total i also with the average growth of the same industries nationally. Textile mills, the biggest employer among manufacturers, added workers between 1947 and 1954 but reduced employment by 6% between the latter year and 1958. Value added, however, was about the same in both 1947 and 1954 but by 1958 had increased by one-third. Over both time periods the performance of Virginia’s textile mills was better than the national average for the industry. Chemicals are Virginia’s largest industry in terms of value added, being responsible for over one-fifth of the state’s total in 1958. They enjoyed fabulous growth between 1947 and 1954, doubling their value added during the period, but gained only 5% during the next four years while national growth of the in dustry continued unabated. Chemicals represented 12% of manufacturing employment in 1958 after re ducing their work force by 11% over the previous four years. Virginia's tobacco manufacturing plants are per haps its best known industry. They produced near ly one-fifth of the nation’s tobacco products in 1958, giving Virginia a rank second to North Carolina in this enterprise. Value added increased by one-third between 1954 and 1958, a somewhat faster growth than during the earlier postwar period. Over both spans, however, this rise lagged slightly behind the national pace. Furthermore, employment in the to bacco plants was cut back by 15% from 1947 to 1954 and by an additional 12% between the latter year and 1958. The state’s other big industry, food processing, grew in both employment and value added from 1954 to 1958 and was the only one of the top four indus tries to achieve an increase in both categories. Flowever, employment drops among the other large indus tries and in lumber and transportation equipment were more than offset by relatively large percentage increases in fabricated metals, apparel, furniture, and a number of smaller industries. Value added in all of the latter groups also increased by as much or more than the state average gain in all manufacturing. AGRICULTURE While farming in Virginia, as in all states, covers an extensive land area, its dollar contri bution to economic activity is relatively small. Farm marketings and Government payments in 1960 to taled $477 million and after production expenses $69 million remained as the net cash income. This in come averaged only $554 per farm, 26% less than in 1950. Farmers, of course, also had nonmoney in come in the form of home consumption and the use of farm dwellings which brought total net income to $1,497 per farm. SELECTED SERVICES RETAIL TRADE 1954 and 1958 1954 and 1958 Food Stores Personal Services A u to Dealers Business Services G eneral M erchandise Stores G a s Stations Hotels an d M otels Eating a n d Drinking Places A u to G a r a g e s Building M aterials a n d Farm Equipm ent Dealers A p p a re l and Accessory Stores B 1954 1958 A m u se m e n ts 1954 1958 Misc. Repair Services Other 0 250 1,000 750 500 Sales (M illions of Dollars) 50 100 150 Receipts (M illio n s of Dollars) Most of the farm land of the state is devoted to the growing of feed and forage for livestock, of which dairy cows and beef cattle are the most important. However, livestock accounted for only 54% of farm marketings in 1960 primarily because the tobacco crop, although grown on only 2% of the state’s crop land, provided 17% of marketing receipts. Other important cash crops are fruits and vegetables, pea nuts, and soybeans, with the latter showing a phe nomenal increase in the last decade. 0 In the livestock area, broilers, eggs, and turkeys are also significant The complexion of wholesale trade is changing as direct sales branches of manufacturers are becom ing more numerous and are rapidly increasing their sales volume. However, the wholesalers who sell to retailers are still the dominant variety. Retail trade data also show some developments in the distribution structure, such as a reduction in the number of food stores, the most important group. Sales, of course, depend on the whim of consumers. In the 1954-58 period, food stores had the biggest increase, while auto dealers and hardware stores fared most poorly. sources of income. TRADE The distribution of goods to consumers is big business everywhere; in Virginia combined sales of wholesalers and retailers totaled $7.2 billion in 1958, and sales in the 1954-58 period grew faster than the national average. AGRICULTURE 1950 and 1960 Dairy Products Poultry a n d E g g s Cattle Other Livestock Tobacco B Fruits and V e ge tab les 1950 1960 50 75 100 (M illions of Dollars) This article is the first in a series of economic profiles of states in the F ifth Federal R eserve District. A more detailed report on Virginia’s economy will also be available on request in 1962 . Other Crop s 25 0 http://fraser.stlouisfed.org/ a shSt.Receipts Federal Reserve BankC of Louis SERVICES Virginia’s consumers and businesses have increasingly been finding it profitable and convenient to hire others to perform specialized tasks. As a re sult, the service sector of the economy has been grow ing very rapidly. In Virginia, receipts of a group of service trades surveyed in 1958 approached $500 million and were 64% greater than in 1954. The fastest growing area was the category of miscel laneous business services such as advertising, re search development, and janitorial work. As a group, these enterprises more than tripled their receipts in the four-year period. W ith this last highlight, it is time for a final look at the profile. W hile unique in respects such as the amount of government activity and the characteristic manufacturing enterprises, it basically reveals a state that is in step with the economic progress of the nation. 