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The Function ofInterest Rates How many of us have not at one time or another complained about the high cost of borrowed money? Probably most of us have, because no home buyer, businessman, or other borrower likes to pay a lot of interest when he has to borrow money. On occasion some of us may have had the opposite complaint of not getting a high enough return on our savings or on the money we lend to others. But other than for these personal considerations, most of us have probably given little or no thought to what determines the price of borrowed money and the reward for saving, which is known as the interest rate. And even fewer of us have given any thought to what purpose interest rates serve in this complex economic world of ours. If we think about it for a while, we find that the interest rate is, in fact, an important actor on the economic stage. It would, therefore, be wise to know more about its role and how well it performs. What Is An Interest Rate Anyway? Before we can understand what the interest rate is supposed to do, we should have a clear idea what the interest rate is. In simple terms, it is A Century of Interest Rates lunnea h !* u l C t n t u i n ATI. lOCO sraTeSr percent |9 Percent i n i-i n 9 Note: 1860-1930— Average yields of long-term highest grade railroad bonds; 1 9 3 14859-^ M M e on Aaa ttOgHtA W H jMh The pries charged for the wse of money, which Is the interest rate, has risen since mid-1958. It is, how ever, still much low er them it w as between I M and f 990, w hen S p e rw n t o r Usare on high gra ds h in ds w as not nnm eaf nothing more than the price charged for the use of a sum of money for a certain period of time. Like any other object in the market place, it is influenced by supply and demand. Or, more specifically, the determining factors are the supply and demand for funds available in the credit market. We are all familiar with what happens to prices when there is a rush to buy: They usually go up. The same thing can be said for interest rates. They tend to rise when the demand for funds increases. Prices of goods, on the other hand, tend to decline if more goods become available for purchase, and if demand has not increased along with supply. Similarly, borrowers can often look forward to lower interest rates if the supply of available funds increases but demand does not. When people borrow money, they ordinarily do so in order to spend it. And they usually borrow more in times of prosperity than in other times. Take the typical busi nessman: Heavy demand for his product gives him a strong incentive to expand his factory or to build a new one. He can, and often does, use retained profits for this purpose, but borrowed funds finance much plant and equipment spending at all times. Inventory building, com mon during periods of business expansion, frequently necessitates additional borrowing. The consumer also tends to borrow more when his income is high, as he then becomes more confident about the future. This is particu larly true when he buys homes and automobiles, which are financed chiefly through credit. Demands for more public services force state and local governments to go into debt. And whenever taxes fall short of appropriations, the United States Treasury joins the rank of active bor rowers. On the supply side, savings are the largest single source of loanable funds, with the amounts saved determined Changes in Interest Rates United States, 1957-59 Short-term rates, sach as those on three-month bills, have ris e * more dram atically than l i ng term rates. By the faH o f 1959, Traasary MBs, which a t aa a paint last y e a r traded d o se to Yt porcant, w ere mail above 4 percent, o r slightly a b a w le n j term C overam ent bonds. by millions of individuals, businesses, and governmental units. These savings are then channeled to the ultimate borrower either by the saver directly or by a savings institution. The Federal Reserve and Interest Rates How does the Federal Reserve System and commercial bank credit fit into the picture? The Federal Reserve can add to the supply of funds that commercial banks have available for their lending and investing activities. Yet, even without help from the Reserve System, the banks can add to the funds flowing into the credit markets if their cash reserve position is large. When necessary, banks can also turn to sales of Government securities in order to finance customers with strong loan demands. Prime Rate and Conventional Mortgage Rate United.......... States, 1957-59 . ...... ....... ....... .... • ....■ M e| Interest Rates Affect Spending and Saving Events during the last recession and current business expansion illustrate how readily interest rates respond to supply and demand forces. In late 1957 and the first half of 1958, a recession period, demands for borrowed money declined, as capital spending, home building, and other activities normally supported by credit slackened. The decline in interest rates that followed was reinforced by the Reserve System, which added greatly to bank reserves. But the summer of 1958 saw a turnabout in rates and by September 1959, rates had reached the highest level since the early 1930’s. The increase occurred because demands for loanable funds exceeded the supply available from current savin gs and bank credit. Heavy borrowing by the Treasury to finance its $12 billion deficit was one of the major contributing factors to the rise in rates. But there were others: The slowing down in savings, and on the demand side, a rapidly rising mortgage and consumer debt, in* ventory borrowing, and substantial capital spending by industry and state and local governments. It would follow •2 • Interest Rates Allocate Funds Marketable Debt and Nonfarm Residential Mortgage Financing So far only the influence of interest rates on total spend ing and saving has been mentioned. Yet, in a free society, interest rates perform the additional function of influencing the amount of credit that flows into specific channels within our economic system. A potential investor expects a certain rate of return before going ahead with his in vestment plans. Since interest is one of the costs of doing business, an increase in interest lowers future profits, un less it is passed along by a rise in the selling price. High interest costs are a particular deterrent to speculative business ventures and to businessmen whose profit mar gins are very narrow. Thus, the interest rate mechanism under ideal conditions becomes the cutting edge that per mits some to obtain funds when others cannot. Su s n i II) U | sM I W n MatW nx mi . IMS IM . 