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957-1' ANNUAL GOVERNMENT I M * .S - V -. GROSS NATIONAL PRODUCT Rw PERSONAL CON PERSONAL IN EXPENDITURES FOR j I i!i * i INDUSTRIAL PRODUCT HOURLY EARNINGS IN MANUFACTURING r !a \ \ I J EXPENDITURES FOR NEW PLANT AND EQUIPM CIVILIAN EMPLOYMENT t 1.1% , f"\ i j r \ CORPORATE PROFITS AS RETURN ON EQUITIES - 2.6% MAJOR TRENDS IN THE POSTWAR ECONOMY-I T his article continues the examination o f m ajor indicators o f postwar econom ic activity in the United an econom y, because substantial price changes may States which wT begun in last m onth’s R eview . as It o f income. A s the reference points on the chart show, also begins a brief analysis and discussion o f certain most of the price increase took place before 1947, much of it in 1946, follow in g the release o f inflation basic problem s. T h e discussion will be com pleted in a third and last article next month. T he superscrip tions above the lines on the accom panying charts indi cate annual rates of growrth. GOVERN M EN T RECEIPTS T h e figures in this series include the revenue receipts of Federal, State, and local governments, adjusted to eliminate duplications. O n the one hand, they indicate roughly the level of governmental activity and, on the other, they reflect the burden o f taxes on the econom y. N o single statistical series on public finances is entirely satisfactory for measuring the impact o f public activities on the econom y. Quite often public purchases of goods and services, a m ajor com ponent of G N P , are used for this purpose, but they are very inadequate as indicators o f the tax load and they om it entirely the steadily rising total of transfer expendi tures. T he figures used here include some payments received by governm ents for goods and business-type services, but they are relatively minor. T otal governm ent receipts nearly trebled between 1947 and 1962. A s the chart shows, receipts o f State and local governm ents rose m ore steadily and more rapidly than those o f the Federal Governm ent despite large increases in Federal defense expenditures. In one respect the contrast is even greater than that shown here, because Federal grants-in-aid to State and local governm ents were subtracted from the State and local totals in the process o f eliminating duplica tions. Such grants have been rising steadily, both absolutely and relatively. T he annual grow th rate tor the total in the period 1957-62 was higher than that for any other m ajor series examined here. It was only a little below the figure for the 1947-57 period despite the fact that the K orean W a r was included in the first period and despite smaller price rises and a slow er rate o f grow th in econom ic activity during the second period. As a per cent of G N P , governm ent receipts rose irregularly but substantially— from 24 .4 % to 2 8 .5 % . T he in crease represented a grow in g burden on the econom y and probably exerted a restraining effect on expansion in the private sectors o f the econom y. PRICES Prices are m ajor indicators o f the health of seriously affect both production and the distribution ary forces pent up during the war. F rom 1947 to 1957, both consum er and wholesale prices showed only moderate rises and rates o f increase were even low er after 1957. In fact, fo r the past five years wholesale prices generally have been, fo r all practical purposes, stationary— probably the longest period o f such stability in our history. are exam ined later. Som e reasons fo r this In recent years consum er prices have risen som e what m ore than wholesale prices for three principal reasons. First, the consum er price index is fairly heavily weighted wnth prices for services, many o f which are closely geared to wages and have continued to rise steadily. Second, com m odities at retail are more highly processed and therefore em body m ore labor than com m odities at the wholesale level. T h ey are thus m ore sensitive to rising wages. T h ird , as com m odities are processed and distributed they en counter many taxes (other than specific sales ta xes) and some o f those taxes, which have been rising, are shifted to the prices o f the comm odities. INTEREST RATES Interest rates are an important fi nancial force influencing econom ic activity. T he chart showrs the behavior o f tw o long-term rates and one short-term rate. T he tw o long-term rates m oved approxim ately together and showed a som e what low er grow th rate in the second period than in the first; in the past three years there has been no increase. T he short-term rate showed considerably wider fluctuations, as might have been expected, and, in the first period, a somewhat higher grow th rate than the long-term rates. G e n e r a l ly , interest rates exhibit considerable lion in the first period to about $2.5 billion in the second. A fter adjustments, the average for the second period is a little over $3 billion. T h e adjustments are made partly for special transactions, some o f which are tem porary or nonrecurring but do actually reduce the deficit. O ther adjustm ents represent es cyclical fluctuations but ordinarily do not show