Full text of Economic Review (Federal Reserve Bank of Atlanta) : June 1983, Volume 68, Number 6

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Economic M|r

Review I s

I FEDERALRESERVE B A N K O F ATLANTA

jjPRICES

JUNE 1983

Adjusting to D i s i n f l a t i o n i ^ j g R A R V

i 5

MMDAS

—

Atlanta Fed Survey

fcFARMS PIK's Mixed

•Mpli

SCREDIT
UNIONS
*

Banks' New Era

Goodbye Delicatessens?

I

Growth Surge Since 1979




r ^ ^ ^

Blessings

PAYMENTS Correspondent

JBANKS

a

Economic
Review
FEDERAL RESERVE BANK OF ATLANTA
President:
William F. F o r d
Sr. Vice President a n d
D i r e c t o r of R e s e a r c h :
D o n a l d L. K o c h
Vice President and
A s s o c i a t e D i r e c t o r of R e s e a r c h :
William N. C o x
Financial Structure:
B. F r a n k K i n g , R e s e a r c h O f f i c e r
D a v i d D- W h i t e h e a d
L a r r y D. W a l l
National Economics:
R o b e r t E. K e l e h e r , R e s e a r c h O f f i c e r
Mary S. R o s e n b a u m
Regional Economics:
G e n e D. Sullivan, R e s e a r c h Officer
Charlie Carter
William J . K a h l e y
Database Management:
D e l o r e s W. S t e i n h a u s e r
Payments Research:
P a u l F. M e t z k e r
Visiting Scholars:
J a m e s R. Barth
G e o r g e W a s h i n g t o n University
J a m e s T. B e n n e t t
G e o r g e M a s o n University
G e o r g e J. Benston
University of R o c h e s t e r
G e r a l d P. D w y e r
E m o r y University
R o b e r t A. E i s e n b e i s
University of North C a r o l i n a
John Hekman
University of North C a r o l i n a
P a u l M. Horvitz
University of H o u s t o n
P e t e r Merrill
P e t e r Merrill A s s o c i a t e s
C o m m u n i c a t i o n s Officer:
D o n a l d E. B e d w e l l
Public Information Representative:
D u a n e Kline
Editing:
G a r y W. T a p p
Graphics:
S u s a n F. T a y l o r
E d d i e W. L e e , Jr.
The Economic Review seeks to inform the public
about Federal Reserve policies and the economic
environment and, in particular, to narrow the gap
between specialists and concerned laymen Views
expressed in the Economic Review aren't necessarily
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trends published by the Atlanta Fed twice a month.




|UNE 1983 E C O N O M I C R E V I E W • V O L U M E LXVIII, N O . 6

The Impact of
Disinflation

4

Who are the winners and losers when inflation
wanes? This article analyzes the eftects of inflation
and looks at southeastern businesses' expectations
concerning future price increases.

The PIK Program's Mixed Effects... 24
Southeastern farmers are responding enthusiastically to expanded government farm programs.
The programs already are benefiting some farmers,
but farm suppliers and farm workers may be hurt by
idle acres.

Southeastern Credit Unions:
From Delicatessen
to Supermarket

40

Credit unions are weighing the risks and benefits of
expanding from their traditional "delicatessen" role
to a broader "supermarket'-like role offering many
different products and services. A survey of Georgia
and Alabama credit unions turned up some strong
feelings—and a trend toward a more full-service
orientation.




MMDAs and Super NOWs:
The Record So Far

15

How are financial institutions structuring their new
money market deposit accounts (MMDAs)? An
Atlanta Fed survey examines why the MM DA has
been so successful, and how it compares with the
new "Super NOW" account.

Correspondent Banking
and the Payments System

33

New Federal Reserve competition and the technology
explosion are reshaping the correspondent banking
industry. What will the industry look like in five years,
and how will the payments system itself be affected?

Depository Institutions:
Trends Show Major Shifts

.'

47

How have the maior types of depository institutions
evolved over the last 20 years? As banks, thrifts and
credit unions enter the new environment of the
1980s, an analysis of historical trends may help
project how these institutions will behave in the rest
of the decade.

