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Mo n t h l y Re v ie w F E D E R A L R E S E R V E B A N K O F ATLANTA Volume X X X V II Atlanta, Georgia, August 3 1, 1952 F a r m , R e a l S i x t h E s t a t e D i s t r i c t Banks are financing an increasingly large share of the in vestment needed to make District agriculture more efficient and more rewarding to those who till the soil. Most of this investment comes from farmers’ own savings, but the 11 6 percent increase in farm loans at District banks from June 1946 to June 19 5 1 reveals the growing importance of the role played by these institutions. Although most bankers think of loans in terms of how the money is to be used and of the general credit-worthiness of the borrower, rather than in terms of the security taken, farm loans are commonly classified into two groups— those secured by mortgages on real estate and those secured in other ways. Because loans secured by mortgages on real estate are usually considered long-time investments, state and national banking laws prescribe specific rules by which banks must be guided. Out of many years of experi ence, bankers and supervisory authorities also have evolved some general principles or policies in regard to farm real estate loans that are intended to protect the long-run in terests of lenders as well as borrowers. The Problem The increased demand for farm real estate loans in the last few years has created a quandary for many bankers. If they adhere closely to traditional thinking in regard to real estate loans, they may fail to provide what they con sider to be legitimate credit needs of their communities. If they attempt to meet all legitimate needs for real estate credit, they may overstep the boundaries set by the princi ples of prudent banking. How this problem is solved has im portant implications for the future of agriculture, as well as for the continuation of bank leadership in this field of financing. From the banks’ standpoint, the solution depends partly upon the answer to the more general question of what should be the place of real estate loans in the investment and lending program of a commercial bank. In this coun try, the practice of commercial banks with respect to real estate lending has always run counter to the theory that banks should extend credit only for short periods and for L e n d i n g Number 8 a t B a n k s purposes that result in the self-liquidation of the credit. Even before the passage of the Banking Act of 1865, state chartered banks were heavily involved in loans on both farm and urban property. Although these banks have suf fered heavy losses on real estate mortgages, they continue to be important sources of mortgage credit. National banks were completely barred from mortgage lending until the passage of the Federal Reserve Act in 19 13 . This act permitted national banks to make loans on farm property for five years and up to 50 percent of ap praisal value with the further provision that the total of such loans at a bank did not exceed 25 percent of its capital and surplus or one-third of the time deposits. The authori zation was liberalized further in 19 16 , 1927, and 1935, and at present these banks may lend up to 60 percent of ap praisal value for ten years, provided that the instalment payments are sufficient to amortize at least 40 percent of the principal within a ten-year period. The total of such loans cannot exceed the capital and surplus or 60 percent of the time and savings deposits. Bankers’ attitudes toward real estate lending, however, probably have been influenced more by their experiences in the period between the two world wars than by the re strictions imposed by federal and state regulatory authori ties. Commercial banks were the principal lenders in the farm land market boom that occurred during and imme diately following World War I. In 1920, banks held 49 percent of the total farm mortgage debt held by all institu tional lenders in the United States. The sharp decline in farm prices in 1920 was accompanied by declines in de posits of banks in rural areas and defaults on loans secured by mortgages on real estate. The immediate cause of many of the bank failures during the 1920’s was the large in vestment in farm real estate mortgages that could not be liquidated without large losses. Of the 5 ,4 11 banks sus pending operations from 19 2 1 through 1929, about 92 per cent were in towns of less than 10,000 population where real estate loans were normally an important part of total loans. A lth o u g h b a n k s m a n a g e d to liq u id a te a la rg e s h a re o f 62 M o n t h ly R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r A u g u st 1952 their farm real estate loans during the 1920’s, they still held 20 percent of the total held by institutional lenders in 1930. The collapse of farm prices in the early thirties brought about another forced and wholesale liquidation of farm mortgage indebtedness. Banks in agricultural areas again had heavy deposit withdrawals and many failed. A large number of the surviving banks incurred heavy losses because of the hurried sale of foreclosed real estate. By 1936, banks held only 1 1 percent of the farm mortgage debt that was held by institutional lenders. The banks’ experiences with real estate loans, and partic ularly farm real estate, indicate that such lending can be very hazardous. It should be stressed, however, that lending on real estate was not the only reason for bank failures or losses. Many other types of loans and investments became frozen assets. Some bankers in rural areas still believe that a conservative loan secured by a first mortgage on farm land is the safest type of loan they make and can cite their loss experience during the depression to substantiate their judg ment. Although the depression experience does not provide specific answers to the question of the place of real estate loans in commercial banks’ lending programs, it does show that caution with respect to these loans is justified. A ll banks, therefore, probably will continue to set some upper limit on