long sentially a different m ethod o f com puting the deficit. In A ugust, Secretary Dillon described recent trends in the deficit in these w ords : “ T his deficit on so-called term grow th trends such as those often found in measures of production, consumption, and income. H ence, under ordinary conditions annual rates o f growth in interest rates would be som ething o f an anomaly. T he postwar period, however, was marked by unusual circumstances. F or a number of reasons interest rates reached extrem ely low levels during the ‘ regular transactions’- that is, all transactions that — emerge from the interplay of market forces and the established policies o f this and other governm ents— totaled over $ 3^2 billion in 1962, up about $500 m il lion from 1961. D uring the first six months o f this Great Depression. D uring the war they were pegged at levels not much higher, a condition which continued year, the annual rate m oved still higher to w^ell over with some m odification until 1951. In recent years interest rates have been getting back to something SUM M ARY T his completes the survey of m ajor econom ic indicators. In summary, they show that approaching “ norm al,” and that was prim arily re since W o rld sponsible for the annual grow th rates shown in the functioned at a high level but in recent years the rate chart. A verage annual interest rates have shown o f grow th has slowed substantially in all segments. smaller fluctuations during the past three years for T he period has been marked by recurring recessions which have becom e progressively shorter and milder several rea son s: increased supplies o f savings, more moderate m ovements in the m oney supply, and slower growth in the demand for investment funds. $4 billion.” W a r II the A m erican econom y has except for the behavior o f unemployment. Each re covery has peaked out w7 ith a higher rate o f unem T he ployment, and probably a larger amount o f unused deficit in our balance o f international payments is one of our biggest and m ost intractable problem s. It will resources, than the one before it. Som e segments o f the econom y have been affected be examined in m ore detail a little later. T he country’s international payments position m oved from m ore than others by the declining rate o f growth. BALANCE OF INTERN ATION AL PAYMENTS substantial surpluses in the early postwar years to large and persistent deficits in the past five years. F or a residual item which shows recurring plus and minus values, it is misleading to com pute annual rates o f growth. Instead, the chart shows averages for the two periods. T he deficit, as officially stated before adjustments, grew from an average o f about $400 m il PRICE IN DEXES 1 9 5 7 -1 9 5 9 = 1 0 0 T h e chart on the cover showT rates of grow th from s 1957 to 1962 for certain significant indicators, ar ranged in descending order. (T w o o f these indicators will be discussed later; the one on corporate profits is based on data com piled by T h e First National City Bank o f N ew Y o r k .) T he top four series all show annual grow th rates above 4 % . E xcept for G N P these are all in the consum er or governmental areas. INTEREST YIELD S T he bottom three series are in the business or in vestment a rea s; they show very small grow th rates or a decline. Em ploym ent and expenditures for new and durable goods. A s these demands were reduced, total demand pressed less insistently on the available supply and the pressure on prices was reduced. plant and equipment are closely related to the be havior o f corporate profits. These series would seem to be the ones which are exerting a drag on the a great increase in the productive capacity o f A m e ri econom y and the behavior of corporate profits appears to be a m ajor key to that behavior. in new plant and equipment and great advances were made in technology. O ne recent study has com puted Closely related to this was a third factor, which was can industry. M any billions o f dollars were invested the new' investment in manufacturing alone between SOM E O BSERVATIO N S AND EXPLANATION S A fter this survey of what happened it may be ap propriate to offer some observations about and, hope fully, some explanations o f the larger and more significant developments and problems. T he way in which inflation was overcom e and wholesale prices w ere stabilized may be a g o o d starting point. PRICES M easured by wholesale prices, inflation has waned over the postwar p e r io d ; for the past five years it may be said that it has disappeared entirely. C on 1947 and 1957 at a little m ore than $100 billion, or about $10 billion per year. T he result o f this addi tional investment and technological progress was a tremendous increase in the capacity o f industry to produce the goods consum ers wanted. A fourth factor in recent years has been increased foreign com petition. A utom obiles provide an ou t standing exam ple o f this. T he principal cause o f this increased com petition has been the recovery and m odernization o f European and Japanese industries. THE M O N EY SUPPLY AND M O N EY A CTIV ITY In trasted with historical developments and