1 Lad* - An exceptionally strong demnnd for funds accompanying the business expansion has been larg ely responsible for the increased rates. Some of the heaviest demand for funds came from the Federal Government and the mortgage sector, reflecting the large Treasury deficit and high level of home building. that the rise in rates will end only if savings increase sufficiently to match investment, if investment plans are reduced to the level of available savings, or if the System creates reserves enough to satisfy all credit demands. Where Interest Costs Have the Greatest Impact The Reserve System supplied banks with additional re serves, but not enough to meet the demands of all potential bank borrowers. Since savings, supplemented by some additional Federal Reserve credit, did not match the demand for funds, the net result was that potential borrowers bid against each other for the available money. Those unwilling to pay the higher rate that resulted from this bidding did not get the funds and consequently had to curtail their spending plans. Also, the higher interest rates must have encouraged some groups to save a larger share of their incomes. To the extent that savers did curb their spending, they made productive resources available to others. And their re duced demand acted to keep down price advances that were encouraged by a shortage of various goods and services. The rate impact is obviously not the same in every sector of the economy. Interest considerations loom fairly large in a field like construction because there interest consti tutes a fairly large proportion of total costs. On the other hand, a fractional rate increase on a small personal loan would increase monthly payments so little that few persons would be discouraged from borrowing. However, even those not disturbed by the additional cost of borrowing money might, to their chagrin, find that they are not able to borrow money at all because of the scarcity of funds. When funds are limited and demands are high, lending institutions often become more selective in their choice of loan customers. Or again, they may scale down loan re quests or shorten the maturity of loan contracts. Banks may be under heavy pressure to “ration” credit when the securities they need to sell in order to raise funds can be sold only below cost. Even if it is profitable to make the switch from investments to loans, a bank may hesitate if its loan portfolio is swollen or if its investments are inadequate to meet potential deposit losses. Net Savings and Federal Reserve Credit Imperfections in the Allocation Process The Reserve System —The Culprit? United States, Itllms if h lh n I Since the increased demand for fends could not be satisfied by savings generated in the economy and additional credit supplied by the Federal Reserve, interest rates rose. Whether interest rates allocate resources perfectly or not may be debatable. But one thing is sure: When interest rates have had a greater impact on some economic sectors than on others, the reason often is that they were not allowed to move freely in response to the supply and demand for funds. The rate on VA mort gages, for instance, is fixed at 5 percent— a rate of return which is unattractive to most lenders. When state and local governments have not obtained funds, it has frequently been because of statutory or other limitations on the rate that they are permitted to pay. Here is another example: The Treasury has not been able to sell •3 • new bonds because the 414 percent maximum rate it is allowed to pay on such offerings is viewed in today’s market as being too low, compared with alternative in vestments. Consequently, in recent months it has had to borrow only on a short- and intermediate-term basis and was prevented from competing with other borrowers for long-term savings. It has been said that the impact of higher interest rates is felt more by the small than by the large businessman. Small loans to small businesses do customarily bear higher rates of interest because they are usually greater credit risks and for other reasons. This is true whether money is “easy” or “tight.” Studies show that when a small businessman cannot obtain funds, however, more often than not it is because he is too great a credit risk, not merely because he is a small businessman. Size of business per se seems to have had little, if anything, to do with it. Higher interest costs have also been blamed for raising prices of goods and services. When included in the sales price, an increase in interest will indeed have that result. But this is a minor influence compared with general price increases that are likely to occur if a credit spree during a boom is not controlled. Some of those who are opposed to allowing increased demands for funds to force up interest rates have argued that the Reserve System should supply banks with enough funds to keep interest rates low no matter how much the demand for funds increases. But overlooked in this argument is that when the economy is operating at or jBank The Choice Granted that the interest rate mechanism may not func tion perfectly at all times, if we do not rely on it, then on what should we rely? Allocation of resources by a Government Bureau? Forced loans? Price and wage controls or similar regulations? Except in wartime, meas ures such as these are unacceptable in a democratic society. An arrangement whereby some Bureaucrat de cides who is to get the available credit is not only ob jectionable, but it is grossly inefficient. A reliance on the interest rate mechanism to limit the demand for funds to the financial resources available from savings, to allocate available resources among po tential borrowers, and to encourage savings and capital formation implies that it should be permitted to do the job without interference so far as possible. Only by this means can our free society avoid the many economic difficulties that would otherwise develop in the long run and thus also avoid having to adopt a system of rigid economic controls. A freely functioning interest rate is an essential element of an economic system, such as ours, whose purpose is to provide freedom of choice in free markets. T T H a r r y B randt Announcements The Commercial Bank at Fort Pierce, Fort Pierce, Flor ida, a newly organized nonmember bank, opened for business October 30, and began to remit at par for checks drawn on it when received from the Federal Reserve