the amount of real estate loans held. For national banks this limit will probably be prescribed by law, and for state banks it will be based on past experience and judgment of the lending officers. In any event, it seems probable that both state and national banks will continue to have the problem of keeping real estate loans within reasonable limits. The increased demand for real estate loans has come largely since 1946. During the war, construction activity was at a very low level and relatively little credit was needed for this purpose. Farm prices and incomes were very favorable and farmers repaid their farm mortgage loans rapidly. In spite of the increase in land values brought about by favorable incomes, farm transfers did not increase greatly. Many older farm operators continued to farm past the usual age of retirement and many young men who ordinarily would have started to farm during this period were called into the military service. After the war the deferred demands for real estate credit began to be felt. In 1946, banks were in an excellent posi tion to meet these demands. During the five years ending January 1, 19 5 1, for example, District banks increased their holdings of farm real estate loans by approximately 120 percent. Of the total farm mortgage debt held by institu tional lenders in 1946, commercial banks had only 19 per cent; by 19 5 1, commercial banks had brought their share to 29 percent. In addition to what might be termed the normal increase in demand for real estate credit brought about by the war, recent adjustments in District agriculture have also in creased the demand. These adjustments have consisted large ly of a shift toward livestock and an increase in the size of the average farm business. Both these developments involve larger amounts of invested capital and an increased demand for investment or capital credit as distinguished from oper ating credit. Although the demand for operating credit has also grown during this period, there is considerable evidence that much of this credit is being used for capital or invest ment purposes. Some Exam ples How the increased demands for real estate credit have been reflected in the lending activities of District banks can be illustrated by recent developments at a few selected banks. The banks used for illustration are located in small towns in agricultural areas and depend upon agriculture for a large share of their deposit and loan business. Bank A experienced the typical rapid rise in deposits during the war, and in 1946 its deposits nearly reached the three million dollar mark. At that time, loans amounted to only 15 percent of total deposits and real estate loans were only 2 1 percent of time deposits. Real estate loans to farmers accounted for 89 percent of total real estate loans outstanding. From 1946 to 19 5 1, all types of loans in creased rapidly, and in the latter year loans amounted to 43 percent of total deposits. Total real estate loans were 62 percent of time deposits, slightly in excess of the legal limit for national banks. Real estate loans were about the same proportion of total loans in 19 5 1 as in 1946. The total increase in real estate loans was about evenly divided between urban and farm loans with the result that farmers were receiving only 46 percent of the real estate credit extended in 19 5 1. Time deposits increased during the fiveyear period, but at a much slower rate than real estate loans. Bank B also had a sharp increase in deposits during the war and a reduction in loans. By 1946, this three-milliondollar bank had only 12 percent of its deposits loaned out and total real estate loans were only 30 percent of time deposits. Real estate loans to farmers accounted for 36 percent of total real estate loans. This bank also had de mands for all types of loans after the war and by 19 5 1, total loans amounted to 5 1 percent of total deposits. Total real estate loans were 13 2 percent of time deposits, with farm loans accounting for 56 percent of all real estate loans. Most of the increase in real estate loans, in other words, resulted from increased credit demands by farmers. In contrast to Bank A, this bank had a decline in time deposits from 1946 to 19 5 1, which also brought it closer to a point of decision in regard to its real estate loans. Bank C increased its total loans from 37 percent of total FARM M O RTGA GE DEBT HELP BY IN STITU TION AL LENDERS deposits in 1946 to 59 percent in 19 5 1. Here the restricting influence on real estate loans may stem more from the total Percent Held by Commercial Amount, (in Millions of Dollars) ____________ Banks____________ loan and deposit relationship than from the specific in _________________ 1940 1946 1951 1940 1946 1951 crease in real estate loans. Real estate loans increased from A l a b a m . . .a. . . . . . . . . . . . . . . . . . . . . . 5 0 .6 3 8 .4 95 . 1 . 0 5 1 5 .1 2 9 . 1 46 percent of time deposits in 1946 to 72 percent in 19 5 1. F l o r i d a. . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 . 1 1 6 .3 3 7 .4 1 3 .0 2 0 .1 1 8 .8 G e o r g i a ........................ 6 4 .3 4 8 .7 6 5 .2 1 0 .6 1 8 .In contrast5 to Bank B, most of the gain was in urban real 0 3 2 . L o u i s i a n a .................... 4 1 .3 3 4 .5 4 2 .1 1 4 .7 1 4 .6 2 7 'estate loans. . 2 M is s is s ip p i .................. 7 2 .9 6 0 .8 8 4 .2 1 1 .2 1 1 .3 1 2 At5 . Bank D, 87 ..loans increased from 12 percent of total T e n n e s s e e .................... 7 0 .0 4 4 .8 6 2 .7 1 6 .9 3 4 4 5 deposits in 1946 0 to 42 percent in 19 5 1. Although real estate S ix t h D is t r ic t S t a t e s .. 