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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.