Bank. Officers are L. W. Scott, President; Fred L. Wagner, Executive Vice President; and Henry M. Jernigan, Cashier. Its capital totals $400,000 and sur plus and undivided profits, $200,000. On November 12, The Airport Bank of Miami, Miami, Florida, a newly organized nonmember bank, opened for business and began to remit at par. Officers are Charles E. Buker, President; Edmund F. Eckert, Vice President and Cashier; and Robert E. Hesterberg and Jack M. Copeland, Vice Presidents. Its capital totals $100,000 and surplus and undivided profits, $100,000. On November 14, the Citizens Bank & Trust Company, Selma, Alabama, a newly organized nonmember bank, opened for business and began to remit at par. J. Bruce Pardue is President, and Wallace R. Hill is near capacity, a large increase in the supply of funds may increase output only a little, and that the small increase in output could probably be obtained only at the expense of a substantial rise in prices. Also, would not an artifi cially low rate discourage savers from providing funds to the private economy? Vice President and Cashier. Capital totals $250,000 and surplus and undivided profits total $375,000. The Santa Rosa State Bank, Milton, Florida, a newly organized nonmember bank, opened for business De cember 1, and began to remit at par. Officers are Claude E. Locklin, Sr., President; Robert L. F. Sikes, First Vice President; John S. Pittman, Second Vice Presi dent; Rex E. Bond, Executive Vice President ond Cashier; and Gerald Martin, Assistant Cashier. Capitol totals $210,000 and surplus and undivided profits, $140,000. Another newly organized nonmember bank, the Bank of Orange Park, Orange Park, Florida, opened for business December 1, and began to remit at ParOfficers are John H. Pace, Jr., Chairman; E. McDaniel, Jr., President; Walter G. Odum, Vice Presi dent and Cashier; and Elizabeth M. McKnight, Assistant Cashier. Capital stock is $172,000 and surplus and un divided profits, $129,000. •4 • FoodPrices Move Down Bountiful farm output this year has helped check a rise in average consumer and wholesale prices. Consumer incomes rose after mid-1958 and their demand held at high levels. With large shipments from farms weakening prices for foods, both the wholesale and consumer price in dexes for food have moved down sharply this year from their early 1958 peaks. In February the consumer index for all items actually declined from the preceding month, as lower prices for food more than offset higher prices for nonfood items, services, and rents. By early summer, however, food prices rose again, as eggs recovered from a slump and other foods experienced seasonal gains in price. The rise in food prices reinforced the upward movements in many other prices. Food prices, however, sank again in late 1959. By reason of the record harvest from farms this fall, total farm output in 1959 slightly exceeded the previous record made in 1958. Also, farmers had expanded their hog and beef herds earlier and were shipping more animals to markets in late 1959. With large farm marketings having a depressing effect on food prices, strong downward pres sure on the food indexes in late 1959 was virtually fore ordained. Furthermore, food carries a sizable weight in both the retail and wholesale indexes which magnifies the impact from large harvests. All told, strong farm activity brought a substantial drop in the wholesale index for food between January and No vember 1959 and a modest decline in the index for all commodities. Indexes for both farm products and proc essed foods moved lower. Wholesale prices for farm products, for example, declined from an index of 91.5 in January 1959 to 86.0 in October. Lower prices for eggs, broiler meat, and pork contributed heavily to the decline. Prices for fruits and vegetables were unchanged. Prices for milk exerted upward pressure. The index for processed food items declined principally because meats and poultry became more plentiful. Similar ly, canned and frozen fruits and vegetables were in large supply and prices moved lower. Prices increased for cereal products, dairy products, and other items requiring much handling and processing. Lower food prices at the wholesale level were re flected in the consumer price index for foods. That index moved down less sharply over the year, however, because the cost of many services, included in retail food prices, did not decline correspondingly. From all indications farmers, having built their herds to record size, are in a position to sell many more ani mals than they did in the recent past. Egg production is expected to hold near that in 1959 and prices, therefore, may not strengthen appreciably over the winter. Cereal grains are in heavy supply, and although prices may rise somewhat in the winter season, the downtrend probably will not be overcome. Citrus fruit is also plentiful, and prices for it probably will not match those last winter. Vegetables and broilers by last count will be less plentiful this winter. On balance a further softening in food prices seems possible. A r t h u r H. K a n t n e r Upward movements in the nation's retail price indexes for services and rents and nonfood commodities since mid-1958 have been p artly offset by declines in food prices. Relative stab ility in the wholesale price index for ail commodities resulted from declines in prices for processed foods and form products that offset higher prices for non food items. Processed foods and form products account for about a fourth of the national w holesale price index. 1947-49 = 100 All Commodities \^ i I Processed Foods ----- -\— v\ Although prices of most types of farm products have declined this y e a r, prices of some processed foods have risen. Wq1 in indei 15 ITEM FARM PRODUCTS P«rc«f*t Chge Joft-Ocl 1959 10 5 - 0 + 5 10.84 Eggs 47 Fresh, Dried Produce 97 Wgt .n ITEM PROCESSED FOODS J ■ Grains 169 Sugar, Confectionary Fluid Milk 146 Other Processed Foods Other Form Products 120 Plant, Animol Fibers 123 Hoy, Hoyseeds, Oil Seeds Livestock, Poultry 68 13 75 ■ 1 1 Dairy Products, Ice Creom 2 82 Cereal, Bokery Products 1 1 ■ P«fC«nt C*g# Jon -Oct 1959 10 5 - 0 * 5 Meats, Poultry, Fish 272 136 59 358 Conned, Frozen Fruits,Vegs 99 Packaged Beveroges 79 ■ 313 D td M n g trends in some type* of foods such a s coffee, hogs, w heat, and eggs have brought prices w ell below those o f 19S7> •5 • The economic fortunes of Florida, or any other state, are inextricably entwined with those of the nation. Our modem industrial economy has been described as similar in character to a complex