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FEDERAL RESERVE BANK OF RICH M O N D

MONTHLY
REVIEW
Silver: the Cinderella Metal
Fifth District Camping
Balance of Payments Review
The Fifth District




For decades, silver was totally overshadowed by
its more glamorous stepsister, gold. Everyone knew
that silver had its place. It was useful for table­
ware, for dentistry, and even for the less valuable
forms of money. But for years at a time, few users
in the United States wanted to pay enough for it to
make mining it worthwhile. It was produced in this
country primarily as a by-product of lead, copper,
and zinc, and at times the price sank so low that it
was hardly profitable even as a by-product. But
now, suddenly, silver is in great demand. Everybody
wants it, for everything from surfing medals to bat­
teries for nuclear submarines. And the price has
reached a level so high that the use of silver for
monetary purposes has become impractical.
Background A little less than a century ago,
when new discoveries and increased output began to
drive the price down, it appeared that the champions
of silver might be able to regain for it a place in
the American monetary system comparable to that of
gold. The silver interests found in William Jenn­
ings Bryan and the easy-money branch of the Demo­
cratic Party a force which very nearly succeeded in
restoring a bimetallic monetary system for the United
States. But in spite of Bryan’s concern that the
country might be “ crucified on a cross of gold,” the
supporters of a bimetallic monetary standard went
down to defeat.
And so for many years the price of silver depend­



ed largely on government support under a variety of
silver-purchase laws. In W orld W ar I and immedi­
ately after, heavy demand for silver for export shoved
the price up briefly to $1.38 per ounce, but it dropped
precipitously over the next few years to a low in
1932 of 28^. A new silver purchase act, passed in
1934, caused a spurt in the price to over 80^ in 1935,
but it dropped again in 1936, and in the early 1940’s
hovered around 35^ per ounce.
It was only after W orld W ar II that increasing
demand raised the price to 90.5^ per ounce. After
fluctuating considerably in the late 1940’s, it hovered
around that level until 1961. It was in the early
1960’s that coin collecting and space-age demands
began to put pressure on the price, and the forces
which were to bring the price to its present level
began to make themselves felt. Between 1961 and
the middle of 1963, the price climbed rapidly to
$1,293 per ounce. By selling silver from its stock,
the Treasury froze the price at that level until July
of this year when the lid was removed and silver shot
up to $1.87 per ounce— the highest price on record.
Supply and Demand T he changes which brought
about the rapid increase in silver prices took place
entirely on the demand side. The supply of silver
has increased slowly but fairly steadily over the years,
both in the United States and abroad. Production
in M exico and Peru, the two leading silver produc­
ing countries, and in Canada, which ranks just be-

1920
S o u rc e :

Handy and

1925

1930

1935

1940

1945

1950

1955

1960

1965

H a rm a n .

hind the United States, is increasing more rapidly
than in this country, but consumption in the rest of
the world is also rising rapidly. Until about three
years ago, the United States imported far more silver
than it exported. In 1964, however, due to a combi­
nation of a Treasury-fixed price in this country and
rising demand abroad, our exports were almost twice
as large as our imports. After the initial surge, the
margin of exports fell slightly, but a net outflow
continued until a ban on exports was imposed earlier
this year.
The upsurge in the demand for silver is linked
closely with prosperity and technological develop­
ment. Prosperity has enabled Americans to accumu­
late billions of silver coins, and to buy billions of
dollars worth of products containing silver. The
number one industrial use of silver is in the produc­
tion of photographic film. Almost one third of the
silver used in industry now goes into photography,
and all available evidence suggests that the amount
will continue to increase.
Defense and space exploration have accounted for
most of the remaining industrial consumption. Bat­

many other purposes in defense production. The
traditional uses of silver have continued to claim
gradually increasing amounts of the metal. General
prosperity has led to increased sales of hollow ware
and flatware, in spite of the development of stainless
steel as a substitute, and higher health standards
have increased the demand for silver in medicine and
dentistry.
The increase in industrial consumption alone
might have raised silver prices significantly, but the
largest drain on silver stocks came from another
source— a sudden increase in the demand for coins.
The coin-hoarding phenomenon apparently started as
a new wave of interest in numismatics. A s the inter­
est in coin collecting spread, the business of supply­
ing coins to individual collectors mushroomed.
Thousands of new coin shops and dealers went into
the business of buying coins at wholesale and selling
them at retail. A s millions of coins were removed
from circulation by collectors and dealers, a rapid in­
crease in the number of vending machines, parking
meters, pay telephones, and other coin-operated de­
vices was increasing the demand for coins in circu­

teries used in nuclear submarines and for other pur­

lation.