Statistical Summary

55

The Impact of
Disinflation

Although most people and businesses benefit when
inflation begins to cool, such a trend can be less cheering
to some who profit when prices are rising. Here's a look at
how disinflation affects different groups in the Southeast.

The economic recession of 1981-82, while painful, saw a significant benefit: a dramatic slowing
of inflation. Inflation, as measured by the Consumer Price Index (CPI), rose 12.4 percent in the
year ending December 1980. By contrast, the
level of the CPI in December 1982 was only 3.9
percent higher than a year earlier. The Producer
Price Index (PPI) also moved up 12.4 percent
from December 1979 to December 1980; in
1982, its advance was only 1.6 percent. Furthermore, both the CPI and PPI counted near-zero
price hikes in the first quarter of 1983. For all 1983,
a few forecasters look for inflation to fall below
even the 3 percent level!
But this slowing of inflation shows up very
unevenly to American families. Used car prices
and medical care costs r o s e at double-digit rates
in 1982. On the other hand, the cost of an athome breakfast of steak, eggs and potatoes
actually fell in 1982, as did the price of gasoline
needed to fuel the family car. Overall, though,
the general dampeningof the inflationary fire has




set the stage for healthier future growth in living
standards, particularly if inflation can be contained
in the current economic expansion.
This article will look closely at some of the
important price changes that contributed to the
recent slowing of inflation and will examine how
some people are affected by the current lowinflation environment. It will also report the
current and expected price experiences of some
business firms in the Southeast. Along the way it
will review how price changes are measured and
why it is important that they are measured
properly.

Costs of Inflation
I nflation refers to a general upward movement
of prices at roughly the same rate. This means
that a given amount of money will buy proportionately fewer goods and services. In addition,
changing market conditions can cause the price
4 J U N E 1983, E C O N O M I C R E V I E W

of a particular good to move up or down compared to all others, independently of the rate of
inflation. Actual price changes reflect a combination
of general inflation and price changes relative to
that general inflation. For example, rising energy
use and other factors caused the price of oil to
rise compared to other products in the 1970s.
However, the rising cost of energy also contributed
to the increase in the aggregate price level in the
decade.
Sustained inflation, whether or not it is expected
by producers and consumers, is costly. If sustained,
inflation eventually erodes a country's capacity
to produce more, channeling resources away
from long-term investments that build up the
nation's productive capacity. Typically, it also
causes a shift in the distribution of purchasing
power among citizens.
For example, when inflation is unexpected, as
it may be early in its growth, individuals and
businesses who own real assets (real estate and
gold, for example) benefit. Since prices of such
assets respond to money demand, those assets
provide protection against higher inflation. However, owners of resources whose prices are fixed
by long-term contracts, like bondholders, lose.
So do those who sell in markets where prices
respond slowly to inflationary pressures.
Recurring surprises in the rate of inflation can
increase uncertainty about the future rate of
inflation. Savers may become reluctant to invest
in long-term financial assets out of fear that
accelerating inflation will erode the value of their
capital. Instead, they may buy short-term assets
that offer protection from large capital losses.
Increased uncertainty also may heighten the
reluctance of buyers and sellers to enter into
long-term contracts. If workers and employers or
suppliers and producers are unsure about future
prices, they will want to renegotiate contracts.
Those additional negotiations cost time and
money. Moreover, planning becomes more difficult when contracts are made for shorter periods.
Surprise inflation also may waste resources
when asset prices adjust at different speeds to
general inflationary pressures. The varying price
responses change relative prices of goods. In
turn, these "faulty" price signals redirect resources into less useful activities. For instance,
funds may flow into real estate or commodity
speculation and away from long-term financial
assets such as corporate bonds.
Even if inflation is anticipated perfectly, resources may be wasted and relative prices distorted.
f. FEDERAL R E S E R V E B A N K O F ATLANTA




Resources are wasted, for example, by the frequent reprinting of catalogs and posting of new
prices. To cope with inflation, people also may
strive to minimize holdings of non-interest bearing
cash. In this effort they roughly balance the cost
to them of more frequent cash withdrawals
against the loss of purchasing power over time of
idle cash balances. But they could use the
resources expended in productive activity.
Inflation is also a kind of tax. Longer term,
inflation-boosted incomes and the U. S. system
of progressive tax rates cause tax-bracket "creep."
In effect, taxes are increased without direct
legislative action as incomes are boosted to
higher tax brackets by inflation. The increasing
real tax burdens reduce incentives for consumers
to save and businesses to invest. Capital projects
whose payoff is distant become less attractive in
an inflationary environment than short-run profits
available from less-productive investments. Concern over rising costs helps explain the increased
resolve of the Federal Reserve System to contain
and reduce inflation.