balanced machine because, in order for it to function efficiently, there must be a high degree of coordination among the various constituent parts. A disturbance or stimulus in one phase of opera tions may be transmitted throughout the whole and slow down or accelerate the entire economic process. Local economies, however, do not move up and down in perfect unison because of variations in economic struc tures and in patterns of growth among geographic areas. The differences in behavior of individual areas tend to be blurred, however, when combined into national totals. To chart the course of Florida’s economy, therefore, we shall look beneath the surface of broad aggregates. Output and Employment Expand Recession gave way to expansion after the first quarter of 1958 in Florida as well as the nation. The sharp rise in total employment in Florida since the recession trough provides clear evidence of the expansion in output of goods and services. Manufacturing and nonmanufacturing employment, adjusted for seasonal variation, rose 18 and 12 percent, respectively, from April 1958 to October 1959. In this same period, farm employment also ad vanced slightly. The increase in manufacturing employment reflects pri marily gains in food, apparel, chemicals, fabricated metals, and paper. Gains in nonmanufacturing employment have resulted mainly from expansion in government, trade, and construction activity. Because nonmanufacturing workers account for about 85 percent of total nonagricultural em ployment, the numerical increase in employment in that area was much greater than in manufacturing. The rise in nonagricultural employment reflects addi tion of new plants and expansion of existing ones, as well as a general step-up in operations. Since the middle of last year, 740 new plants and major expansions have been announced for Florida, with more than one-fourth of those scheduled for location in Dade County. The need to staff new or expanded plants which have been all or partially completed during the last year or more has helped absorb Florida’s rapidly expanding labor force. Employment opportunities should continue to be good because, in response to the high level of business activity, plans to spend on plant and equipment have recently accelerated in Florida, as they have in the nation. Income and Spending Also Rise With the number of workers and the average workweek and average hourly earnings rising, it is not surprising that incomes have expanded sharply. Seasonally adjusted Charting the Count manufacturing payrolls rose 33 percent during the period since the recession trough. A rise in nonmanufacturing payrolls undoubtedly accompanied the increase in em ployment, but detailed information is not available to document the exact size of the gain. Farm receipts and other nonwage income have also climbed throughout most of this year. Viewing all income and employment data together, it appears that total personal income— wages and salaries, farm receipts, proprietors’ income, and so on—may have risen about 20 percent in the last eighteen months, an increase substantially larger than that for the nation. The sharp growth in personal income has been one of the main factors stimulating strong demands for goods and services of all types. New car registrations— a meas ure of new car sales—were 47 percent higher in thirdquarter 1959 than in the comparable quarter a year earlier. Department store and furniture store sales, which provide Per Capita Personal Income Merida, Sixth District, and United States 1929-58 The rate o f growth in Florida's p er capita income in recent years has paralleled that- of the District and of the nation. a rough guide to consumer spending for durable goods other than autos and nondurable goods, have each risen 18 percent from April 1958 through October 1959. Over this same period, broader indicators of consumer spend ing, which include expenditures for food and services, and for durable and nondurable goods, also have shown a strong upward movement. Finally, bank debits have risen 29 percent during the recent expansion, more than twice the rate of increase for the nation. Debit data reveal trends in total money payments; hence they are a rough guide to changes in overall business activity. •6 • Florida’s Economy Demand for Credit Strong A strong demand for credit has accompanied the expan sion in business activity. Dramatic evidence of the financ ing requirements associated with the recent upturn in home building is found in the 27-percent rise in mortgage holdings of Florida’s savings and loan associations from April 1958 to September 1959. During this same period, loans secured by real estate, particularly those insured by the Federal Housing Administration, also rose sharply at member banks, as did consumer and business loans; outstanding member bank loans of all types, moreover, increased by over $200 million. Total member bank loans in the state have, in fact, in creased almost continuously in recent years. The pace of bank lending slowed during the recession but, after mid1958, moved forward at a fast clip. The steady rise in lending reflects the financial requirements of a population and economy that are growing at a more rapid rate than the nation’s. The growth and diversification of Florida’s economy have resulted in some fundamental shifts in bank lendinginvestment patterns. Traditionally, investments have loomed more important in bank portfolios than loans. In 1939, for example, loans at all member banks accounted for 39 percent of total loans and investments. This propor tion dropped sharply to about 18 percent during the World War II period, but rose steadily thereafter. In July of this year, loans at all member banks exceeded investments for the first time in at least two decades. The rise in employment in Florida since the spring of 195S provides clear evidence of the expansion in ootpot of goods and services. ! Thousands ‘ 1100 S«os Adj Thowsonas - 1100 1 Nonmonufocturing Employment 1050 1050 \ 1000 1000 Manufacturing E m p l o y m e n t ^ — ^ 950 150 ~ 1 1957 1 1958 1 1 1959 _ 200 “ 150 Loans outstanding of a ll m a|or typos increased a t commer cial banks. Total loans and investments, how ever, changed little as a ■ loans w as about offset by a decline in investments. Member Banks Feel Credit Pinch Recent lending-investment patterns at Florida banks reflect the sharp demand for credit associated with the upturn in economic activity. At the same time, the Federal Reserve System—pursuing its objective of contributing to the country’s