The combined pressures, along with the

poses contain as much as 60,000 ounces of silver each.

normal

increase

in

demand

associated

with

the

Alloys containing silver are used for welding and

growth of the population and of the economy, re­

brazing in aircraft, missiles, and submarines. Silver’s

sulted in a coin shortage.

ductility and high electrical conductivity make it

shortage, which began in 1962, the U. S. Mint ac­

ideal for use in complex electrical circuits and for

celerated production, and in the next few years it




To

combat the coin

3

vised more silver to produce more coins than in any
other period in history. In 1960, the Mint produced
$63 million of coins, absorbing 46 million ounces of
silver, and the needs of the nation were amply sup­
plied. But in 1964, the Mint used 203 million
ounces of silver in coins, and there were shortages
of every denomination. Silver coins disappeared as
soon as they were released. In 1965, over 320 mil­
lion ounces of silver— almost three times the volume
of world production— went into coins, and most of
those coins were absorbed by hoarders and specu­
lators.
Silver dollars, which circulated primarily in a few
western states, and had been in excess supply else­
where, disappeared from circulation completely. The
Kennedy half dollar, first minted in 1964, also disap­
peared from circulation. In 1966, the Treasury
used 72 million ounces of silver to produce 202 mil­
lion Kennedy halves, and very few of them circulated
at all. Collectors, dealers, and hoarders, both in the
United States and abroad, now hold approximately
half a billion Kennedy halves— about 2]/2 for each
man, woman, and child in the country. The coin
shortage apparently is now over— but only because
the country has been flooded with cupro-nickel
quarters and dimes.
Treasury A ction s A s early as 1961, the Treasury
foresaw that the amount of silver available would
be insufficient to provide for the needs of the country
over the next few years. The first step taken to
meet the situation was to replace silver certificates
gradually with Federal Reserve notes. An Adm in­
istrative order of November 28, 1961, provided that
5- and 10-dollar silver certificates should be replaced
with Federal Reserve notes. But most certificates
were $1 bills, and there were no $1 Federal Reserve
notes. Congress provided a remedy for this situation
in June 1963, with a law which authorized the is­
suance of Federal Reserve notes in one-dollar denomi­
nations to replace one-dollar silver certificates. Since
that time, Federal Reserve Banks have removed
silver certificates from circulation as they have re­
ceived them. As of August 22, 1967, however,
$395,323,614 in silver certificates of the type issued
since 1929 were still outstanding. Many of these
no doubt have been destroyed, but those remaining
can be converted into silver now worth far more than

Only after lengthy discussion, debate, and research
were steps taken to replace silver coins with non­
silver coins. There were fears that the public would
not accept non-silver coin s; that they could not be
designed to operate existing vending machines; and
that their introduction wrould immediately cause all
existing silver coins to disappear from circulation.
But coins were developed which look and feel much
like silver coins, and which will operate vending
machines. On July 23, 1965, President Johnson
signed the Coinage Act of 1965, which provided for
the coinage of silverless dimes and quarters and for
a reduction in the silver content of half dollars from
90% to 40% of gross weight.
Silver interests were concerned about the effect of
silverless coins on the price of silver, and for their
protection, the Act directed the Secretary of the
Treasury to buy newly mined silver at $1.25 an
ounce and authorized him to sell excess silver at not
less than $1.2929 per ounce. He was also authorized to
prohibit the exporting or melting of silver coins. The
Act also provided for the establishment of a Joint
Commission on Coinage, to advise the President, the
Secretary of the Treasury, and the Congress on
matters pertaining to coinage.
W ith the large-scale introduction of non-silver
coins, the use of silver in coins dropped sharply from
320.3 million ounces in 1965 to 53.6 million ounces
in 1966. Collectors and speculators continued to
absorb silver coins and silver, however, and price
pressures continued to mount. W hile foreign prices
rose, only Treasury sales and redemption of silver
UNITED STATES SILVER CONSUMPTION
M il. O z .

their face value. The Treasury has set June 24, 1968,
as the cut-off date for conversion.