even with the postwar period G N P rose m ore rapidly than the conditions in m ost countries o f the w orld today, this is a most significant development. Such a degree o f stability is the exception rather than the rule. m oney supply and consequently the ratio o f the m oney supply to G N P declined steadily and fairly rapidly from about 4 9 % to 2 6 % - T his has been cited as It would seem that fou r factors wrere prim arily re sponsible for this price behavior. First, the m oney evidence that the m oney supply grew too slow ly and supply was brought under better control after a verv sharp rise during the wrar. A n accom panying chart shows the course of the m oney supply and its low rates of annual grow th during the period. These low couraged econom ic growth. rates o f grow th resulted mainly from twro factors— the large oversupply o f m oney existing at the start of the period and the steady rise in the velocity or rate o f turnover o f m oney. These aspects o f the m oney supply are discussed further in the follow ing section. A second factor was the gradual reduction in the accumulated backlog of consum er demand for houses thereby exerted a deflationary influence and dis But it is clear that the efficiency or effectiveness o f the m oney supply d e pends on the velocity o r speed with which it circulates as well as on its total amount. T h e velocity o r rate of turnover o f the demand deposit com ponent o f the m oney supply— which is by far the larger com ponent — is fairly well indicated by the turnover o f bank deposits in 343 o f the largest cities in this country, excluding N ew Y o r k City. between 1947 and 1962. T hat rate nearly doubled In order to show m ore clearly the effects o f rising velocity a com putation has been made which in cor porates changes in both the money supply and the rate of turnover. A n index o f the rate o f turnover o f de posits in the 343 cities was com puted with the year 1947 as a base. T hen the demand deposit com ponent cause of cyclical fluctuations. This was especially true in the ten-year period immediately after W o rld W a r II when, despite tw o declines, the book value of manufacturing and trade inventories grew at an of the m oney supply was multiplied by this index and than 2 % in the past five years. T he accom panying chart shows the fluctuations in these inventories and the currency com ponent o f the m oney supply was added. F or want o f a better term, this total is called annual rate o f 6 % . Indicative o f the change which has occurred, the annual grow th rate dropped to less the closely related series o f m anufacturers’ unfilled “ money activity.” A n accom panying chart shows that after 1949 this total rose at a steady and fairly orders. rapid rate. In contrast with the other series, the growth rate did not decline significantly after 1957. There are several reasons for these reduced swings. T he first is the increasing stability o f prices noted O ver the period above. 1947-62 the increase was about 122% com pared with increases of 31% in the actual money supply, 136% in G N P , and 8 0 % in industrial production. A s a per cent of G N P m oney activity declined slow ly until 1952 but has been relatively stable around 4 2 % -4 5 % since that time. a definite upturn in 1962. It showed BEHAVIOR As OF THE BUSINESS CYCLE T he reduction in the amplitude o f the swings in these tw o series is m ost striking. This reduced the temptation to speculate in inventories or to hedge against price increases. At the same time higher interest rates added to the cost o f carrying unneeded inventories. Second, the ap pearance o f excess capacity and the development of faster and m ore flexible transportation insured prom pter delivery of orders and made it feasible to noted maintain a given level o f sales with smaller inven earlier, since W o rld W a r II there has been a distinct tories. tendency for business cycles to become shorter and milder except for increasing unemployment. The present upswing, however, may be reversing this the development o f new statistical techniques have T hird, the use o f electronic equipment and provided better inventory controls, permitting busi ness units to know m ore accurately what inventories trend. T here are several reasons for the shorter and milder cycles. First, the secular m ovements to they have and to maintain the amounts they desire. be discussed shortly have curtailed the forces which normally push business activity up sharply in boom tories has tended to keep them down. Finally, the movement has tended to feed on itself. A s business periods. A t the same time, in periods o f recession deflationary forces have been cushioned by easy money policies, by the operation o f built-in fiscal stabilizers, and by the absence o f speculative excesses. A m on g the strictly cyclical forces, probably the most important factor has been a significant change in inventory policy. T he accumulation and liquida tion of inventories have always been an important Fourth, in some cases increasing taxation o f inven men have com e to anticipate m ore moderate swings in the cycle, they have not stocked up on inventories