The Recent Inflation Record
Most of us gauge the course of inflation roughly
by comparing the prices of goods we normally
buy with the prices we paid in the "good old
days." Depending on our age, the reference or
benchmark period may be the depression years,
the decade of the 1950s or, perhaps, the late
1960s. In fact, the U.S. Bureau of Labor Statistics
(BLS) performs exactly the same calculations
when it constructs the CPI.
Changes in the rates of increase in the CPI and
its components in 1980 and 1982 reveal the
extent and composition of disinflation recently.
Overall inflation dropped by two-thirds from
1980 to 1982 but still lingered in 1982. Last
December, the goods included in the CPI market
basket together cost nearly three times as much
as in the reference year, 1967, and were 3.9
percent higher than the previous December
(Table 1).
A closer examination of the components of the
CPI shows that the prices of many goods we
frequently buy actually fell in 1982. Furthermore,
two years earlier many prices were increasing at
double-digit rates. Fruits and vegetables, meat
and eggs all dropped in price at the local grocery
store or super market, for example, helping keep
overall food and drink price hikes below-average.
More importantly, declining interest rates and a
5

Table 1. Consumer Prices: Major Expenditure Categories and Declining Subcomponents*

CPI-AII Urban Consumers:

Percent Change
Dec. 81 - Dec. 82
Dec. 79 - Dec. 80

All Items
Food and Beverages
• rice, pasta, cornmeal
• beef and veal
• poultry
•eggs
• fresh fruits and vegetables

Index Value
Dec. 82

3.9

12.4

292.4

3.2
-4.2
-0.1
-0.7
-12.9
-0.9

10.1
17.1
5.0
15.0
11.1
13.9

279.1
145.3
270.2
190.4
172.5
272.3

Housing
• homeownership financing, taxes,
and insurance
• fuel oil
• sofas
• TV and sound equipment

3.6

13.7

316.3

-4.0
-0.7
-1.0
-1.6

23.3
20.2
6.6
1.8

486.2
708.7
118.2
107.2

Apparel and upkeep
• women's apparel (less shoes)
• boys' and girls' footwear
• jewelry and luggage

1.6
-0.3
-2.3
-3.5

6.8
1.6
9.3
21.4

193.6
105.5
129.0
142.2

Transportation
• gasoline
• automobile parts and equipment
• automobile finance charges

1.7
-6.6
-0.5
-8.8

14.7
18.9
8.6
25.3

294.8
381.3
136.5
173.8

Medical care

11.0

10.0

344.3

5.6

9.6

240.1

12.1

10.1

276.6

Entertainment
Tobacco products, personal care, and
educational expenses

•Major expenditure categories show positive increases because omitted subcomponents (whose prices increased) more than offset falling prices for the
subcomponents listed here.

glut-caused drop in gasoline and fuel oil prices
held down the CPI's important housing and
transportation components.
The importance of these components' price
declines can be judged by the share of the
consumer's dollar spent on these items. Eightythree cents out of each dollar spent by consumers
in December 1981 went for food and beverages,
housingand transportation (Chart 1). Within the
"big three," meats, poultry, fish and eggs accounted
for 3.7 cents, homeownership financing, taxes
and insurance for 12.9 cents, and motor fuel for 6
cents.
Of course, the CPI's price performance was
not uniformly rosy in 1982. Medical care, tobacco,
and personal and educational expenses posted
double-digit price increases. So did pork prices,
led by a hefty 23 percent rise in bacon prices
6




(which apparently caused some people to substitute steak for bacon in the breakfast menu).
Fortunately, these items account for only a small
share of the average consumer's spending.