sustainable economic growth—has, for more than a year, followed a national policy of credit restraint. In order to finance loan expansion in these circumstances, Florida member banks have disposed of investments, primarily United States securities, and have borrowed heavily from the Federal Reserve Bank of Atlanta. Florida member banks did not begin to reduce their in vestment holdings appreciably until the spring of this year. Since then, however, they have disposed of about $100 million of securities. Member banks also stepped up their borrowing at about the same time they began to liquidate securities in quantity. Daily average borrowings totaled about $9 million in April, compared with about $55 million for the first two weeks in November. The liquidation of investments and the rise in borrowlngs by Florida member banks is, of course, characteristic Continued on Page 10 1959 The sharp demand for credit which accompanied the axp«»» sion in business activity is illustrated by the rise In mortgage debt outstanding of savings and loan associations. •7 • Index for the Year 1959 MONTH A Look at Auto Sales Philip M. Webster MONTH PAGE PAGE ECONOMIC CONDITIONS, GENERAL AUTOMOBILE SALES . Apr. 1 BANK ANNOUNCEMENTS Jan. 6 Feb. 3 Mar. 3 Apr. 6 May 10 June 6 July 4 Sept. 6 Oct. 4 Dec. 4 BANK DEPOSITS Ten Billion D ollars.....................................Mar. 2 BANK LOANS Bank Lending to Farmers and Small Businesses, W. M. D a v i s ..................... District Bank Lending in the Months Ahead Alfred P. Johnson..................................... Loans for Property Improvement W. M. D a v i s .......................................... Uptrend in District Bank Lending Harry B r a n d t .......................................... June 3 Sept. 5 Sept. 3 May 6 The Discount Rate and Recovery Harry B r a n d t.......................................... July Doing What Comes Naturally Earle L. R a u b e r ..................................... Feb. 1 1 ECONOMIC CONDITIONS, SIXTH DISTRICT Charting the Course of Florida s Economy Alfred P. Johnson..................................... Dec. Economic Recovery and the Sixth District . 6 Feb. 4 Economic Trends in Louisiana N. Carson B ranan..................................... Nov. 8 Impact of Changing Economic and Credit Conditions on District Banks Alfred P. Johnson..................................... Apr. 4 The Rural Development Program Arthur H. K a n t n e r ................................ Mar. 4 Spotlight on Alabama Basil A. W a p e n s k y ................................May 1 ECONOMIC DEVELOPMENT, SIXTH DISTRICT Renewing Sixth District Cities Philip M. W ebster..................................... Oct. 1 EMPLOYMENT Employment Setting New Records Philip M. W ebster..................................... July BANK OPERATIONS Higher Profits Despite Increased Costs W. M. D a v i s .......................................... Apr. 3 Impact of Changing Economic and Credit Conditions on District Banks Alfred P. Johnson.....................................Apr. 4 3 FARM INCOME Farm Income Sustained in 1959 N. Carson B ranan..................................... Nov. 1 FINANCE CONSTRUCTION Ample Mortgage Money for the Boom in Housing, Alfred P. Johnson..................... June Construction Trends: Letup After a Pickup? Philip M. W ebster.....................................Sept. 1 Ample Mortgage Money for the Boom in Housing, Alfred P. Johnson..................... June Bank Lending to Farmers and Small Businesses, W. M. D avis...........................June 1 3 1 FINANCIAL RESOURCES CONSUMER CREDIT Consumers Enter Competition for Credit . July 5 COTTON Cottonfs Comeback Arthur H. K a n t n e r ................................Oct. 1 FOOD PROCESSING 5 DEPARTMENT STORE SALES District Department Stores Flex Their Muscles Winfield H u t t o n ..................................... Nov. Holiday Sales at District Department Stores Robert M. Y oung..................................... Jan. A Source of Funds for the South’s Economy Alfred P. Johnson..................................... Aug. 3 5 Commercially Freezing Fruits and Vegetables in the Sixth District, N. Carson Branan . Aug. 4 Food Processing; A Major Ingredient in the District's Economy, Philip M. Webster . June 4 INTEREST RATES The Function of Interest Rates Harry B r a n d t ...........................................Dec. • 8 • 1 M O N TH PAGE M O N TH PAGE SIXTH DISTRICT BUSINESS HIGHLIGHTS m o n e t a r y p o l ic y The Discount Rate and Recovery Harry B r a n d t .......................................... July The Function of Interest Rates Harry B r a n d t .......................................... Dec. Jan.-Apr. 8 May 12 June-Oct. 8 Nov.-Dee. 12 1 1 OPERATING RATIOS SIXTH DISTRICT INDEXES (Tables) Higher Profits Despite Increased Costs W. M. D a v i s .......................................... Apr. 3 PERSONAL INCOME Government: An Increasingly Important Source of Income, Philip M. Webster . . Nov. 6 PRICES Food Prices Move Down Arthur H. K a n t n e r ................................Dec. The Postwar Price Rise Philip M. W ebster..................................... Mar. 5 1 PUBLIC FINANCE Paying for Public Schools Alfred P. Johnson..................................... Nov. 4 Sixth District States and Local Governments Continue to Buy Now— Pay Later Alfred P. Johnson..................................... Jan. 1 Bank Debits Construction Contracts Cotton Consumption Department Store Sales Department Store Stocks Electric Power Production Farm Cash Receipts Furniture Store Sales Manufacturing Employment Manufacturing Payrolls Member Bank Deposits Member Bank Loans Nonfarm Employment Petroleum Production Turnover of Demand Deposits Jan.-Apr. 7 May 11 June-Oct. 7 Nov.-Dee. 11 SIXTH DISTRICT STATISTICS (Tablet) RETAIL TRADE District Department Stores Flex Their Muscles Winfield H u t t o n ..................................... Nov. 3 Holiday Sales at District Department Stores Robert M. Y oung..................................... Jan. 5 RURAL DEVELOPMENT The Rural Development Program Arthur H. K a n t n e r ................................Mar. Debits to Individual Demand Deposit Accounts Jan.-Apr. 6 May 10 June-Oct. 6 Nov.-Dee. 10 Department Store Sales and Inventories TEXTILES Revival in the Textile Industry Philip M. W ebster. . . . 