As of August 10,

at least one dealer was advertising for silver certifi­
cates at a 25% premium above the face value.

At

current silver prices, he could still make a profit by
converting them.
Digitized for 4
FRASER


1963
S o u rc e :

H andy and

1965
H a rm a n .

PRODUCTION OF CLAD DIMES AND QUARTERS
B illio n s o f C o in s

1965
S o u rc e :

1966

1967

B u re a u o f th e M in t.

certificates kept the American price at $1,293, and
Treasury silver stocks declined rapidly. On May
18, 1967, the Secretary of the Treasury attempted to
relieve the pressure somewhat by exercising his au­
thority to prohibit the exporting and melting of U. S.
coins. The Treasury continued to redeem silver
certificates, either in bars or granules, however, and
continued to sell silver to “ legitimate domestic con­
cerns which use silver in their businesses.”
Silver speculators apparently interpreted the Secre­
tary’s move as a signal that the Treasury would soon
abandon its policy of holding the price of silver at
the Mint value. On the New York Commodity E x ­
change, where trading in silver futures had been re­
sumed in 1963 after a lapse of 30 years, future prices
immediately rose as rapidly as Exchange regulations
permitted. The speculators were right. On July
14, the Treasury abandoned its price fixing sales,
and the market price immediately shot up to a record
$1.87 per ounce.
The Treasury continues to dispose of that portion
of its silver holdings in excess of the amount needed
to cover outstanding obligations and provide for the
coinage of half-dollars, but sales are being handled
through the General Service Administration. On
August 4, the first offering of Treasury silver to
domestic consumers through sealed bids was made.
A total of four million ounces was offered, but bids
on only 3,483,000 ounces were considered high
enough to accept. Successful bids ranged from $1.78
to $1.81 per ounce.
The Treasury’s removal of the price lid on silver
has stimulated interest, as might be expected, in all
of the silver mining countries. In Mexico, pros­
pectors are once more heading for the hills to stake
out claims, and silver mining companies are taking



another look at abandoned mines once considered
too expensive to operate. The Mexican mining in­
dustry is hampered by production taxes, red tape,
and restrictions, but silver interests there estimate
that production can be raised from about 43 million
ounces per year to 60 or 70 million ounces if the
obstacles can be overcome.
The O u tlook So far, silver has participated in
only a part of the Cinderella story. It acquired its
present glamour almost overnight, as demand and
prices soared. Space-age industry provided the
trappings, but it was the coin collector and speculator
who played the role of the fairy godmother. W ith­
out the tremendous use of silver for coinage in the
past five years, the increase in uses for other purposes
would not have created a crisis. But the need for
silver coins has been almost eliminated. Since the
production of cupro-nickel dimes and quarters was
begun in 1965, over 8.25 billion pieces have been
produced, compared with production of only 12.5
billion coins containing silver in the preceding 25
years. A s shown in the chart, the amount of clad
dimes and quarters produced reached the number
needed for private circulation in m id-1967. During
the remainder of the year, the Treasury plans to mint
them at a rate of 300 million per month, which would
raise the available supply well above projected de­
mand. If an unexpected increase in demand should
occur, the U. S. Mint is prepared to turn out as many
as 700 million dimes and quarters a month, which
should be enough to cover any emergency.
It remains to be seen whether or not the fairy god­
mother will pull the rug out from under Cinderella
at midnight. The Treasury is gradually acquiring
more silver as it withdraws existing silver coins from
circulation. Silver producers are stepping up their
output; and there is always the possibility that large
holdings of silver in Asia may be attracted into the
market by higher prices. In India alone, the Govern­
ment estimates that private holdings amount to over
four billion ounces, and there are huge holdings in
other Eastern countries. A sizable influx of silver
into the market from abroad might conceivably lower
the price to the point where speculators would decide
to take their profits— if possible. Those speculators
holding coins might find this difficult, however, since
at present coins may be neither exported nor melted.
Any relaxation of those restrictions could very well
sound the stroke of midnight for silver.