3 2 1 .2 2 4 3 .5 3 4 2 .0 1 2 .7 1 8 .9 2 9 . o f th e F ederal R eserve B a n k o f A tla n ta fo r A u g u st 1952 M o n t h l y R e v ie w loans increased rapidly during this period, they amounted to only 43 percent of time deposits in 19 5 1. This favorable relationship arose largely because time deposits have always been large in relation to total deposits at this bank. Real estate loans are about as large a proportion of total loans and of total deposits at Bank D as at the banks mentioned earlier. These case histories show that individual banks have arrived at a point of decision with respect to their real estate loans for a variety of reasons. There is no evidence that any of them had to turn to real estate loans in order to build up their loan volume. The increases in real estate loans appear to reflect only the increased demands for this type of credit. The stronger demand for farm real estate credit, however, probably is mainly responsible for bankers’ renewed interest in the legal and prudent restraint on real estate lending. Bankers in agricultural areas of the District have an interest in agriculture that goes beyond the mere fulfill ment of farmers’ financial needs. Individual bankers and the state associations, through their agricultural committees have conducted tours, sponsored credit schools, promoted farm youth activities, and assisted in the establishment of marketing facilities for the purpose of helping farmers to increase their earning power. They have also encouraged farmers to embark on such projects as pasture improve- LOANS AND DEPOSITS AT SELECTED BANKS THOUSANDS OF DO LLARS I 1 I 1 • 1 I— 1 1 1 ...“ — — — B A N K 3000 ....."i— r A THOUSANDS OF DOLLARS 1----,---- ,----,---- ,---1 i T B A N K B / A \ 3000 / 2500 f 2000 2500 TO TA L^ ^ V D E P O S IT S > TO TAL iD E P O S IT S 2000 1500 1500 TO T A L 1 AAKIC 1000 J / f / / 5 00 4 / |% J / -# TO TAL LO AN S / r % \ V T 0 TA L R EA L EiSTATE NSl V > / ^ 0EP^ ' J S - • 60% O F t I m e S * T T (941 i a i l 1945 l i r ~ a A a + M 1000 f t > IAU U R. E. LOANS ‘* ~ ff n j i ii T a 1950 1941 1950 THOUSANDS OF DO LLARS — I— r 3000 B A N K C -1— 1 1 I— 1 — — — 1 1 1 1 — — — — B A N K — I---- r D ^ TO TAL D E P O S IT S 0 O LLARS 3000 / 2500 500 2500 TO TA L D E P O S IT S 2000 2000 1500 1500 TA L AIMS t V 1000 M / 500 s W 7 TOTAI R E _L 0 / TO TAL 1 AAKIC in s * M * V > I 500 •> — • ^ ^ • v / o F TIME DEPS. / / F A R M R .E . LOANS • •• •• • • • • • • • • •••••• ............ ................... j, * A 1 A A A A A "A I — X— T 1000 6 0 % OF TIM E DEPOSITS lo a n s/ ,.* .— I .... 63 ment, land clearing, fencing, and the enlargement of live stock herds. Often the farmer must borrow part of the money used for these purposes. Bankers have met most of these loan demands without taking a real estate mortgage as security. A survey of farm loans at District banks in 1950 showed that real estate, or a combination of collateral that included real estate, was used on only 9 percent of the loans made and was not used with any greater frequency on livestock expansion loans than on crop production loans. Of the money borrowed 27 percent was used to begin or expand livestock enterprises. Of the livestock expansion loans, 46 percent were made with some verbal understanding about a renewal. Bankers, in other words, are now extending large amounts of so-called “ intermediate” farm credit. As farmers go further into their livestock expansion program, however, and as the demand for this type of credit grows, there is a question of whether banks should have the additional security provided by a mortgage on the farm. For banks that are approaching their legal or prudent limit on real estate loans, this is a serious question. Because all banks are not subject to the same restrictions, it is difficult to ascertain just how many banks are nearing their limit. The current situation at the national banks, however, may be indicative. On June 30, 19 5 1, about 27 percent of the national banks held real estate loans amount ing to 80 percent or more of their legal limit. Of the national banks with less than 3.5 million dollars of deposits, 38 percent had real estate loans amounting to 80 percent or more of their legal limit. About one-fourth of the na tional banks with deposits of 3.5 million dollars to 10 million had 80 percent or more of their legal limit in real estate loans. For all national banks with deposits of less than one million dollars, aggregate real estate loans amounted to 80 percent of the aggregate legal limit. For banks with deposits of one million dollars to 3.5 million, real estate loans amounted to 67 percent of the aggregate legal limit; and for those with deposits of 3.5 million dollars to 7 million, the figure was 58 percent at the middle of 19 5 1. These figures indicate that about one-fourth of the na tional banks are now at a point where they must be con cerned about further expansion of their real estate loan volume. They also show that the problem is concentrated largely in the smaller banks, which, of course, are the ones most concerned with farm credit. Tabulations by type of farming areas indicate that banks located in areas where farm credit is an important part of the total loan business are more heavily involved in real estate loans than are banks in areas where agriculture is less important. Within farming areas, the tendency for the smaller banks to be nearer their legal limit on real estate loans persists. This does not mean, however, that the smaller banks have approached their limit primarily because of extensions of farm credit. Of the banks with deposits of less than 3.5 million dollars and with real estate loans amounting to 80 percent or more of their legal limit, 59 percent had less than a third of their total real estate loans in farm real estate loans. 64 M o n t h l y R e v ie w The stricter regulations concerning the aggregate amount of real estate loans at national banks, compared with state banks, are reflected in their lower proportion of real estate loans to total loans and to time deposits. On June 30, 19 5 1, at banks with deposits of one million to 3.5 million dollars, for example, real estate loans were 28 percent of total loans at national banks and 36 percent of the total at state memREAL ESTATE LO AN S AT N A TIO N A L AND STATE MEMBER BA N K S Deposit Size of Bank (in Millions of Dollars) 73.51.3Less Than 10 7 5 1 REAL ESTATE LOANS As Percent of Total Loans National Banks...................... State Members...................... As Percent of Time Deposits National Banks...................... State Members...................... 