4 Jan. SECURITY SALES The Market Decides: Security Sales by District Small Businesses Alfred P. Johnson..................................... May URBAN RENEWAL DEVELOPMENT 8 Renewing Sixth District Cities Philip M. Webster . . . . Oct. 1 Continued from Page 7 of credit stringency and reduced bank liquidity. The same story is told by the loan-deposit ratio, which rose from about 37 percent in April 1958 to about 45 percent in October 1959. Although the ratio in the most recent month was at a post-World War II high, it was still below the national estimate of 52 percent. While Florida banks are undoubtedly feeling the credit pinch, they still have a supply of securities of varying maturities, some of which may be used to finance further loan expansion. This R e v i e w may be received regularly upon request to the Publications Section, Research Department, Federal Reserve Bank of Atlanta, Atlanta 3, Georgia. Debits to Individual Demand Deposit Accounts (In Thousands of Dollars) Short- and Long-Run Prospects Before speculating about where the economy is going, it is best to determine where it has been and where it is now. We have seen that economic activity has risen sharply since the recession trough, even though the rate of in crease has slackened recently, as it often does at this stage of the business cycle. The economy, however, still appears to have within itself the elements necessary for further expansion. If this is so, Florida’s short-run economic pros pects, on the verge of the important winter season, appear to be bright. For the longer-run, some of Florida’s economic goals are to raise the per capita income a^d general welfare of its residents and to achieve a sustainable rate of economic growth sufficient to absorb its expanding labor force. As we have indicated, Florida’s economic progress is linked with that of the nation, although it may deviate in some details in the short run. Florida’s long-run economic prospects, therefore, are closely tied to the success of policies developed at both the national and local levels. A l f r e d P. J o h n s o n Department Store Sales and Inventories * Percent Change A L A B A M A ...................... Birmngham . . . . M obile............................ Montgomery . . . . FLORIDA ............................ Daytona Beach . . . Jacksonville . . . . Miami Area . . . . M ia m i...................... Orlando ...................... St.Ptrsbg-TampaArea . GEORGIA............................ A tla n ta **...................... Augusta ...................... Columbus...................... M aco n ............................ R o m e * * ...................... Savannah ...................... LO U ISIA N A ...................... Baton Rouge . . . . New Orleans . . . . MISSISSIPPI . . . . Jackson ............................ Merid’an** . . . . TENNESSEE ...................... Bristol-Kingsport* Johnson City** . . Bristol (Tenn.&Nfo.)** Chattanooga . . . . K n o xville ...................... D ISTRICT............................ ___________Sates Oct. 1959 from Sept. Oct. 1959 1958 +9 +4 —2 —5 +7 + S +22 +9 +28 +7 +26 —6 +34 +12 +6 +2 i +30 +5 +28 +4 +21 + 13 +3 +9 “ 2 + 10 + 22 +21 +19 +8 +10 +3 +16 +9 +22 +2 +20 +3 +2 + 13 +20 +4 + 15 +5 + 12 +1 + 12 +1 + 12 +5 + 13 +13 + 13 +8 +16 +1 —7 +5 +9 +6 10 Months 1959 from 1958 +5 +2 +6 +5 +12 +7 +19 +8 +6 +11 +18 +6 +6 +15 —0 +4 +17 —1 +4 +2 +6 +9 +8 +6 +8 +4 —0 +8 +9 +8 Inventories Oct 31, 1959 from Sept. 30 Oct 31 1959 1958 +3 +5 —0 +2 +6 +14 +5 +6 +18 +6 + io +6 +6 +30 +20 +24 +9 +4 +10 +9 +6 +9 +6 +6 +6 ±i +7 +10 +11 +5 +7 +5 +6 +3 —9 +4 +12 +6 +11 ♦Reporting stores account for over 90 percent of total District department store sales. **In order to permit publication of figures for this city, a special sample has been constructed that is not confined exclusively to department stores. Figures for non* department stores, however, are not used in computing the District percent changes. Oct. Sept. Oct. 1959 1959 1958 ALABAMA Anniston . 44,206 41,505 40,098 Birmingham 779,870 763.199 748,469 Dothan . 35,772 32,052 34,730 Gadsden . 35,830 32,509 36,673 Huntsville* 79,807 62,956 68,345 Mobile 283,487 261,981 290,912 Montgomery 174,889 168,629 165,178 Selma* . 32.254 29,636 29,562 Tuscaloosa* 64,346 51,406 51,588 Total Reporting Cities 1,530,461 1,472,804 1.436.624 Other Citiesf . . 806,432 723,710 705,494 FLORIDA Daytona Beach* 55,643 56,730 53,172 Fort Lauderdale* 199,229 192,742 189,983 Gainesville* 43,077 40,923 38,686 Jacksonville . 780,499 753,601 740,750 Key West* . 15,298 14,379 13,828 Lakeland* . 76,301 71,897 69,721 Miami . . 850,666 824,971 754,877 Greater Miami* 1,239,983 1,200,669 1,145,156 Orlando . . 249,446 236,285 197,715 Pensacola 86,708 85,448 88,410 St. Petersburg 218,787 216,550 201,420 Tampa . . 394,672 410,152 367,300 West Palm BeacN* 125,833 115,797 117,766 Total Reporting Cities 3,392,414 3,485,476 3,226,666 Other Citiesf 1,696,747 1,473,562 1,387,820 GEORGIA Albany 55,084 54,261 45.597 Athens* . 40,071 37,225 37,998 Atlanta . 2,080,123 2,015,628 1,856,338 Augusta . 109,762 105,178 105,973 Brunswick 26.255 23,155 20,590 Columbus 104,884 110,719 103,096 Elberton . 9,857 9,646 8,650 Gainesville* 46,886 45,436 50,114 Griffin* . 20,962 18,473 17,963 LaGrange* 20,937 18,860 20,786 Macon 124,828 122.047 114,862 Marietta* 34,593 30,204 27,706 Newnan . 21,991 20,201 16,661 Rome* 51,386 46,333 43,994 Savannah 198,737 196,429 194,638 Valdosta . . 34,797 34,654 28,058 Total Reporting Cities 2,981,153 2,693,024 2,888,449 Other Citiesf 986,416 925,706 870,808 LOUISIANA Alexandria* 75,687 70,714 72,410 Baton Rouge 275,626 254,242 256,646 Lafayette* 70,490 65,241 60,795 Lake Charles 84,792 83,750 88,253 New Orleans 1,335,245 1,334,237 1,266,117 Total Reporting Cities 1,841,840 1,740,121 1,812,284 Other Citiesf . 607,340 568,109 592,833 MISSISSIPPI Biloxi-Gulfport* 48,676 44,075 49,491 Hattiesburg . , 37,973 35,861 34.442 Jackson . . , 314,724 287,091 283,366 Laurel* . . , 28,959 24,975 27,475 Meridian . . , 44,845 48,538 42,386 Natchez* . . , 23,234 23,611 21.597 Vicksburg . L 21,247 21,122 19,368 Total Reporting Cities 519,658 489,464 473,934 Other Citiesf . 258,485 241,9% 261,005 TENNESSEE Bristol* . . 43,680 43,824 44,711 Chattanooga . 317,361 297,297 320,635 Johnson City* 43,832 40,614 41,940 Kingsport* . 84,646 80.442 80,556 Knoxv He 238,192 233.200 219,344 Nashville . . 