The col­

lectors and speculators who created a Cinderella role
for silver could, at least temporarily, bring it to an
end if they flooded the market with their holdings.
Harmon H. Haymes

5




Jtf "Let's get aw ay from it all" has become the slogan for millions of Fifth District vacationers
as they gather equipment and head for their favorite campsites. With more leisure time and
more disposable income to spend on the pursuit of pleasure, people are finding that "roughing
it" can be the answer to the perfect holiday for all ages.
Federal, state, and local govern­
ments maintain over 5 million acres of park and forest lands as recreation areas in the District.
In 1962 there were 14,968,000 visits to state parks alone in the Fifth District, 5.3 per cent of the
state park visits in the United States. Also, private landholders frequently make their property
available to a limited number of visitors. Associations organized to improve and promote
better camping encourage high standards in the organization, maintenance, and administration
of campsites.
The hunter and fisherman have long been regarded as traditional camping
enthusiasts, but the not-so-rugged traveler now enjoys the outdoors with the practical ad­
vantages of urban living.
Roomy camping trailers with up-to-date facilities, refrigerators,
sinks, comfortable sleeping quarters, and even air conditioning allow the traveler to take with
him the comforts of home. The adventurer has a wide choice of outdoor gear that is easy to
operate and quick to assemble, from a simple air mattress to a roomy abode for the entire
family. Numerous campsites with accessible electricity, water, and recreational facilities make
it easy to use these modern conveniences.
The variety of landscapes offered to campers
in the District ranges from 3,908 miles of recreation shoreland to the Appalachian and Blue
Ridge Mountains. Cape Hatteras National Seashore in North Carolina, Myrtle Beach State
Park in South Carolina, and the new Assateague Island National Park and wildlife refuge in
Maryland and Virginia are among the coastal areas which beckon campers who enjoy ocean
beaches. For the vacationer seeking mountains and fresh-water lakes, parks such as the
Fairy Stone State Park in Virginia, the Great Smoky Mountains National Park in North Carolina,
and Watoga State Park in West Virginia offer many available campsites.
In addition to present
picnic and camping areas, plans for the development of future sites are under consideration.
Among these are proposals to make South Carolina's Congaree Swamp a national monument,
and to include Smith Island on the North Carolina Outer Banks and the South Branch of the
Potomac River in West Virginia under state programs. By 1980, participation in camping is
expected to increase 78% over 1960, according to the 1965 Survey and Projections by the De­
partment of the Interior, Bureau of Outdoor Recreation. Increases are also expected in other
activities related to camping, such as hiking (78%), sightseeing (54%), and picnicking (48%).




B A L A N C E OF P A Y M E N T S REVI EW

A persistent disequilibrium in the balance of pay­
ments has been a major source of concern for U. S.
policymakers over the past decade.

A number of

programs have been developed in recent years to im­
prove the balance of payments, but the deficit remains
one of the most important economic problems con­
fronting the United States today.

And although the

summary figures showed some improvement last year,
an analysis of recent developments gives little rea­
son for optimism.
Major Changes Last Year

A round the m iddle of

1965 the more or less steady economic expansion
that had been in progress in this country for several
years accelerated significantly, and since then the
course of the economy has been much less stable. The
15 months from m id-1965 to the third quarter of 1966
were marked by a very rapid expansion in total
spending, especially on the part of business and G ov­
ernment.

Price pressures developed, money became

extremely tight, and interest rates reached the highest
levels in 40 years.

Then, in the fourth quarter of

U. S. MERCHANDISE TRADE

I9 6 0
S o u rc e :

1962

1964

S u rv e y o f C u rr e n t Business.