as much as form erly. com m odities in anticipation o f strikes, but this is not a cyclical phenom enon except to the extent that the action itself helps to create a cycle. BUSIN ESS IN V EN TO RIES AND M AN UFACTURERS' UNFILLED ORDERS M O N EY A C T IV ITY Per Cent Billions A n exception to this, however, is the extensive stockpiling o f steel and certain other $ Billions 100 60 200 50 Money Activity \ ------n _ „ / y 5 .7 % ^ ^ 1 i_____ 1----i----- 1----1 ----- http://fraser.stlouisfed.org/ 1---- L J 1948 '50 '52 '54 Federal Reserve Bank of St. Louis X *“ * As % of GNP 40 30 -----1 ----'56 0 '58 '60 '62 1940 '48 '50 '52 '54 '56 60 '62 STA U N TO I lC H A R L O T T E S V IL UMPBACK ROCKS W H E TS TO N E T R ID G E OTTER CREEK*. ■ Some cam e to enjoy the superb scenery of unspoiled nature. M any chose to come during the spring an d earbm m er flow ering season, with its colorful blossoms of m ountain laurel, a z a le a s, and rhododendron. O thers preferred the b rilliant foliageautum n. Some cam e to climb the rugged m ountains or to hike down into the deep, n arro w coves and valleys; still others chose to browse through the museum exhibits or to w atch dem onstrations of native han d icrafts. Some cam e to fish; others to enjoy a picnic or a m ountain sunset. M an y elected to cam p in tent or tra ile r, but others preferred the comforts of a modern lodge. ■ W hatever their reasons, some 6.5 million persons visited the Blue Ridge P a rk w a y last year. RO A N O KE, This represents an increase of nearly 4 6 0 ,00 0 or 8% over the previous ye a r and is n early double the num ber ten ye a rs ago. The P ark w ay's ever-increasing popularity is attributable to a num ber of factors. Among them are its location within overnight motoring distance ■ C alled for more than half the people of the United States, the uptrend in per capita disposable personal income, longer vacations, and the shorter a v era g e w orkw eek. G row ing employment, both on the P a rk w a y and in the nearby towns, has accom panied this increase in visitor numbers. SMART VIEW ROCKY ,KNO B Em ploym ent in the P a rk w a y in 1962, for exam ple, reached a peak in August w ith 325 persons on the payroll. O f this num ber, 145 w ere perm anent em ployees PUCKETT CABIN ^ the nation's most scenic m ajor h ig h w ay," the Blue Ridge P ark w ay traverses the A p p a la ch ia n M ountains for a distance of 469 m iles, connecting the Shenandoah N ational Park in V irg in ia [MABRY \M IL L and the G reat Sm oky M ountains N ational Park in North C aro lin a and Tennessee. Short sections of the P a rk w ay w ere first opened w hile the number of seaso n al em ployees ranged from 80 to 180. to visitors in the late thirties, an d today w ith 220 miles CUMBERLAND K N -O B \ paved and open for travel in North C aro lin a and 201 m iles in V irg in ia, it is about 90% completed. m t. a ir y C H ER RY HILU Another 31 m iles are under construction, leaving 17 m iles rem aining to be built. More than 100 parking overlooks provide "convenient balconies" for the leisurely tourist. ■ M odern, com fortable an d Mt. Pisgah, and there Restaurants, in addition "JULIAN PF M EM ORIAL The P ark w ay provides a w ide range of visitor services. lodging is a v a ila b le at Peaks of Otter, Doughton Park, are housekeeping and overnight cabins at Rocky Knob. to those at the lodges, are located at Whetstone Ridge, Otter Creek, M abry Mill, Cherry Hill, and Crabtree M eadow s. Neighboring tow ns supply around 850 additional G ra d e "A " eating and sleeping establishm ents. Sttablished cam pgrounds, providing 337 cam psites and 138 trailer sites, are a v a ila b le for cam ping enthusiasts. CRABTREE MEADOWS H ere, *e roughly 1,900 persons can be accom m odated nightly, the cam per finds comfort stations, drinking fountains, table-bench com binations, trash cans, fireplaces, tent platform s, and parking spaces for cars and trailers. Eight picnic are a s (two more are under construction) furnish sim ilar facilities for the picnicker. G R E A fV T vS M O K Y MOUNTAINS; IA TI0N A L PARK' ISERVATK Thirty-five stream s and lakes in or near the P a rk w a y are open to fisherm en. RAGGY RDENS ' persons interested in the natural and hum an history of the region, there are museum exhibits at seven centers R ' j jf supplem ented by guided nature w alk s and outdoor evening lectures at other points of visitor concentration. Eleven self-^ig trails feature interpretive exhibits depicting pioneer m ountain life or lead to breath-taking panoram ic view s. S% the Blue Ridge P a rk w a y has been developed for the use and enjoym ent of both present and future generations. V isitors have found it a new vacatio n expert. In the process, they have provided the nearby towns and communities with a dynam ic industry — tourism. ■ Like other units of the N ational Park MONEY AND CREDIT IN 1963'S FIRST HA Changes in m oney and credit conditions usually register their immediate impact on various interest rate series. Interest rate fluctuations, however, re flect not only m oney and credit changes but also other forces affecting underlying supply and demand con ditions in the markets for loanable