739,461 664.048 732,846 Total Reporting Cities 1,467,172 1,382,877 1,416,580 Other Citiesf . , 543,789 562,027 552,674 SIXTH DISTRICT 16,724,969 15,952,411 15,338,574 Reporting Cities 11,825,760 11,438,292 10,986,949 Other Cit-esf 4,899,209 4,514,119 4.351.625 Total, 32 Cities 10,110,616 9,829,134 9,373,450 UNITED STATES 344 Cities . , 230,248,000 215,938,000 212,894,000 Percent Change Year-to-date 10 Months Oct. 1959 from 1959 Sept. Oct. ^rom 1959 1958 1958 +7 +2 + 12 + 10 +27 —3 +10 +16 + 4 +12 + 3 +10 —2 +14 +17 +20 ’* +4 +8 +12 +6 +9 +25 +7 +14 +15 +12 +14 +13 +15 —2 +5 +5 +8 +3 +10 +11 +14 +9 +25 T+ 4 +11 ts +S +1 +3 +6 +5 +11 +9 +13 +6 +26 —2 +1 — 4 +9 +10 +20 +7 +7 +8 +22 +18 +13 +15 +16 +21 +16 & ^ +9 +3 +15 +1 +23 + +4 ts +2 +3 +11 +M +1 +0 +3 +7 t? +o +2 +7 —2 +15 ±1 —2 +1 ±5 +12 +9 +15 +16 +8 +1 1 +28 +28 +2 +? + « ++1! +9 +25 +32 +17 tiS +M +22 + }f + }J +2 ++28 1? +11 +}l +13 +15 +24 i i + t| +2$ +$ +5 +£ +6 -ts +2 +12 +10 +10 + i6 +17 +14 +20 +18 + 10 +8 +12 +10 +18 +15 +7 —2 +7 +1? +5 +ll +8 +5 +5 +9 + }? +}1 +1 +JJ +14 —0 —1 ++1? +4 +8 ±1 +5 +2 — -2 +J5 .A Lid +7 +8 Is +S i” * Not included in total for 32 cities that are part of the National Bank Debit Series, t Estimated. • 10 • +9 Sixth District Indexes Seasonally Adjusted (1947-49 = 100) 1958______________ j________________________________________ 1959 SEPT. SIXTH DISTRICT Nonfarm Employment.................... . . 136 Manufacturing Employment . . . . . 117 Chemicals.................................. Fabricated M e t a l s ................... Food........................................... Lbr., Wood Prod., Fur. & Fix. Paper & Allied Products . . . Primary M e t a ls ........................ Transportation Equipment . . . Manufacturing Payrolls.................... Cotton Consumption**.................... Electric Power Production** . . . Petrol. Prod, in Coastal Louisiana & Mississippi** . . . Construction Contracts* . . . . Residential.................................. All O t h e r .................................. Farm Cash Receipts........................ Crops ........................................... L ivestock.................................. Dept. Store Sales*/** . . . . A tlanta...................................... Baton R o u g e ............................. Birmingham............................. Chattanooga ............................. Jackson ...................................... Jacksonville ............................. K noxville.................................. M a co n ....................................... M ia m i...................................... New O r le a n s............................. Tampa-St. Petersburg . . . . Dept. Store Stocks*........................ Furniture Store Sales*/** . . . Member Bank Deposits* . . . . Member Bank L o a n s * .................... Bank D ebits*.................................. Turnover of Demand Deposits* . . in Leading C itie s........................ Outside Leading Cities . . . . ALABAMA Nonfarm Employment . . . . Manufacturing Employment . . Manufacturing Payrolls . . . . Furniture Store Sales . . . . Member Bank Deposits . . . . Member Bank Loans.................... Farm Cash Receipts.................... Bank D e b i t s ............................. FLORIDA Nonfarm Employment . . . . Manufacturing Employment . . Manufacturing Payrolls . . . . Furniture Store Sales . . . . Member Bank Deposits . . . . Member Bank Loans.................... Farm Cash Receipts . . . Bank D e b i t s ............................. GEORGIA Nonfarm Employment . . . . Manufacturing Employment . . Manufacturing Payrolls . . . . Furniture Store Sales . . . . Member Bank Deposits . . . . Member Bank Loans.................... Farm Cash Receipts . . . , Bank D e b i t s ............................. LOUISIANA Nonfarm Employment . . . . Manufacturing Employment . . Manufacturing Payrolls . . Furniture Store Sales* . . . . Member Bank Deposits* . . . Member Bank Loans* . . . . Farm Cash R eceipts.................... „ Bank D e b its*............................. MISSISSIPPI Nonfarm Employment . . . . Manufacturing Employment . . Manufacturing Payrolls . . . . Furniture Store Sales* . . . . Member Bank Deposits* . . . Member Bank Loans* . . . . Farm Cash R eceipts.................... Bank D eb its* .................... TENNESSEE Nonfarm Employment . . . . Manufacturing Employment . . Manufacturing Payrolls . . . . Furniture Store Sales* . . . . Member Bank Deposits* . . . Member Bank Loans* . . . . Farm Cash Receipts.................... Bank Debits* . . . . . . . . . . . . 127 182 112 79 159 . . 220 . . 200 . . 311 . . 187 . . 393 . . 371 . . 104 . . 185 . . 168 . . 179 . . 148 . . 107 . . . . . . . . . . 140 206 198 146r 175 . . 146 . . 161 . . 116 . . . . . , . . , . 118 104 175 137 152 234 . . 187 320 . . 233 . . 457 . . 116 . . 191 . . 155 158 . . 128 96 . . 185 . . 155 . . 265 . . 130 . . 247 . . 359 120 . . 115 . , 192 llOr 247 OCT. NOV. 137 119 170 128 178 112 80 159 90 86 213 204 87 316 DEC. 136 118 172 129 179 112 79 160 92 86 217 205 84 330 JAN. FEB. 137 119 173 132 182 113 79 160 91 86 213 204 91 351 137 120 174 132 178 114 80 161 92 87 205 206 92 346 MAR. 138 121 174 133 179 115 78 161 95 88 200 209 93 341 APR. 138 121 176 135 180 115 79 161 98 87 207 214 94 340 MAY 139 122 179 135 181 113 80 163 100 88 210 215 92 346 JUNE 136 118 169 127 179 113 80 159 94 86 203 199 88r 314 139 123 182 135 182 114 79 163 103 88 207 219 89 357 JULY 139 123 185 135 181 112 80 165 102 89 213 224 110 359 AUG. 139 120 185 136 175 112 79 163 73 88 215 216 94 359 SEPT. 139 120 185 131r 177 113 81 165 74 88 205 213 93 351 OCT. 139 120 185 130 173 115 81 163 74 87 205 211 93 n.a. 190 364 433 308 112 84 217 166r 154 180 131 152r 111 135 146 153 258 144 209 202 145 175 285 250 142 149 105 190 333 375 298 123 99 216 170 161 214 129 163 126 136 155 158 230 144 214 207 152 180 291 243 139 146 102 201 309 367 262 130 92 211 176 162 204 138 156 124 142 163 158 256 148 212 205 148 179 292 273 150 161 121 192 336 364 314 141 128 162 174 164 195 136 162 124 143 161 161 242 145 207 200 161 181 298 265 144 153 114 193 445 382 496 134 113 164 168 161 180 127 154 116 141 154 155 248 139 203 198 154 178 303 271 153 162 121 189 463 394 520 142 105 185 167 155 171 127 148 104 136 147 143 251 130 221 195 141 179 305 273 149 160 118 198 453 398 499 150 127 183 175 169 190 135 148 111 130 151 170 263 142 230 201 157 178 311 274 145 164 112 206 397 429 370 151 131 181 182 161 187 135 164 121 135 153 166 269 144 251 200 153 182 316 262 158 174 126 200 411 433 393 151 112 192 186 174 192 127 161 114 139 148 168 277 151 245 202 148 183 321 280 152 174 117 195 416 425 410 151 117 190 190 178 179 136 168 124 138 164 167 301 155 244 212 158 181 329 285 162 179 124 203r 440 444 436 124 95 182 1% 188 190 145 164 131 221 165 177 312 156 263 217 159 183 330 260 154 174 115 214 380 440 331 135 124 194 180 169 168 131 155 111 166 165 158 277 151 241 222r 147 183 331 283 150 164 118 217 n.a. n.a. n.a. n.a. n.a. n.a. 177p 169 184p 124 160 112p 150 159 158 