125 200 U. S. TREASURY FEDERAL RESERVE COM M ERCIAL BANKS PUBLIC Are Banks Holding More Vault Cash? Cash held by banks continues to serve as an important reservoir in the pipeline supplying currency to the public. Its new role as reserves, however, may have encouraged banks to reappraise policies on cash holdings. Commercial banks deal mainly in credit, generating in the course of their credit transactions the great bulk of the United States money supply. The money so created takes the form of demand deposits, which represent some 80% of the total money held by the American public. Yet bank operations cannot be conducted without another form of money— cash, the garden variety of coin and folding money with which all Americans come into daily contact. Holdings of coin and currency by all commercial banks in the United States at the end of July amounted to $3.8 billion, roughly $21 for every man, woman, and child in the country. These holdings represented under 2% of total deposit claims on these institutions and less than one-sixth of the total cash holdings of the nonbank public. Relatively, Fifth District banks belonging to the Federal Reserve Sys tem held larger amounts of currency and coin— or vault cash, as it is referred to in banking circles— than banks in the nation at large. Holdings of Dis trict member banks came to $214 million, approxi mately 2.5% of their total deposit liabilities. Despite their relative smallness, commercial bank vault cash holdings play an important role in the country’s monetary system. Their importance has been enhanced recently by Federal Reserve action allowing them to be counted legal reserves, and there may be reason to believe that this change has in fluenced the cash-holding practices of banks. O N THE M IN U S SIDE On a bank’s balance sheet, vault cash appears, of course, on the assets side, ordi narily under the heading “ cash in vault.” But from the standpoint of profitable operations it differs in an important respect from other bank assets, most of which are income-earners. By contrast, the cash ac count is an expense-generator. Larg? amounts of idle cash involve sizable operating outlays for stor age, safekeeping, and insurance. Since there is no 8 FRASER Digitized for offsetting return, the cash account becomes, by any immediate reckoning, a net loser. The banker keep ing a close eye on costs might well regard it as a questionable asset. W HY HOLD C A SH ? In the light of these negative aspects of the cash account a question naturally arises as to why banks hold cash. The answer is obvious. Banks hold cash because they must stand prepared to pay depositors’ claims in legal tender money and because they can be sure that at least some of these claims will be exercised every business day. Some, of course, can be paid from newr deposits of cash, but banks can never be sure that cash withdrawals and cash deposits will be equal on any given day. Thus, regardless of its unfavorable profitability character istics, a relatively idle hoard of vault cash is a must for every bank. The vault cash needs of an individual bank are related closely to the payments habits of the bank’s customers. Banks serving a clientele which regular ly makes most of its payments by check and which is content to hold most of its money in the form of de mand deposits require only small cash holdings. On the other hand banks whose customers make a large fraction of their total payments with legal tender money rather than with deposits need larger amounts of cash. In general, large city banks hold much smaller amounts of cash relative to their deposit liabilities than do banks in rural areas. In the last week in July, for example, vault cash as a fraction of total deposits at four randomly chosen rural area banks in the Fifth District ranged between 5.2% and 10.8%, while the same fraction for four reserve city banks ran from 1.5% to 2.4% . In the same week, the frac tion for New Y ork and Chicago member banks was less than 0.9% . For the banking system as a whole, the relatively small percentage which vault cash bears to total de posits reflects the extent to which payments by check predominate over cash payments in this country. Payments made by check normally require the use of little or no cash at any stage. They are effected chiefly by bookkeeping transfers of deposit owner ship within the banking system. The greater the de gree of prevalency of such payments, the smaller the public’s demands for cash, and