funds. Inform a tion on interest rates becom es available almost in stantaneously, but inform ation on some o f the many developments which occu r within our com plex fi nancial structure becom es available only gradually over a period o f several months. A n y systematic explanation o f interest rate movements in any given period must, therefore, await the collection o f a mass o f statistical data. T his article describes recent in terest rate movements chiefly in the light of money and credit conditions, but also points up other m ajor developments in the financial scene. INTEREST RATES Interest rates characteristically rise sharply during the upsw ing o f the business cycle, but the current upswing has been an exception. A t the end of June 1963 yields on most long-term se curities were actually low er than at the trough of the recession in February 1961. A s pictured in the ac com panying chart, the only exception was the yield on U . S. Governm ent long-term bonds, and even in this case the increase since the trough has been quite small. In general the trend o f interest rates during 1963 has been upward, but except for the sharp increase in short rates in early July the movement has been quite m oderate. T he yield on the three-m onth Treasury bill fluctuated around 2.9 0 % from the first of the year to m id -M ay and then around 3 % until early July, when speculation about a change in the discount rate boosted it to about 3 .2 0 % . The trend in long term yields in the first half was less definite. rose and som e fell. Som e In general, yields on high grade the peak o f the business cycle in M ay 1960. Such movements are com m on during the latter parts o f the recession phases o f business cycles and the early parts of the recovery phases. T his probably results p ri marily from the spilling over o f the large volum e of loanable funds which are available at such times into greater-than-usual demand for low er quality issues. T he rather unusual extension o f the trend toward narrower yield spreads in the current upsw ing in business activity is probably due in part to the easier posture of m onetary policy at this stage o f the cycle and to the cost squeeze wT hich has induced financial institutions to seek high-yield investments. C om mercial banks, for example, have continued to invest heavily in m ortgages and tax-exem pt securities and to lengthen their portfolios o f Governments. Institu tions which customarily invest heavily in m ortgages have enjoyed an abundance o f new funds and have continued to exert dow nw ard pressure on m ortgage yields by their aggressive buying policies. In addition, some institutions have apparently shifted to low er quality bonds in their efforts to im prove earnings. BAN KIN G DEVELOPM ENTS Bank credit, seasonally adjusted, at all com m ercial banks increased at an annual rate o f 10% in the first half o f 1963, com pared with approxim ately 3 % in comparable periods of the two previous cyclical upswings and 9 % over the whole o f last year. Part of the very substantial rise in 1963’s first half was due to the scheduling o f a T reasury financing in June instead o f July, the m onth when m ajor financing normally occurs. O ver the first seven months o f the year, bank credit increased only 7 % at an annual rate. M ost o f the increase in the first half occurred in loans and investments other than U . S. Governments. In the loan categories, real estate and consum er loans each rose at an annual rate o f about issues tended to rise while yields on low er quality 12 % or roughly the same as in the first half last securities tended to remain about unchanged or de year. Business loans, however, increased at an annual cline slightly. rate o f only 5 % in the first half, somewhat less than A lso, yields on m ortgages declined, but the decline ended in A pril and after that yields in the first six months of 1962 and only half as fast on F H A ’s in the secondary market and on conventionals remained stable. In relation to their gen as in the last six months o f that year. erally sluggish movement, however, the decline from Decem ber through A pril was fairly substantial. than in the tw o previous periods o f cyclical advance. T h e trend toward narrow er yield spreads between m ortgages and bonds and between low and high supply increased at an annual rate o f 2 .5 % , much faster than in the first half o f 1962 when the m oney quality bond issues has been under way since roughly supply did not rise at all, but slightly slow er than the 8 M onetary expansion has already continued longer In the first half of 1963 the seasonally adjusted m oney 3 % pace in the second half. In contrast to develop ments at com parable stages o f previous business cycles, time and savings deposits, seasonally adjusted, also continued to expand rapidly in the first half of 1963. T hey increased at an annual rate o f 14% com pared with an increase o f 18% over the whole o f 1962. ing $ 6.8 billion were exactly matched by $ 6.8 billion o f cash borrow ing. In contrast, the T reasury re deemed net $400 million o f marketable debt in the same period o f 1962 and $2 billion in the first half