8


1966

1966 a large build-up of business inventories set the
stage for a major adjustment that halted real growth
in the first quarter of this year. According to most
indicators, growth resumed at a moderate pace in the
second quarter and many expect an increase in the
rate of expansion in coming months.
The substantial shifts in the strength and direc­
tion of economic forces over the past two years were
reflected in the balance of payments, although indi­
vidual sectors were affected more than the overall
totals. One result of the very rapid expansion of
demand in 1965 and 1966 was a pronounced decline
in the trade surplus. A s the accompanying chart in­
dicates, the deterioration in the trade accounts was the
result of a very rapid growth in imports. Exports
have continued to grow, but at a much slower pace.
From 1964 to 1966, imports rose from $18.6 billion
to $25.5 billion, or 37% ; exports rose from $25.3
billion to $29.2 billion, or a little over 15%. A s a
result, the trade surplus fell $2.0 billion from 1964
to 1965 and another $1.0 billion last year.
W hile the economic boom played hob with the
trade surplus, it had just the opposite effect on cap­
ital flows. The flow of direct LI. S. investment funds
and new issues of foreign securities in the United
States increased very little in 1966, and net redemp­
tions and other transactions in foreign securities re­
sulted in a reflow of $280 million. Bank claims
against foreigners were reduced by a quarter billion
dollars. Claims of nonbank U. S. residents against
foreigners rose $440 million, but much of this repre­
sented the short-term investment abroad of funds
raised by U. S. borrowers in foreign capital markets.
The most significant aspect of last year’s capital
movements, however, was the tremendous flow of
foreign funds into the United States. This reflected
mainly the extremely tight money conditions in this
country, but the difficulties experienced by the British
pound were a contributing factor. Foreign holdings
of U. S. corporate securities rose by more than $900
million, with a good part of the increase representing
sales of securities abroad by U. S. corporations to
finance direct foreign investment projects. Liquid
dollar assets of foreign commercial banks rose $ 2 . 7
billion, as compared with an increase of $116 million

the year before. Liquid dollar claims of foreign offical agencies and of various international and re­
gional organizations declined by $ 2 . 1 billion, but
about $ 1 . 1 billion of this represented a shift of funds
from liquid assets to those officially defined as non­
liquid, mainly time deposits and C D ’s with an original
maturity of more than one year. The effects of these
shifts were to reduce the reported size of the li­

balance includes changes in liquid liabilities to for­
eign commercial banks and other private foreigners
which are not counted in the official reserve balance.
As a result of these differences in definition, there
are frequently substantial differences in the official
reserve transactions balance and the liquidity balance.
For example, as a result of a large inflow of foreign
private funds, the reported liquidity deficit for 1966

quidity deficit.

was $1.4 billion, while the official reserve accounts

The Balances In 1966 The Commerce Department

showed a surplus of $225 million.

reported two summary figures for the balance of pay­

Effects of Special Transactions

ments last year, neither of which is a particularly

dity balance and that of official reserve transactions

Both the liqui­

good indicator of the change in the overall interna­

were made more favorable by a number of what might

tional position of the United States.

be regarded as “ special transactions.”

The truth is

For example,

that no one figure can accurately sum up and portray

the liquidity deficit benefited by $788 million because

these changes. An evaluation of our performance re­

foreign monetary authorities increased dollar hold­

quires a painstaking analysis of the entire statement

ings in the form of time deposits or C D ’s having ma­

of our international transactions.

turities greater than one year, rather than in short­

The official reserve transactions balance is meas­

term assets.

Similarly, international and regional

ured in terms of changes in the United States gold

organizations placed $319 million in long-term de­

stock, holdings of convertible foreign currencies, the

posits, C D ’s, and nonguaranteed U. S. Government

IM F position, and liquid as well as certain nonliquid

agency bonds.

U. S. liabilities to foreign monetary authorities.

lar feature of our balance of payments for a number

The

Prepayment of foreign debts, a regu­

liquidity balance is measured bv changes in only those

of years, further reduced this reported figure by $467

liabilities which are classified as liquid. Excluded are

million, while other special transactions made the

such items as certificates of deposit with maturities

figure larger by $228 million.

in excess of one year and certain special types of

these transactions the liquidity deficit would have

In the absence of

Treasury securities sold to foreign central banks, both

been about $2.8 billion rather than the reported $1.4

of which are included in the official reserve balance.

billion.