the smaller the bank ing system’s needs for vault cash. THE CASH PIPELINE In a broader perspective, the vault cash holdings of banks represent a reservoir from which the public replenishes its cash holdings at its own convenience by converting demand de posits. Commercial banks, in turn, replenish their cash holdings when this is necessary by drawing coin and currency from the Federal Reserve Banks, re ducing their reserve deposits at the Federal Reserve in the process. In their turn, the Federal Reserve Banks hold coin and Treasury currency deposited writh them by the U. S. Treasury, and in addition have the power to issue currency in the form of Fed eral Reserve Notes, which represent the largest part of total coin and currency in this country. Thus the United States system for providing cur rency and coin to the public can be thought of as a giant pipeline running from the Treasury and the Federal Reserve Banks, through the commercial banks, to the public. W hen the public needs more currency and coin, it can be obtained by converting deposits at commercial banks. Commercial banks losing cash can replace it by converting their reserve deposits at Federal Reserve Banks. Federal Reserve Banks can make up any shortage by requisitioning coin at the offices of the U. S. Mint, by drawing al lotments of Treasury currency, and by issuing their own circulating notes. This pipeline is a two-wray street. W hen the pub lic finds itself with more cash than is required, it takes the excess to commercial banks, converting it into deposits. Commercial banks ship any excess accumulations in their own vaults to the Federal Re serve Banks in exchange for reserve deposit credit. The Federal Reserve Banks dispose of unfit coin and currency and usually hold most of the remainder as an inventory out of which future demand is met. The nation’s currency system, as represented in this hypothetical pipeline, is operated solely for the convenience of the public. Its function is to allow the public to determine for itself, without impair ment of the working of the monetary system general ly, how7 its total money holdings are divided between coin and currency on the one hand and deposits on 9 the other. Bank holdings of vault cash comprise an important part of this system and are indispensable to its smooth functioning. SEASO N A L EFFECTS The chief variations in the pub lic’s demand for cash are associated with seasonal factors. The largest fluctuations occur during the Easter and Christmas shopping rushes. Typically, at Christmas time banks must meet an added demand for cash occasioned by burgeoning retail sales and by use of cash for gifts. Larger quantities of bills and coins flow out of banks thus requiring greater shipments from the Fed. Once the shopping rush subsides, there is a return flow of paper money and coins back to commercial banks as customers build up deposits. Last year, for instance, vault cash at Fifth District member banks averaged $187 million for the twelve months. At the end of December, however, the balance was $233 million. The larger December balance was accounted for by the return flow of cash after the Christmas rush had passed. FROM CASH TO RESERVES Before 1959, vault cash at banks belonging to the Federal Reserve System served only the function described above. Cash was held only in order to meet the public’s demands. In particular, member banks were not allowed to count their vault cash holdings toward meeting the reserve requirements set by law. In December 1959 the Board of Governors of the Federal Reserve System took the first in a series of steps designed to allow all vault cash to be counted as reserves. The first measure enabled member banks to count as reserves vault cash in excess of a certain percentage of their net demand deposits. In August and September 1960 these percentages were reduced considerably, and in the following November all vault cash was given reserve status. This series of changes gave bank vault cash a sec ond function. Banks now hold it not only to meet the demands of the public but also to meet part of their legal reserve requirements. Prior to the Board action, cash could be converted to reserves only by shipment to the Federal Reserve Banks. N ow it is a form of reserves in its own right. EXPECTED EFFECTS This enhanced status of vault cash would appear to justify expectations that the quantity of cash holdings would rise. W ith the added attraction of built-in reserve status, member banks apparently have less reason to keep currency and coin holdings to a minimum. Moreover, there may also be grounds to expect that money shipments to and from the Federal Reserve Bank would be re duced by the changed status of cash. Before the Board action banks often shipped in currency in 10 anticipation of reserve deposit losses. Since Novem ber 1960 it has been possible to cover reserve deposit declines without these shipments if vault cash hold ings are sufficient. DISTRICT EXPERIENCE, 1961 In view of the recency of the change in the status of vault cash, any judg ment as to the effects of this change is perhaps