26 25 28 36 25 34 24 31 48 55 40 65 35 47 30 36 ber banks. For this same size group, real estate loans were 40 percent of time deposits at national banks and 65 percent of time deposits at state member banks. Because of large fluctuations in deposits and loan demands from area to area and from bank to bank within an area, it is not possible to devise a rigid formula for determining a prudent limit for real estate loans. If it is assumed, how ever, that bankers as a group have been exercising reason able caution, the deviation from average ratios of loans to deposits and of real estate loans to total loans by any par ticular bank is a rough measure of how near it is to a prudent limit. It may be safe to assume that a bank which is above the average in ratio of loans to deposits and far above the average in ratio of real estate loans to total loans, is at or near the limit dictated by prudence. Among District banks with deposits of 10 million dollars or less, loans amounted to about 35 percent of deposits, and real estate loans accounted for 28 percent of all loans. Of the banks that had more than 35 percent of their deposits loaned out, 8 percent had more than half of their loans in real estate loans. Implications The farm real estate credit situation described here has at least two important implications. One is that some farm ers will have to look beyond their local bank if they con tinue to expand their use of this type of credit. The other is that some bankers may have to devise new policies in regard to these loans if they are to continue to strengthen the position of leadership they have assumed in the farm fi nancing field. Although District farmers have other sources of real estate credit available such as federal agencies, insurance companies, and individuals, most of them prefer to use their local bank. The principal reason for this preference is that banks offer superior service. The banker usually knows the farmer’s character, financial capacity, farming ability, and in addition, has a good idea of the value of the property offered as collateral. As a result, closing and servicing costs are low and the loan can be closed very quickly. Since individual banks do not have to follow any complicated set of rules or regulations prescribed by a o f th e F ederal R eserve B a n k o f A tla n ta fo r A u g u st 1952 central or national office as is the case with some other in stitutional lenders, they can be more flexible in the terms and conditions of loans granted. For District farmers, however, the greatest single advan tage possessed by banks is that they will lend relatively small sums for short periods. Most insurance companies, for example, do not like to make real estate loans for less than five years or for less than five thousand dollars. Because of their low costs and flexible arrangements, banks can and do make this kind of loan with benefits to themselves and to their customers. Farmers, therefore, have a vital interest in the continued expansion of real estate lending at commercial banks. Since the end of World War II, commercial banks have achieved a greater position of leadership in farm financing than at any time in the last 30 years. A skillful handling of the farm mortgage loan problem is essential if they are to retain and expand this leadership. It does seem certain, on the other hand, that the present is a poor time for any re laxation of the restrictive and cautious policies followed by all institutional lenders on farm property during and since the war. These policies have undoubtedly promoted the fi nancial stability of agriculture and have helped prevent a disastrous farm land boom such as that of the twenties. Fur thermore, many farmers are operating on such a high level of costs that a decline in farm prices coupled with an in crease in fixed costs, such as mortgage loan repayments, could bring serious difficulties. What is needed are bank lending policies that will con tinue to encourage farmers to make capital investments that will increase their efficiency, that will enable banks to retain their position of leadership in farm lending, but will also keep total real estate loans within safe limits. Such a policy must go beyond the policy that has been followed at most banks, that is, the meeting of all legitimate credit demands as they arise. It must provide a definite guide in determin ing the kind of loans a bank will make. It should be based upon the goals that a particular bank wishes to attain and upon the needs of the community served. A bank, for ex ample, that wished to promote the establishment of Grade A dairies might find it necessary to curtail real estate loans on urban property and loans for the purchase of farms in order to have sufficient funds available for the dairy development. The bank, in other words, would be reserving what might be termed its real estate lending power for the purpose that its management believed would make the greatest contribution to the economic growth of the community. How well such a policy would work might depend partly upon the performance of other institutional lenders such as insurance companies and the federal agencies. The bank, for example, would be in a much better position to reject an application for a real estate loan it did not wish to make if it could send the prospective borrower to a satisfactory source of credit. In any event, policies with respect to real estate loans deserve careful consideration by bankers who are serving agricultural areas. Banks can render the greatest service to farmers and can use their own resources most profitably and safely by concentrating on the kind of real estate loans they are best fitted to make. B row n R. R a w l in g s M o n t h ly R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r A u g u st 1952 65 District Business Conditions T h e O u tlo o k Usually, by the end of summer, member banks in this Dis trict find their total loans lower than at the first of the year. This year, however, their loans outstanding