of 1961. Net debt redemption in the first half o f the year usually contributes to the seasonal decline in in Reserve expansion in the first half failed to keep terest rates which tends to take place in that period. pace writh deposit grow th, and excess reserves de clined from a daily average level o f about $533 million T he absence o f net debt redemption was one factor contributing to the general increase in market yields in the second half of 1962 to $457 million in M ay and which occurred in the first six months o f the year. $376 million in June. Daily average borrow in g at the discount w indow increased from about $131 m il lion in 1962’s second half to about $209 million in May and $236 million in June. Consequently daily average free reserves declined from $402 million in the last six months o f 1962 to $248 million in M ay and $140 million in June. OTHER FIN A N CIAL INSTITUTIONS Savings flows Interest rates and fees wrhich M O R TG A G E FIN A N CE borrow ers have to pay declined as lenders have com peted for the existing supply o f m ortgages. F rom January to A pril yields on F H A newr home m ortgages in the secondary market declined from 5 .52% to 5.44% while interest rates on conventional loans to finance new houses declined from 5.95% to 5 .8 0 % . Since then no further decline has been into savings and loan associations and mutual savings banks continued at a rapid pace during the first half of registered in these series. T he trend tow ard lower rates and easier terms has been under way n ow for this year. approxim ately A s shown in the chart on page 10, the absolute increase in savings at these institutions was greater than in comparable periods o f recent years. O ver the postw ar period, the inflow of share capital at savings and loan associations has tended to increase at a fairly constant annual percentage rate regardless o f the phase o f the business cycle, wrhile deposits at mutual savings banks, like time deposits at com three and one-half years and has probably been an important factor in the continuing strength o f the construction industry. T otal m ort gage debt outstanding increased $12.5 billion in the first half o f 1963 com pared wT an increase o f $11.2 ith billion in the same period o f 1962 and $8.2 billion in the first half o f 1961. mercial banks, have tended to increase faster in periods of recession than in periods o f econom ic e x pansion. In the first six months of 1963, savings shares at savings and loan associations increased at an annual rate o f 14.2 % , roughly in line with in creases in the first half o f other recent years, but well above the increase last year. Deposits at mutual savings banks grew at an annual rate o f 7 .7 % , slightly faster than the rate o f increase in the same period of 1962. Both institutions invested a record volum e o f funds in m ortgages. Assets of life insurance companies rose at an annual rate of 5.3% in the first half o f 1963, substantially faster than in the first half o f 1962 wrhen declining stock prices reduced the value o f stock portfolios, but about the same as the rate for 1962 as a wT hole. M o rt gage investments were the largest since the first half o f years 1955 and 1956. TREASURY OPERATIO NS In the first half o f the calendar year the T reasury normally supplies funds to the market by retiring a small portion o f the m ar ketable debt. D uring the first six months o f 1963, however, the T reasury neither increased nor retired debt on a net basis as attrition and repayments total 9 CORPORATE AND M UNICIPAL FIN AN CE In the T he sharp rise was due prim arily to the utilization of an advance refunding technique in which new bonds first half of 1963 corporations and State and local governm ents raised new capital in substantially the same amounts as in the first half o f other recent are sold several years in advance o f the first call date on the bonds to be refunded. In the interim period the years. N ew borrow in g by corporations totaled almost $5.2 billion, virtually the same as in the first half of proceeds o f the new issue are invested in U . S. G o v ernment securities. T he rash o f advance refundings last year but about $1.3 billion less than the record has been due to a variety of conditions— the earlier amount raised in the like period o f 1961. A lthough aggregate corporate borrow in g has been build-up of a large volum e o f single-maturity, lon g term revenue bonds, the fact that interest rates on approxim ately the same as in 1962, the distribution by type of borrow er has differed significantly. M anu tax-exem pt issues have been declining for some time, facturing industries borrow ed somewhat less than in 1962; while other industries, which include extractive industries, transportation, real estate, financial and ment obligations and municipals. com m ercial enterprises, borrow ed substantially m o r e ; and public utility and com m unications borrow ed substantially less. industries Newr borrow in g by State and local governm ents amounted to almost $5.1 billion in 1963’s first half, $150 million less than was borrow ed in the same period of 1962 and $500 million m ore than in 1961. A