274 149 237p 225 156 182 331 273 147 153 109 120 104 182 135r 153 239 106 221 120 104 186 136 158 246 101 216 120 105 179 131 155 242 111 232 121 105 182 147 155 248 126 233 120 106 185 154 154 254 123 233 121 107 189 125 154 250 147 233 120 107 193 145 156 254 148 238 121 107 190 135 157 259 132 231 121 106 195 134 160 266 162 253 122 109 198 139 160 275 164 254 117 100 173 143 160 269 127 226 117 99 167 139 160 270 134 248 117 98 169 138 159 272 n.a. 241 188 187 326 153 235 463 162 388 188 186 322 170 241 477 147 357 187 186 316 167 241 477 162 403 188 188 318 176 242 485 281 372 189 190 326 184 238 492 232 382 191 193 319 163 235 500 182 391 193 195 343 183 233 511 230 389 195 195 351 176 241 526 227 400 197 198 351 175 243 534 236 437 199 202 364 178 238 544 239 441 199 202 371 212r 246 548 200 408 200 202 370 177 247 550 212 450 200 202 371 180 245 547 n.a. 436 130 115 190 151 154 223 104 224 130 116 201 141 158 226 124 218 130 116 200 153 158 227 153 243 131 115 195 149 159 230 143 236 131 116 197 143 157 237 142 238 131 117 204 134 157 235 169 243 132 118 206 151 157 244 150 248 132 119 211 148 160 246 158 235 132 119 215 139 159 250 140 253 134 120 219 159 157 256 178 261 133 119 216 163 162 260 131 238 134 120 207r 144r 160 260 172 258 134 119 211 158 160 261 n.a. 249 128 96 165 157r 152 268 99 215 128 98 172 197 156 277 114 199 129 97 169 196 159 274 109 230 129 % 173 171 163 284 103 210 129 95 173 174 160 287 112 216 128 % 175 203 165 293 130 227 128 96 178 177 160 293 123 229 128 % 179 191 165 295 159 217 128 96 175 177 165 295 146 240 127 96 176 193 160 302 142 233 126 95 176 168 160 299 86 223 127 95 178 181 160 304 91 248 127 % 171 161 157 307 n.a. 226 130 132 247 80 197 359 99 211 131 133 248 107 198 363 129 214 130 132 245 133 195 369 122 233 132 131 247 114 197 361 93 216 131 131 246 106 190 367 85 210 131 131 251 97 198 378 146 225 130 132 250 114 195 383 129 225 132 134 247 120 191 391 139 208 131 133 247 132 195 398 163 238 131 134 252 115 197 403 145 233 131 134 253 129 194 400 116 224 133 135 253r 95 195 411 110 236 133 135 241 83 202 392 n.a. 230 120 116 187 109r 159 251 114 220 120 116 187 112 161 251 114 213 120 116 196 113 162 256 100 235 120 117 202 111 165 262 98 230 121 118 204 114 160 267 107 242 122 119 205 109 159 268 119 229 123 119 208 114 162 272 109 229 122 119 206 116 166 276 95 225 123 120 206 116 164 283 113 235 122 121 211 105 165 287 87 239 122 119 214 122 165 287 108 221 122 120 211r 109 166 288 105 229 122 119 209 113 167 293 n.a. 225 p Preliminary. r Revised. *F" Sixth District area only. Other total* for entire six states. n.a. Not Available. **Daily average basis. Norrfann and mfg. emp. and payrolls, state depts. of labor; cotton consumption, U. S. Bureau Census; construction contracts, F. W. Dodge Corp.; petrol, prod., U. S. Bureau 01 Mines; elec. power prod., Fed. Power Comm. Other indexes based on data collected I ly this Bank. All indexes calculated by this Bank. • 11 • SIXTH DISTRICT BUSINESS HIGHLIGHT! B u sin e ss activity is still holding steady as offsetting changes occur in major economic sectors. Consumer spending was some what below the mid-summer record, but farm income increased as a result of a high volume of marketings. Employment changed little. Loans and deposits at member banks remained high, and borrowings from the Federal Reserve Bank of A tlanta continued in near-record volume. Consumer spending at retail outlets was still below mid-summer highs. Department store sales, seasonally adjusted, rose in November, but not enough to recover declines in September and October. Household appliance store sales were down slightly further in October, while furniture store sales were up. Recently, sales at these selected types of outlets have indi cated the general direction of total retail sales which, in August and Septem ber, declined slightly from the record set in July. Seasonally adjusted bank debits, which reflect consumer spending as well as check transactions by businesses, governments, and financial institutions, declined slightly in October, after rising sharply the month before. Export trade through District ports increased more than usual in Septem ber, reflecting in part reports to the effect that advance shipments were being made in anticipation of the dock strike which occurred in early October. Savings and loan shares outstanding and ordinary life insurance sales showed little change in October, after allowance for seasonal variation; time deposits, however, were down slightly. Consumer instalment credit outstanding was relatively unchanged. Fall harvesting is in the final stages on District farms, and seeding for winter truck, cover, and pasture crops is active in most areas. Farm m a r k e t ings remain higher than last year primarily because production of cotton, corn, rice, broilers, hogs, and eggs is larger. Prices for most farm p ro d u c ts, on the other hand, are lower than those last fall. Demand deposits at banks in agricultural areas are above a year ago, with all District states except Georgia showing some gain. Nonfarm employment, seasonally adjusted, continued to show virtually no change in October, even though steel workers were still on strike and layoffs due to steel shortages affected some types of employment. Offsetting increases, however, kept manufacturing and nonmanufacturing employ* ment steady. In early November, steel workers returned to their jobs. Changes in nonfarm employment varied little from state to state in October. Though manufacturing employment was unchanged, payrolls declined further because of a decrease in average weekly earnings. The rate of in s u re d unemployment declined after allowance for seasonal changes. Cotton textile activity, as measured by seasonally adjusted cotton sumption, was unchanged in October. In the last six months, cotton textile output has averaged over one-fourth higher than its recession low. The seasonally adjusted three-month average of construction contract awards/ based partly on October data, declined, reflecting mainly a decrease in nonresidential awards. Crude oil production in Coastal Louisiana and Mississippi, already high, rose slightly in October. Reflecting the stability of general business activity, banking figures have shown little change recently. Member bank loans in October, season ally adjusted, remained fairly stable for the third straight month, and total de posits did not change significantly. Borrowings from the Federal Re serve Bank of Atlanta through November remained near the October record high.
@FedFRASER