prema ture. However, data on vault cash holdings of Fifth District member banks suggest that expectations of larger bank cash holdings and of a smaller volume of coin and currency shipments between the Federal R e serve and commercial banks may have been realized. For example, during the first seven months of 1960 vault cash at District member banks averaged $186.5 million. In the like period this year average holdings rose to $205.2 million, a 10% increase. The increase in this average between 1959 and 1960 amounted to only slightly more than 4 % , between 1958 and 1959 to a shade over 5% , and between 1957 and 1958 to only about 2 % . The larger increase in District member banks’ hold ings of cash in 1961 may, of course, be explainable by factors unrelated to the new vault cash regulations. However, the fact that this larger increase followed immediately upon the Board action allowing all vault cash to be counted as reserves at least suggests some causal connection between the two. Fifth District data also show the volume of coin and currency shipments between the Federal Reserve Bank of Richmond (including the Baltimore and Charlotte Branches) and District commercial banks running slightly below those in the comparable period of both 1960 and 1959, as indicated in the chart on the preceding page. Total shipments for the first seven months of 1961 amounted to $2,021 million or 2.6% less than in the same 1960 months. By com parison, the seven-month 1960 total was 0.9% below’ that for the same 1959 period, while the first sevenmonth total for 1959 was 7% ahead of that for 1958. Again, however, this does not establish a presump tion that total currency shipments have been reduced by the new vault cash regulations. Currency move ments through the pipeline described above are ob viously associated closely wTith the over-all level of business, especially of retail trade, and the differences noted may be attributable to variations in business volume. Data for 1957-58, a period marked by much the same business conditions as 1960-61, show a re duction in shipments of about the same magnitude as that between the latter two years. Nevertheless, the data do suggest the possibility that Fifth District banks’ policies wTith respect to vault cash holdings may be undergoing a change. THE FIFTH DISTRICT Despite moderate declines in some areas, generally good business conditions still prevail in the Fifth Dis trict. Nonmanufacturing employment, about threefourths of the District total, reached a new high in August. Substantial gains occurred in government, contract construction, financial enterprises, and serv ices ; smaller ones in mining and trade. Construc tion activity, a sustaining factor during the last re cession, has consistently gained further strength— an indication of confidence. Trade, on the other hand, although satisfactory by comparison with recent years, has developed little if any new strength during the period of recovery. The absence so far of any extra autumnal vigor places trade among the hesitant sectors of the economy. Many manufacturing industries experienced a slower pace in August. Factory employment and man-hours, both seasonally adjusted, were slightly down from July levels, and more than 2% below their respective 1960 highs. August declines— more marked in nondurable goods than in durables— oc curred in tobacco manufacturing; the weaving and spinning components of textiles; apparel; paper; printing; metals; machinery; furniture ; and stone, clay, and glass. The significance of these relatively small but rather widespread adjustments is not wholly clear. Business attitudes and expectations have been generally and quite consistently optimistic. Other facets of the District economy have for the most part maintained an upward course. It may be that usual seasonal slowdowns developed more than normal intensity this year. INTERNATIONAL TRADE W ith markets for manu factured goods becoming increasingly competitive, interest in overseas business contacts is clearly grow ing. Greater emphasis is being given to foreign mar kets as potential outlets for domestic products. The free economies of Europe and Japan have completed a remarkable recovery from almost total wartime destruction. Fifth District business groups have demonstrated their awareness of these developments in the past but are now giving them more attention than ever. The 13th Annual Virginia W orld Trade Conference, directed by the Virginia State Chamber of Commerce and supported by 12 other organiza tions, will meet October 25-27 at Old Point Comfort, Virginia. Students and faculty members from 2 i colleges and universities in Virginia, the District of Columbia, and neighboring states will be Conference guests. In Charlotte, North Carolina, the Coliseum and Merchandise Mart will provide the setting for the North Carolina Trade Fair, October 12-21. The number of exhibitors at the Fair is expected to ap proach 400, and the potential foreign demand for products displayed will be judged by distributors from all parts of the world. CONSTRUCTION Manufacturers are just as per