On the other hand, the measurement of the liquidity

Debt prepayment and a special Canadian trans­

U. S. BA LA N C E OF PAYM ENTS
$ B illio n

1960
N o te :
S o u rc e :

1961

F ig u re s f o r 1st h a lf o f

1962

1 96 3

1 9 6 7 s h o w n o n q u a r t e r ly

1964

1965

1966

1967

b a s is .

S u rv e y o f C u rr e n t B u siness.




9

action made the official reserve transactions balance
more favorable by $590 million, but other special
transactions reduced the surplus by $251 million. In
addition to these special transactions, the official re­
serve transactions balance benefited from the enor­
mous influx of short-term funds that resulted in an
increase of $2.7 billion in liquid liabilities to foreign
commercial banks. Since much of this represented
a switch from official to private dollar holdings, it
improved the official reserve transactions balance but
did not affect the liquidity balance.

Although this

was essentially different in nature from the “ special
transactions” described earlier, it was a highly tem­
porary development which resulted in no long-run

largest swings, however, occurred in liquid liabilities
to foreigners. Liquid liabilities to foreign official
agencies rose $237 million in the second quarter, com ­
pared to an increase of $1.5 billion in the first quar­
ter.

Liquid liabilities to nonofficial foreign accounts,

which had fallen $958 million in the first quarter,
rose $276 million in the second.

Another signifi­

cant development was the $632 million increase in
long-term liabilities of U. S. banks, most of which
represented acquisitions of long-term time deposits,
certificates of deposit and similar assets by foreign
official agencies.
Thus, measured on the official reserve transactions
basis, the second quarter showed an adverse balance

improvement in the official reserve accounts.

of $830 million, seasonally adjusted, compared with
First Half of 1967

The shift to a less o ver­

the $1.8 billion deficit in the first quarter.

The liqui­

heated economy that began in the last quarter of 1966

dity deficit declined slightly, from $536 million to

had a pronounced effect on the balance of payments,

$513 million.

although it did not bring significant improvement.

the two measures in the second quarter is largely

The trade balance has been more favorable this year,

due to the swings in liquid liabilities and the large

however.

The trade surplus for all of 1966 was $3.7

billion, but in the fourth quarter the seasonally ad­
justed annual rate was only $2.9 billion.

The difference in the improvement in

build-up of long-term bank liabilities to foreign offical agencies.

In the first

quarter of 1967 it rose to a $4.0 billion annual rate,

Second Half of 1967

W h ile it is not the purpose

mainly because of expanded exports, and preliminary

of this brief review to present a forecast of the U. S.

figures for the second quarter indicate further im­

balance of payments performance, it is possible to
note several developments which are likely to in­

provement to $4.5 billion.
On the adverse side, income from direct investment

fluence this performance in coming months.

Fore­

declined in the first quarter, mainly because of

most among these is the probable impact on the trade

smaller earnings but perhaps partly because busi­
nesses were repatriating a smaller part of earnings

surplus of changing economic conditions in the
United States and abroad. Although the trade bal­

than formerly.

ance improved in both the first and second quarters,

Military expenditures also rose, but

the largest single change in the first quarter was the

the improvement since April has been slight.

reflux of short-term funds that had flowed into this

ports have leveled off and imports are holding their

country last year.

own.

Liquid liabilities to foreign banks

E x­

If the U. S. economic expansion in the second

fell $750 million as U. S. banks repaid borrowings in

half is as strong as it is generally expected to be it

the Euro-dollar market and funds flowed back into

may lead to rapidly rising imports, while economic

sterling that had found temporary refuge in dollar

slowdowns in European countries may forestall signi­

assets during last year’s sterling crisis.

ficant growth in exports.

The result was a first quarter liquidity deficit of

Spending by military agencies and armed forces

$536 million, a rate substantially above the $1.4 bil­

personnel in Southeast Asia has been rising rapidly

lion figure for 1966.