lthough new borrow in g was little changed from recent years, refunding in the first half set a newrecord o f $650 million, exceeding refunding in the entire year o f 1962 by tw o and one-half times and that in the previous peak year of 1941 by one-fifth. INCREASE IN LIQUID SA V IN G S AT FIN A N CIAL INSTITUTIONS Com m ercial Banks and the widening yield spread between U . S. G overn CON SUM ER CREDIT In the first six months o f this year consum er credit, seasonally adjusted, rose at an annual rate of about $5.8 billion, about the same as the yearly increase last year but about $600 m illion less than the record increases in years 1955 and 1959. M ost of the rise this year has been due to the $2.8 billion (annual rate) grow th in automobile instalment credit outstanding, an increase exceeded only by the phenomenal increase o f $3.7 billion in 1955. Other types o f instalment credit grew at about the same rate as last year, while noninstalment credit grew much slow er than in other recent years. T he ratio of repayments of instalment credit to dis posable income has long been regarded as a good measure o f the burden o f consum er debt. Since about 1955 the ratio has fluctuated around 13% but recently has risen to a new record o f 1 3.6% . A lso, the ratio o f total consum er debt to disposable incom e has co n tinued to edge up, and there is some evidence that certain consum er loans are not being classified as con sumer credit. Som e hom eowners who have sub stantial equity in their homes are refinancing their mortgage indebtedness to raise m oney for nonhousing purposes. In view o f these developments, the burden of consum er debt may be somewhat greater than the ratio o f repayments to disposable incom e suggests. SUM MARY T he supply o f credit continued to be readily available in the first half o f 1963. T h e m oney supply expanded at a moderate rate and savings co n tinued to flow into com m ercial banks and financial intermediaries at record or near-record rates. Since corporate and State and local demand for credit re mained approxim ately unchanged from year-earlier levels, the increased flow o f funds was directed p ri m arily into the financing o f real estate and consum er durables, principally automobiles. In response to the crosscurrents of demand and supply, yields on short-term securities and high quality long-term issues rose moderately, while yields on m ortgages de 0 2 4 6 8 10 12 14 16 ________________________Billions of Dollars_______________________ 10 clined and yields on low er quality bonds either de clined or remained approxim ately unchanged. THE FIFTH DISTRICT Business in the Fifth D istrict began 1963 at record levels and has m oved slow ly but steadily ahead. The uptrend so far this year is clearly visible in most m ajor statistical series. T he seasonally adjusted bank debits series, at a record level in January, reached new highs in A p ril and July and in the latter month was 8 % above its January level. EMPLOYMENT AND FA CTO RY MAN-HOURS Sea sonally adjusted nonfarm employm ent gained a little every month this year, but not until July did the cumulative rise exceed l f b . Gains after seven months amounted to around 1 % in durable manufactures, trade, and governm ent, and about 2 °J in construction, 0 services, financial enterprises, and transportation, comm unications, and public utilities. A t the e x tremes, m ining em ploym ent rose nearly 5°/o over the period while jobs in nondurable goods industries showed little change. F actory m an-hours, seasonally adjusted, m oved more irregularly than nonfarm employm ent in the first seven months and showed a smaller net advance. A ll groups o f durable goods industries except elec trical machinery and stone, clay, and glass products scored gains. July changes accounted for the manhours decline in electrical machinery and the advance in lumber and w ood products. A m on g nondurables, slight declines in paper and the knitting sector of textiles were m ore than offset by small gains in other lines. In the chemical industry, July m an-hours were virtually the same as in January. July figures, the latest available, showed small reductions in man-hours for most nondurable goods industries and small gains for m ost durables. NEW MINIMUM SPOTLIGHTS W AG ES A s provided in the minimum wage law enacted over tw o years ago, W a g e rates are, o f course, prices paid fo r labor and are related closely to basic supply and demand forces in markets for particular kinds o f labor. F o r jobs requiring little specialized training or experience, the supply may be relatively large and the wage rate relatively low , as in retail trade where national hourly earnings of sales personnel averaged $1.75 in 1962. If skill and experience requirements or other factors limit the supply, wages are likely to be higher, as in the construction industry where the typical produ c tion w orker in 1962 earned $3.29. In markets characterized by some degree of organization among employees or em ployers, the relative strength of bargaining positions may exert the m ost important immediate influence on wage rates. W A G E DIFFERENTIALS W a ges vary