sistent in trying to reduce costs as they are in pur suing new markets. Frequently the quest for lower costs has produced decisions to build. Much public construction is also in progress. Contract construc tion workers in August numbered more than 300,000, the most ever employed in the District. Building permits in 38 District cities also reached a new high in August with a total value of more than $72.7 mil lion. This impressive figure wTas 16% higher than the series’ second best value established two months earlier and 70% above last year’s monthly average even though 1960 was a record year. District contract awards are not presently at record levels but, nevertheless, do show considerable strength. Total awards have been declining grad ually since m id-1960 and are slightly behind last year’s pace. Awards toward the end of last year in cluded several very large public projects, the largest of which was the Chesapeake Bay Bridge-Tunnel. These helped to provide a solid foundation for this year’s construction activity and set such a fast pace for pub lic construction and utility awards that 1961 can come in second best and still make a very good showing. Private awards, both residential and nonresidential, have maintained slightly higher average levels this year than last. CONSTRUCTION CYCLES Erratic fluctuations in con struction statistics tend to conceal the first signs of change when recovery or recession begins to affect the building business. Construction employment and the contract awards index plotted on the chart from January through July 1961 show how wide these 11 C O N S T R U C T IO N CYCLES FIFT H D IS T R IC T 1951-1960, 12-Month M o v in g A verage; 1961, Actual Figures 1947-49=100 -------- -— .375 1961 short-run variations are. In employment the sea sonal pattern is fairly stable from year to year. In contract awards, however, it is well camouflaged by ups and downs arising from the unpredictable proc esses by which individuals, businesses, government agencies, and other organizations decide when to build. The employment series can be, and is, sea sonally adjusted with satisfactory results, but sea sonal adjustment of contract awards, especially on a regional basis, has proven difficult. Meaningful comparisons between employment and awards require special preparation of the data. Thus, the values plotted on the chart from January 1951 through January 1961 are 12-month moving aver ages. This simply means that each point on the chart is an average of the values for 12 consecutive months, the six months that precede and the six months that follow the point in question. The mov ing averages smooth out the seasonal and random variations leaving in each case a pattern of business cycles superimposed on an upward trend. The contracts to build the Savannah River atomic energy plant were awarded in May 1951 and were primarily responsible for high contract award aver ages during most of that year. Employment rose rapidly during the 12 months following this unusual event, but then went into a decline that lasted more than two years before the size of the work force had again assumed its usual relationship to the normal volume of contracts. Employment took its next up ward turn in August 1954, about six months after awards began to show definite gains. New contracts then peaked in the spring of 1955, but employment continued to rise for another 18 months. The 1957 fall upturn in awards was followed about nine months Digitized for 12 FRASER later by recovery in employment. In general it appears that turning points ending declines in contract awards have preceded recovery in employment by six to nine months. In the last two or three years increases in contract awards have not occasioned such definite gains in employment. But last year’s flurry of new contracts followed by good average levels this year would seem to indicate record or near-record employment in this sector of the District economy for some months to come. B A N K IN G Business loans at District weekly report ing banks rose sharply in August and September, reversing a steep July decline. These loans normally increase in late summer and early fall as inventories begin to grow. The rise so far this year has been greater than usual, 6.5% from July 26 to September 20. Most other loans also showred seasonal strength over the seven-week period. Loans to domestic com mercial banks (mainly Federal funds) more than doubled, reflecting ease in the reserve positions of District money-market banks. Loans to nonbank financial institutions and security loans also registered substantial gains. Real estate loans rose slightly, while agricultural loans declined seasonally. All other (primarily consumer) loans, sluggish all year for the nation as a whole, continued to exhibit more strength than usual at District weekly reporting banks— up 3.2% in the latest seven-week period. P H O T O C R E D IT S C o v e r— V irg in ia State C h a m b e r of Com m erce 12. C a te r p illa r Tractor Co. a n d tries, Inc. A m e rica n Forest Product In d u s
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