On the official settlements

and these expenditures may constitute

an ever-

basis, the seasonally adjusted deficit in the first quar­

increasing drain in coming months. On the other side

ter was $ 1 . 8 billion, as compared with a small sur­

of the ledger, however, capital flows appear to have

plus for 1966.

been favorably affected by recent shifts in interest

Complete information on the second quarter is not

rate differentials between U. S. and foreign markets.

yet available, but preliminary figures on certain items

In addition, there appears to be some evidence that

have been published.

direct investment in Europe may be losing some of

As noted above, the trade sur­

plus continued to rise, but short-term bank claims
against foreigners also rose by $328 million.

10


The

its attractiveness for American businessmen.
Aubrey N. Snellings

THE FIFTH DISTRICT
Several industries in the District report little
evidence of the upsurge in the economy that is pre­
dicted for the latter part of this year. Nevertheless,
Fifth District nonagricultural employment, seasonally
adjusted, increased by 25,700 jobs in June over May
and regained nearly all of the ground lost during the
previous three months. The increase of 0.4% was
0.2% ahead of that for the nation. District insured
unemployment rates averaged 1.8% in July which
was below the national level. These rates were
higher than for the same period a year ago in the
District as well as the nation.
Textiles E arly in the summer, millmen were
faced with a sluggish market and took steps to curtail
production. Inventories were high and orders down
in many areas, leading to spot delivery at profitless
prices in some instances. Confronted with a dull
market, textilemen feared that severe cutbacks in
the work week would lead to a labor shortage at a
later date by forcing skilled workers into newly
established industries. Inventory adjustments were
necessary, however, and despite the prospect of a
future labor shortage, most mills reduced their work­
week from six to five days. Vacation shutdowns
were extended in some instances.
In recent weeks there has been some indication
that an upturn in the textile industry may be in the
making. Price boosts in cottons, synthetics, poly­
ester/cottons, and worsteds, all of which had ex­
perienced a considerable price deterioration, were
probably spurred by recent wage increases averaging
6 ^2 % .
Also buyers have shown more interest in
forward commitments. There have been substantial
bids for fourth quarter delivery and in some fabrics
orders have been placed through next March. Raw
cotton prices have also risen considerably in the
past month. Prices have been stimulated by the
sharp cutback in production of cotton for the current
year with output estimated to be 13% below last
year. This year’s cotton crop was the smallest of the
20th century. A large number of acres were diverted
under the government program, the planting season
was poor, and cool, damp weather caused adandonment of many acres that had been planted.
There are also other signs which indicate that the



Jj

period of adjustment in the industry may be nearing
an end. Seasonally adjusted textile mill man-hours
increased 0.4% in June from May, although they are
running slightly below a year ago. Unadjusted June
employment reached 451,100 jobs, the highest since
January.
In spite of this generally favorable situation, there
still appears to be some degree of caution in certain
sectors of the industry. Some express fear that
cotton textile imports could increase considerably in
the wake of current and prospective price hikes.
According to the Commerce Department, cotton
textile imports in the first six months of 1967 were
11% below the same period a year ago, when U. S.
prices were sagging. However, millmen are an-

VALUATION OF BUILDING PERMITS ISSUED
FIFTH DISTR IC T STATES
(in th o u s a n d s o f d o lla r s )
Second
Q u a r te r
T o ta l 1 96 6
D is tr ic t o f C o lu m b ia
M a r y la n d
N o r t h C a r o lin a
S o u th C a r o lin a
V ir g in ia
W e s t V ir g in ia
T o ta l

Second
Per c e n t C h a n g e
Q u a r te r
f r o m F irs t
T o ta l 1 96 7
Q u a r te r 1 9 6 7