geographically as well as industrially. In m ost cases, both geo graphical and industrial differentials can be traced partly to basic supply and demand factors and partly to disparities in bargaining strength. E arlier in this nation’s history, when both knowledge o f distant em ployment opportunities and ability to migrate were m ore restricted, regional differences were far greater than they are now . T od a y workers receive much the same pay rates for comparable wrork in all parts of the country. Thus, straight-time hourly earnings of machine-tool operators in m achinery manufacturing in the spring o f this year were $2.34 in Boston, $2.41 in Baltimore, and $2.44 in L os Angeles. Variation in industrial com position is the principal cause o f regional differences in wages. T hus in 1962 average hourly earnings in m anufacturing were $1.64 in N orth Carolina and $2.55 in W est Virginia. Relatively low -w age nondurable goods industries dominate N orth Carolina m anufacturing and, in ad the wage floor for many employees will be raised this dition, the state’s chief durable goods are of the low month to $1.25 an hour. value-added Som e actions were taken during the summer to anticipate the change. F or variety. L ocal rates, for example, average $1.60 per hour in textiles, $1.50 in furniture, instance, certain furniture makers increased wage and $1.40 in lumber. rates ahead o f the deadline and also made selective price increases to help cover the higher costs. In hand, durable goods industries are more numerous, dustries affected by the new minimum may find their entire wage structure m oving upward to maintain the durable goods categories fall near the upper end of the wage spectrum. W est V irginia features metals differentials needed for providing incentive, recog and m etal-w orking, paying locally about $3.10 per nizing seniority, and rewarding productivity. hour, and chemicals, where hourly pay rates average In W est V irginia, on the other and the dominant industries in both durables and non 11 AVERAGE HOURLY EARNINGS OF PRODUCTION WORKERS IN M ANUFACTURING INDUSTRIES U. S. 5th Dist. close to $3.00. Md. D. C. V a. W. V a . N. C. S. C. Variations in average hourly earn ings o f manufacturing production workers both w’ithin the Fifth District and between the D istrict and the nation, shown in the left-hand chart at the top o f the page, are due mainly to differences in industrial Primary Metals Furniture Lumber Textiles Chemicals Cigarettes In the apparel industry in 1962, national average hourly pay for production w orkers was $1.67. A Bureau of L abor Statistics survey o f the w ork clothing segment o f this industry in the spring o f 1961 showed hourly earnings averaging $1.24 na com position. tionally and $1.19 in the Southeast. T h e right-hand chart shows 1962 average hourly earnings in selected industries, actual for the United 68 % of the surveyed w orkers in the Southeast re States and estimated for the Fifth District. These com parisons illustrate howr differences in product specialization within an industry can influence re gional wage differentials. F o r example, the national average hourly rate in the lumber and w ood products industry is very close to $2.00, while the Fifth District figure is around $1.40. Pay rates are higher in the N orth and N orthw est, which concentrate more heavily than the District on production o f finished and specially processed lumber and lumber products. IN T R A -IN D U S T R Y DIFFERENTIALS In connection with the minimum wage increase, wage scales within particular industries are particularly interesting. In dustry wage surveys released from time to time by the Bureau of L abor Statistics provide the basis for the A June 1963 survey o f sawmills and planing mills in the South (from V irgin ia westward to T exas and A rkansas) ceived less than $1.25 per hour as against 6 0 % o f those in the national survey. A n A pril 1962 survey o f the footw ear industry revealed average hourly production w orker earnings o f $1.64 nationally and $1.47 in the B order States (D elaw are, District o f Columbia, M aryland, V ir ginia, W est V irginia, and K en tu ck y ). T h e distribu tion showed 2 6 % o f these w orkers below the $1.25 mark nationally and 3 6 % in the region specified. Other surveys taken at various dates in 1961 and 1962 indicate sizable numbers o f w orkers in other important lines under the $1.25 minimum. In the dyeing and finishing area o f the textile industry, for example, 9 % o f surveyed w orkers in the Southeast and 6 % in the nation were in this category. In the related hosiery sector the figure was 3 6 % fo r the Southeast and 3 5 % fo r the nation. com parisons presented here. A t that time T he new m ini mum wage will apparently have a stronger impact in the South than in other parts o f the country. indicated average hourly pay o f $1.25. A ccord in g to the survey, 7 0 % o f all production CREDITS workers in these establishments earned less than 6. & 7. $1.25 per hour, 19% earned between $1.25 and $1.50, Interior; and only 3 % earned $2.00 o r more. 12 M ap— N ational Park Service, U. S. Dept, of the Blue Ridge P a rk w a y A ssociation.