were 67 mil lion dollars greater at the end of Ju ly than at the first of the year. The growth, however, probably did not continue through August. Demands for bank credit strong enough to offset seasonal declines merit attention, if only for possible clues about future demands. They also merit attention because they ended the less-than-national increase in loans at District banks that occurred during 19 5 1. Of the 2 .1 billion dollars of total loans outstanding at District member banks at mid-year, about 45 percent were to commercial and industrial concerns. Consumer loans accounted for roughly 20 percent of the total, and real estate loans for about 15 percent. Loans to farmers account ed for 4 percent, and other types, including single payment In 1 9 5 2 , LOANS at District member banks have con sistently expanded in contrast with the decline oc curring during the corresponding period last y e a r. loans, made up the remainder. These proportions vary from bank to bank, of course, with agricultural loans assuming more importance at the smaller banks; at banks in cities of less than 2,500, loans to farmers amounted to 37 percent of total loans. Lending to consumers, security purchasers, and farmers, however, explains most of this year’s growth in total loans and the growth from last year. Between the first of the year and the end of June, total loans increased 70 million dol lars; consumer loans increased 30 million dollars; loans for purchasing or carrying securities, 14 million; loans to farmers, 10 million; and real estate loans, 9 million. Single payment loans to individuals of over 3,000 dollars increased 6 million dollars. Commercial and industrial loans declined slightly although at the end of June this year they were 26 million dollars greater than a year ago. As a rule, small town bankers have been more active in ex tending credit than bankers in the larger cities. During the remainder of this year, retail and wholesale merchants, the chief business borrowers, will need more fo r B a n k C re d it credit to finance larger inventories and accounts receivable accompanying increased fall and winter sales. Also credit demands from many District manufacturers should be great er because manufacturing is usually stepped up during the latter part of the year. Although farm production loans ordinarily decline in the fall, commodity dealers will prob ably need credit to help finance the marketing of crops. On the basis of past experience, seasonal influences can be expected to cause about a 7-percent rise in loans out standing from the end of August through the end of the year. A forecast of demands for credit at District banks during the remainder of the year, however, also requires an an alysis of how credit demands arising from changing busi ness conditions may add strength or weakness to seasonal demands. Trade Credit Trade demand for working capital credit is, of course, basically dependent on the sales outlook as forecast by the businessman. On the basis of seasonal influences, depart ment store operators, for example, can safely forecast that sales and stocks will rise in the last half of the year, where as cash receipts in relation to sales will decline. Consumer purchases at District department stores in December norm ally jump about 1 1 0 percent above the Ju ly level. Since 60 cents of each dollar sale is made on credit, working capi tal requirements naturally increase. In anticipation of the greater volume of sales in December, moreover, department stores add to inventories so that the peak level in November is usually 14 percent greater than in July. But the merchant must also consider other factors that may strengthen or weaken the seasonal pattern, and to some extent these considerations are based upon his recent exper iences. Thus, in determining inventory policy he must con sider the level of stocks in relation to sales. Despite steady The growth in LOANS at SIXTH DISTRICT MEMBER BANKS from June 1951 to June 1952 has been greatest in sm aller cities. 66 M o n t h ly R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r A u g u st 1952 liquidation, District department store stocks for the first six months of 1952 averaged higher in relation to sales than in other postwar years except 19 5 1, which is primarily because of larger stocks of consumer durables. For non durables, which account for 80 percent of department store sales, the ratio is more in line with the average for 1947-50 than is the ratio for durables. Some accumulation, there fore, may be necessary to meet even the seasonal demand. In addition to credit demands for financing inventories, the merchant must also consider how his working capital needs will be influenced by current repayment practices on the part of his customers. Seasonal changes in repayment practices are indicated by the relationship between cash receipts and sales. Cash receipts at District department stores are generally higher in relation to sales in the first part of the year because of repayments on credit sales made during the last part of the preceding year, and lower in the last half of the year because of the growth in credit sales. There is, however, another trend apparent in people’s repay ment practices that is indicated by the relationship between cash receipts and stocks and receivables combined. Peaks and troughs of cash receipts during 19 5 1 and 1952 have tended to lag only about one month behind corresponding highs and lows of combined stocks and receivables. In ear lier years the lag was somewhat greater. During 19 5 1, consumers in the District repaid their de partment, furniture, and household appliance store instal ment debts at an ever increasing pace while taking progress ively more time to dispose of charge account obligations at department stores. In January 19 5 1, instalment accounts at department stores were outstanding for an average of 13 months; by December the average time was 10 months. At household appliance stores, the change was even more strik ing. In 1952, however, the repayment period began to lengthen and with the