3 5 ,6 0 5 .4
3 1 ,5 2 9 .4
9 5 ,7 8 7 .7

4 8 ,1 2 8 .8

1 7 ,9 5 8 .4
8 1 ,1 2 3 .7
8 ,2 3 8 .4

3 1 ,2 0 6 .0
7 5 ,2 4 2 .6
6 ,2 3 1 .9

2 7 0 ,2 4 3 .0

3 0 1 ,6 2 9 .8

1 0 1 .6
1 0 3 .9
3 3 .2

4 4 ,0 6 0 .1
9 6 ,7 6 0 .4
-

2 7 .7
6 .9
2 6 .4
30.1

ticipating an upsurge in imports due to the recent
tariff reductions under the Kennedy Round.
Furniture Considerable uncertainty still seems
to prevail in the furniture industry. The July
Southern Furniture Market in High Point generated
little enthusiasm among furniture manufacturers.
Attendance was 7-10% behind last year and while
some firms reported good sales, buying on balance
was considered sluggish. Prices remained firm even
though some companies are being compelled to offer
“ deals” to keep the labor force at its present level.
The chart suggests continued shallowness in
consumer demand. Unfilled orders, orders booked,
production and shipments during the second quarter
are down compared with the second quarter last
year. A t the same time, finished goods on hand
have increased. On the positive side, cancellations
declined almost 16% from a year earlier during the
second quarter. Accounts receivable increased a
little over 1% and payrolls were up almost 2 % during
the same period.
Attempting to recover from a shaky past year and
the profit squeeze which has gripped the industry,
manufacturers are anticipating price increases in the
not too distant future which could range from 5%
to 8 % . Despite the doldrums of the past, sales have
begun to pick up in the most recent weeks, and most
manufacturers are optimistic about the fall market.
Construction Construction activity in the D is­
trict is still experiencing some weakness. Seasonally
adjusted total construction contracts in June edged
forward almost 19% from the May level but dropped
2.1% in July. In June contracts for non-residential
construction made the largest relative month-tomonth gain since December, but in July they declined
slightly. Seasonally adjusted residential contracts
slipped in both months. In June they showed the
greatest monthly decline since January and dropped
another 4.1% in July. The unadjusted cumulative
index of construction contracts for the first seven
months of the year is still well below the same period

12


last year for total, residential, and non-residential
construction. The seasonally adjusted July index
of residential construction was 12% ahead of July a
year ago, but on a cumulative basis is running almost
18% below the comparable period last year.
The seasonally adjusted District building permit
index, reflecting future construction contract activity,
declined in June to its lowest point since January
but in July regained the ground lost in June. As
evidenced in the accompanying table, District build­
ing permits increased considerably in the second
quarter of 1967 compared with the first quarter and
showed a moderate increase over comparable figures
for a year earlier. W ith the exception of Virginia
and W est Virginia, all states contributed to the
quarterly increase.
District construction employment was 357,000 in
June, the lowest figure since November 1965. Em­
ployment was essentially unchanged in W est V ir­
ginia and Virginia but declined in all other states.
Banking For the first eight months o f this year,
the most significant development in District banking
was the rapid growth in total investments. A l­
though the increase in loans was small, the substantial
advance in investments brought about a sizable gain
in the amount of credit extended by District banks.
Total bank credit increased 5.0% since the beginning
of 1967, in sharp contrast to the 1.3% decrease for
the comparable period last year.
Total investments rose at a steady pace between
January and August. The cumulative percentage in­
crease reached 17.2% on August 30, and the absolute
increase of $452.3 million compares with a $32.8
million decrease up to that date in 1966. Partially
responsible for the sizable increase in investments
was the rapid growth of time deposits, which allowed
banks to invest heavily in long-term municipals.
Holdings of U. S. Government securities rose $159.9
million from January through August 30, but hold­
ings of other securities, which are chiefly municipals,
registered a substantial advance of $292.4 million
in the same period. The largest proportion of the
increase in Government securities was a $117 million
gain in Treasury notes maturing in one to five years.
D orothy E. Ferrell and Carla IV. Russell

PHOTO

CREDITS

V ir g in ia C o m m is s io n o f G a m e a n d I n la n d F is h e rie s ; V i r ­
g in ia

D e p a r tm e n t o f

v e lo p m e n t;

U.

S.

C o n s e r v a tio n

D e p a r tm e n t

of

S e rv ic e ; U. S. D e p a r tm e n t o f th e
O u td o o r R e c re a tio n .

and

E c o n o m ic

A g r ic u lt u r e ,
I n te r io r ,

D e­

F o re s t

B u re a u

of


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102