suspension of Regulation W in May, it probably has risen further, thereby increasing the cash receipts lag and the demand for credit. Trade demand for credit during the last half of 1952 un doubtedly will rise. Whether this demand will be above or below seasonal expectations depends on the degree to which rising needs to carry accounts receivable will be offset by the probable less-than-seasonal expansion in inventory fi nancing. Industrial Credit Industrial activity, as indicated by employment figures, normally becomes stronger in the second half of the year, particularly in the textile, chemical, apparel, and food pro cessing industries. To date, employment in these major Dis trict industries has followed, fairly closely, the seasonal pattern with the exception of the apparel business. Apparel employment has risen steadily since January, and contraseasonally in April, May, and June. Increasing demands for credit in these industries during the remainder of 1952 will probably more than offset declining demands in others, such as construction and primary metals, which do not normally show a gain in the last half of the year. Bank loans, according to limited data, have also followed this seasonal trend. Industrial credit demands this fall will depend essentially on the extent to which new orders can be filled out of current inventories. Since inventories through May 1952 were still high in relation to sales, a moderate increase in consumer demand could probably be S ix th D is tr ic t S ta tis tic s IN A M N C SH L A S ST L E T A O N Report ing No. of Lenders Lender Federal credit unions . . . . . . 37 State credit unions................. . . 17 Industrial banks...................... . . 10 Industrial loan companies . . . . 11 Small loan companies . . . . . . 36 Commercial b a n k s .................. . . 33 Outstandings Percent Change July 1952 from July June 1951 1952 +5 +3 +29 +5 +1 + 13 +0 + 13 +2 +14 +3 Volume Percent Change July 1952 from July June 1952 1951 +52 — 23 — 25 +51 —7 +7 —4 +8 +2 + 18 + 46 +0 +10 R T IL FU N U E ST R O A N EA R IT R O E PER TIO S Number of Stores Reporting . . . 134 , . . 118 Instalment and other credit sales . . . . 118 Accounts receivable, end of month . . . . . 126 . 126 Collections during month . Inventories,end of month . Item Percent Change July 1952 from July 1951 June 1952 +29 — 15 —1 —10 +34 +37 + 18 — 17 +3 +2 —8 +1 W O E L SA E A D IN EN R H L SA E L S N V TO IES* Sales Percent Change July 1952 from June July Type of 1952 1951 Wholesaler +23 +4 Automotive supplies . . . —8 +14 Electrical— Full-line . . . —2 — 17 “ Wiring supplies —7 +69 “ Appliances . . —6 +17 +1 — 19 Industrial supplies . . . —8 +1 Jew elry.............................. +6 +11 Lumber and bldg. mat’ls . —12 —0 Plumbing & heating supplies 6 +6 +30 Refrigeration equipment . + 12 +7 6 Confectionery.................... +9 +9 10 Drugs and sundries . . . +20 +4 17 Dry goods.......................... 39 +3 +13 Groceries— Full-line . . . + 10 +19 “ Specialty lines 10 9 —3 +13 Tobacco products . . . . -6 +5 15 Miscellaneous.................. 162 +1 +11 *Based on U. S. Department of Commerce Figures. No. of Firms Report ing 4 3 3 5 7 13 4 7 4 No. of Firms Report ing 4 Inventories Percent Change July 31,1952, from June 30 July 30 1951 1952 —S + 13 +4 +8 —4 —5 3 4 3 3 3 5 3 — 27 — 15 —9 —6 0 + 21 —5 —3 6 —3 +4 —3 —5 3 12 28 6 6 11 100 +8 —2 —1 —12 +17 —12 —4 + 17 —21 —5 —4 + 10 +4 —8 D PA T E T ST R SA E A D IN EN R E R M N O E L S N V TO IES* Place Birmingham...................... Montgomery...................... Jacksonville..................... St. Petersburg.................. GEO RGIA.............................. Atlanta**......................... Percent Change Sales July 1952 from Yr.-to-Date 1952June July 1951 1951 1952 +2 . — 20 +1 —4 +4 . — 21 + 15 . — 18 +17 +6 — 15 +4 +5 — 14 +12 +7 — 14 + 12 —12 — 16 . — 14 . — 12 — 17 , — 14 — 24 —20 +10 +6 + 11 + 16 + 10 +7 +32 +13 +2 +9 +2 +4 +9 + 10 +6 +2 +28 +8 Inventories July 31,1952, from July 31 June 30 1951 1952 —3 —1 +2 +i —5 +2 +1 . . —3 —2 —2 +8 —4 +i —10 +0 —2 +0 — 15 —i —8 +5 — 25 . . +2 — 19 +19 +21 Savannah** ....................... . — 19 — ii +9 +3 —8 + 16 LOUISIANA.......................... —8 +8 +5 +12 Baton Rouge ..................... , — 13 —12 +9 + 16 +1 New Orleans...................... — 16 +4 +2 — 16 +1 M IS S IS S IP P I...................... — 19 +4 +3 , — 18 +1 . +2 M eridian**...................... . — 9 +1 —10 +2 +4 +2 TENNESSEE ...................... . — 16 —2 —5 —4 — 24 —5 Bristol-Kingsport. . —6 —7 Johnson City** . . ., . — 19 +4 + 18 Chattanooga..................... —12 +0 —4 —7 — 15 —7 +0 +9 +9 Nashville........................... . — 21 —8 +7 +1 DISTRICT .......................... , . — 15 + 10 ♦Includes reports from 122 stores throughout the Sixth Federal Reserve District. **ln order to permit publication of figures for this city, a special sample has been con structed which is not confined exclusively to department stores. Figures for any such non-department stores, however, are not used in computing the District percentage changes. M o n t h l y R e v ie w o f th e F e d e r a l R e s e rv e B a n k o f A t la n t a f o r A u g u s t 1 9 5 2 met without a noticeable rise in employment and produc tion. On balance, unless there is a sharper increase in de mand for textile products than has been apparent so far, or unless over-all demands for consumer goods rise more than usual, industrial credit needs probably will be below seasonal expectations. Consumer Instalm ent Bank Credit Throughout most of 1951, commercial banks in the Sixth District reduced their instalment loans to consumers, partly because of consumer credit controls and voluntary credit restraint. Beginning in October 1951, however, the trend was reversed. Loans to finance automobile purchases ad vanced sharply in May and June, following the lifting of Regulation W, while more moderate gains occurred in each component of total consumer instalment credit. Such credit at commercial banks can be expected to rise in the latter part of the year as is true of instalment receivables at District department, furniture, and household appliance stores. The rapid growth in consumer instalment credit during the last few months has exceeded seasonal expectations, but it cannot be maintained during the re mainder of the year unless the recent high level of purchases of major consumer durables is continued. Farm Credit FARM LOANS NOT SECURED BY REAL ESTATE Sixth District M em ber Banks MILLIONS OF DOLLARS MILLIONS OF DOLLARS IO O 80 60 40 JUN. DEC. 14 99 Sixth District Statistics CONDITION OF 27 MEMBER BANKS IN LEADING CITIES (In T housands of D ollars) Item L a s a d investm on n ents— Total .................... Lo n a s—Net.............. . L a s—Gross............ . on C m om ercial, industrial, a d agricultural lo n . n as Lo n to b a s rokers a d n dealers in securities . O lo s for pur ther an chasing or carrying securities............ R a estate lo s . . . el an Lo s to b n . . . . an a ks O loans............... ther Investm ents—Total . . . . Bills, certfiicates, an notes .............. d U S bo d .............. . . ns O securities........... ther R s rv with F. R B ee e . ank . , C s in vault................. ah B alances with dom estic D m n deposits adjusted . e ad Tim deposits............... e U S G v’t deposits . . . . . . o D eposits of dom ba . estic nks A 20 ug. 1952 July 16 1952 A 15 ug. 1951 P ercent C a g hne A ugust 20,1952, from ug. July 16 A 15 1952 1951 2,852,231 2,891,496 2,620,952 1,103,054 1,133,130 1,066,709 1,122,889 1,152,963 1,085,078 627,144 640j555 615,595 13,144 19,077 12,580 —1 — 3 — 3 — 2 — 31 +9 +3 +3 +2 +4 43,939 55,974 35,790 92,108 91,578 89,650 3,514 2,785 10,312 343,040 342,994 321,151 1,749,177 1,758,366 1,554,243 765,055 791,269 683,892 722,105 717,303 643,487 262,017 249,794 226,864 513,458 518,955 481,452 46,989 45,432 43,504 226,346 231,021 215A 519 2,086,327 2,090,876 1,969,881 552,194 5507779 526,043 170,130 211,703 75,695 587,348 586,025 568,972 16,000 24,500 11,750 — 22 +1 +26 +0 —1 — 3 +1 +5 — 1 +3 — 2 —0 +0 — 20 +0 — 35 +23 +3 — 66 +7 + 13 + 12 +12 + 15 +7 +8 +5 +6 +5 +3 +36 *M than 100 percent. ore For the last few years, farmers in the Sixth District have been using increasing amounts of bank credit. This has been a natural result of rising production costs as well as of farmers’ efforts to improve their facilities for pro duction. The 13-percent gain in total agricultural loans by District member banks from June 1951 to June 1952 reflects such demands for credit. The components of agricultural loans—production loans and farm real estate loans—show increases of 15 and 5 percent, respectively. The pronounced seasonal pattern for agricultural pro duction loans has consistently varied from a high in June to a low in December. The pattern for the last 10 years shows December to be about 23 percent below the June peak. This highly seasonal demand for loans is strongly influenced by the District’s row crop agriculture. When the seasonal variation and long-time trend are taken into account, the expected volume of production loans by member banks would be about 70 million dollars in December 1952—a decline of 21 million dollars from the 20DEC. __ OEC. JUN. OEC. JUN. DEC. JUN. 14 14 95 96 14 97 14 98 6 7 JUN. DEC. 15 90 JUN. DEC. 15 91 - JUN. DEC. 15 92 DEBITS TO INDIVIDUAL BANK ACCOUNTS (In T housands of D ollars) P lace ALABAM A Anniston . . . B ingham . . irm D othan . . . Gd e . . . a sd n M ontgom . . ery Tuscaloosa* . . FLO ID R A Jacksonville . . G reater M i* iam O rlando . . . P sacola . . en St. P etersburg . P ercent C a g hne July 1952 from Yr.-to-Date July June July 7 M s. 1952 o 1951 1952 1951 from1951 July 1952 June 1952 . . . . . . 28*729 403a 910 16,667 22,137 167,918 88^077 29,044 32,261 419,393 16,428 21,258 168,629 83,919 29,498 26,747 388,426 17,184 21,583 162,379 79,458 27,941 —11 — 4 +1 +4 —0 +5 — 2 +7 +4 — 3 +3 +3 + 11 +4 +4 +6 —1 +1 +3 +3 — 0 . . . . . 382,218 319,615 500,400 73,755 48;i23 82a 921 162,630 391,352 321,660 487,699 76,381 48,180 78,004 174,614 332,275 280,867 431,248 63,122 40,426 67,371 143,104 —2 —1 +3 — 3 —0 +6 —7 + 15 + 14 + 16 + 17 + 19 +23 + 14 +5 +8 +9 +8 + 14 +10 +4 +3 +3 +5 — 7 — 6 —17 + 10 +0 +2 — 8 +8 +0 +44 +7 + 13 +23 — 7 +9 +9 + 24 + 11 +11 —10 + 15 + 12 +5 +7 +5 +15 +2 +10 +4 + 15 +3 +4 —1 —3 +4 + 16 —10 +6 —3 +1 + 12 +9 + 17 +8 + 11 +4 + 13 +8 —1 +4 +3 +4 +8 + 14 + 10 +3 +5 +6 +2 + 23 —1 —2 +4 +1 — 7 + 15 —1 — 9 +7 +1 + 10 +6 +2 + 18 +6 GOG E R IA 32,842 31,462 33,793 Albany ........... Atlanta . . . . 1,149,249 1,120,226 1,019,619 77,387 95,390 90,678 A ugusta . . . . 11,218 12,020 12,051 B runsw . . . ick 75,276 80,147 69,055 C bus . . . olum 4,987 4,121 3,793 E lberton . . . . 25,603 23,298 20,723 G ainesville* . . . 12,312 12,355 11,132 Griffin* . . . . 77,499 76,216 70,112 M acon............ 9,927 10,839 11,090 Nwa . . . . e nn 25,276 23,397 22,018 118,578 118,552 106,298 S va n h . . . . a na 24j_629 17,081 23,426 Valdosta. . . . LO UISIANA 38,941 43,742 48,842 Alexandria* . . . 115,865 112,965 122*863 B Ru e . . aton o g 53,118 44,011 51,481 L ke C arles . . a h 812,472 875,938 864,408 N wO an . . e rle s M ISSISSIPPI 17,794 19,294 19,481 H attiesburg . . . 148,714 163,396 170,045 Jackson . . . . 30,884 30,120 28,181 Meridian. . . . 28,676 28,939 29*784 V icksburg . . . TE N S E NESE 179,154 181,625 178.231 C hattanooga. . . 124.833 127,041 1337676 Knoxville. . . . 375,641 417,092 4337796 N ashville . . . SIXTH D IC ISTR T 32 Cities. . . . 5,434,452 5,396,520 4,927,828 U ITED S T S N TA E 342 C ities . . . 146,984,000 144,769,000 124,425,000 * N o t included in S ix th D is tric t tota ls. 6 8 M o n t h l y R e v ie w o f th e F e d e r a l R e s e rv e B a n k o f A t la n t a f o r A u g u s t 1 9 5 2 June 1952 peak of 91 million. The probability is, however, that there will be an estimated 10 percent above normal car ryover of loans by District bankers to ease the strain on farmers whose crops suffered in the drought. Cotton prices are likely to remain strong throughout the marketing season this fall, with the result that farmers may place less cotton under loan with banks. The expected in crease in loans outstanding arising from the drought, how ever, will more than offset the decline in bank lending on cotton. Production loans, therefore, probably will not de cline to the expected level, based on the long-run trend and normal seasonal movement. Farm real estate loans in the District have been increas ing at a rate of about 7 percent each year. This rate of in crease will probably continue during the remainder of 1952, but because of seasonal influences real estate loans probably will decline slightly during the last half of the year. Total agricultural*loans during the last half of the year probably will decrease somewhat less than the 23-miliion dollar decline which might be expected on the basis of seasonal variation and long-run trends. Sixth District Indexes 1 9 4 7 -4 9 DEPARTMENT STORE SALES AND STOCKS* Adjusted** U nadjusted June July July July June 1952 P lace 1951 1952 1952 1951 DISTRICT S LE . A S 138 113r 96 117 90r 115r 135 92 89r Atlanta1 . . . . 110 122 94 B Ru e . . . aton o g 88 105 82 102 B ingham . . . irm 118 86 80 105 129 103 86 C hattanooga . . . 98 114 Jackson . . . . . 88 135 111 85 108 125 99 91 110 85 Jacksonville . . . 121r 110 88 108r 99 Knoxville . . . . 164 126 99 136 99 . . 136 116 91 107 86 82 104 86 113 N ashville . . . . 130 N wO an . . . e rle s 97 110 87 128 109 89 129 105 99 116 DISTRICT S O K . . . . 129 T CS 132 125 140 121 120 xln order to perm publication of figures for this city, a special sam h s b e con it ple a e n structed w hich is not confined exclusively to departm stores. F ent igures for any su ch non-departm stores, h w ve a not u d in com ent o e r, re se puting the District Index. July 1952 . . . 120 . . . 119 . . . 101 . . . 94 . . . 117 . . . 108 . . . 107 . . . 98 . . . 125 . . . 123 . . . 109 . . . 121 Implications No changes in business conditions likely to greatly reduce the seasonal increase in the demand for credit at Dis trict banks are evident at present. A growing demand for trade and industrial loans and consumer loans will in all likelihood offset decreasing credit demands for construction and farm production expenses, as has been true in the past. That the total demand for loans during the remainder of 1952 will rise, therefore, is fairly certain. Many of the factors that have offset the ordinary seasonal decline during the first part of the year and which might be expected to augment the demand for loans during the re mainder of this year are losing some of their strength. Because of slow collections, merchants need more credit to finance a given amount of credit sales, but unless they r e v e r s e their present inventory policy, they will not need more than the usual total amount of credit. At banks the growth in consumer credit, which was greatly responsible for the growth in total loans this year, resulted chiefly from the stepped-up buying of consumer durable goods after the elimination of consumer credit controls. A continuation of such a rapid rate of sales expansion is at best problematical. Loans to purchase or carry securities, important in explain ing the past growth in total loans at the larger banks, are more likely to diminish than to increase since most of them were made to finance nonbank purchases of the Treasury’s bond issue of July. There has apparently been no movement to build up inventories on the part of the principal Sixth District manufacturers. The strength of other factors can only be tested as the year progresses. The full effects of the recent drought on farmers’ ability to pay off production loans, for example, is still uncertain. Whether or not consumer buying during the remainder of the year will follow the pattern set in May and June, when sales were rising more than seasonally, or that set in July, when sales declined somewhat, will be an important consideration in establishing inventory poli cies during the remainder of the year. Another uncertainty is whether or not an expansion greater than that experienced recently by the textile industry will raise credit demands from this important bank borrower. 100 GASOLINE TAX COLLECTIONS P lace SIX STATES. A labam . . a Louisiana . . M ississippi . Tne e. . e n sse , , . . . July 1952 149 . 145 . 150 . 148 155 . 163 . 147 Adjusted** June 1952 153 145 147 148 164 167 144 July 1952 . 84 . 81 . 86 . 101 . 82 June 1952 104 120 95 117 101 July 1951 101 98 104 87 95 MANUFACTURING EMPLOYMENT June P lace 1952 6S tates Adj. . 106 6S tates U nadj. 105 A labam . . 93 a Florida . . ., 114 G eorgia . . . 111 Louisiana . ., 102 M ississippi . 110 T n e e . . 107 e n sse My a 1952 107 107 105 117 111 100 108 106 June 1951 107 106 105 111 110 99 108 105 CONSUMERS PRICE INDEX*** July Item 1952 ALL ITEM . . 197 S F o . . . . 238 od C lothing . . 207 F elec., uel, and refrig. 143 H m fur oe nishings . 205 M . . . 175 isc. P urchasing pow of er dollar . . . .51 June 1952 195 231 209 July 1951 190 230 210 143 204 175 143 210 166 .51 .53 ♦Daily a ra e b sis ve g a ♦A ♦ djusted for se so a variation a nl **♦1935-39 = 100 r R vise e d July 1952 146 142 139 143 152 159 148 U nadjusted July June 1952 1951 154 142 151 136 147 132 151 149 167 148 172 159 146 139 ELECTRIC POWER PRODUCTION* COTTON1 CONSUMPTION* P lace TOTAL. . . A labam . a G eorgia . . M ississippi Tne e . e n sse July 1951 145 139 142 154 151 164 138 June 1952 SIX S TE . 154 TA S H ydro g enerated . 90 Fuel generated . 203 M ay 1952 146 84 202 June 1951 133 89 172 CONSTRUCTION CONTRACTS P lace DISTRICT . R esidential O ther . . A labam . a Florida . . G eorgia . . Louisiana . M ississippi Tne e . e n sse July 1952 . 235 . 193 . 267 . 220 . 222 . 291 . 160 . 125 . 277 June 1952 246r 192r 287r 193 229 281 166 110 347 July 1951 214 221 208 159 166 215 330 100 286 ANNUAL RATE OF TURNOVER OF DEMAND DEPOSITS July 1952 U nadjusted . . 20.7 Adjusted** . . 21.8 Index** . . . 113.2 June 1952 22.8 23.9r 124.lr July 1951 22.4 23.6 112.5 CRUDE PETROLEUM PRODUCTION IN COASTAL LOUISIANA AND MISSISSIPPI* July 1952 U nadjusted . . 134r Adjusted** . . 134 June 1952 135r 136r July 1951 128 128