The Importance of Accurate
Price Measurement
Accurate measurement of price changes helps
consumers understand how much they are affected by inflation. But policymakers and eco- ,
nomic analysts also need to know the pace of
price changes to judge the effectiveness of antiinflation programs, the health of the economy,
and the impact of indexation efforts on the
country's budget. These evaluations begin with
the estimation of Cross National Product (GNP).
GNP is the broadest measure of the nation's*
final output produced m a year. GNP is thus a
J U N E 1983, E C O N O M I C R E V I E W

Chart 1. Consumer Spending
(December 1981)
P e n n i e s S p e n t O u t Of A D o l l a r

I /

§

Transportation
19.3

I

/— Apparel
4.6
« I ^ ^ ^ H ^ W ^ Medical C a r e
4.9
^ ^ ^ ^ ^ ^ ^ ^
Entertainment
|
O t h e r 3.6
Food & Beverages
4.0
17.6

summary measure of overall economic activity
and an indicator of the nation's economic health.
It is measured by adding up the dollar value of all
the goods and services produced during the
year. When prices are changing, however, the
value of goods and services includes both quantity
and price changes. To estimate real output alone,
price indexes are used to convert actual dollar
CNP to real GNP. Because the CPI and PPI are
the indexes used to remove the impact of price
changes from CNP, it is important that they are
calculated accurately.
If the price indexes used to adjust GNP are
inaccurate, then measured real GNP will differ
from actual real GNP. For example, if the price
indexes fail to reflect fully increases in the prices
people pay, then we overestimate our wellbeing. This is because the faulty indexes remove
only some of the price increases and thus only
part of the purely nominal increase in GNP.
Actual real GNP, in such a case, would be less
than measured real GNP (see Box).
Accurate measurement of price changes also is
important for indexation purposes. Price indexes
are often used to protect the purchasing power
or standard of living of the poor, the elderly, or
workers. For example, since the mid-1970s Social
Security benefits have been indexed to the CPI
to ensure that retirees' living standards are protected from inflation. In most recent years, the
cost-of-living increases went into effect in June
and were reflected in July benefit checks. The
percentage increase equalled the amount of
change of the first-quarter average of the CPI of
f. FEDERAL R E S E R V E B A N K O F A T L A N T A




the current year from that of the previous year. I n
1980, this formula produced a 14.3 percent
increase in pensioners' monthly benefits. This
year, the average monthly benefit will rise by 3.4
percent. But legislation passed by Congress recently to ensure solvency of the Social Security
system will delay this year's adjustment to December.
The cost of incorrectly indexing social welfare,
Social Security, or labor contract cost-of-living
adjustments has grown in recent years. Currently,
the share of federal expenditures directly linked
to the CPI or related measures has grown to onethird (or to over one-half if indirectly indexed
expenditures are added). In effect, imperfect
indexing to inflation takes money from Peter to
give to Paul. Those who receive indexed income
will benefit more when the price index used for
indexing overstates their own inflation experience.
That higher benefit is paid from the public coffer,
which is filled with tax collections.
The relative price change that accompanies
such indexation indirectly also causes resources
to be directed toward less useful activities. For
example, businesses may use more capital rather
than more labor if workers are over-compensated
for inflationary price increases. The bigger pay
increase can occur if cost-of-living adjustment
(COLA) clauses are pegged to overstated inflation
in the CPI.

Recent Disinflation: Patterns
and Implications
Several factors that fueled inflation in the late
1970s began to reverse themselves in 1980, thus
helping to cool prices in the 1981-82 recession.
Bountiful crop years worldwide combined with
slowing demand (due largely to the worldwide
recession) to dampen food price increases, for
example. Low commodity prices generally, spurred
by intense international price competition, have
played an important part in limiting price increases.
The softening of international oil prices is a wellpublicized example of the commodity price bust
that occurred in 1982. Together, the strong
foreign exchange value of the dollar and worldwide recession caused U.S. import prices to
decline in 1982, led by lower prices for crude
petroleum and food products. These factors also
lowered domestic inflation.
Anti-inflationary monetary policy and deregulation of industries such as trucking, airlines, and
telecommunications also helped slow price increases. Restrained growth in money and credit
7

How Good Are The Price Indexes?
The use of inaccurate or incomplete information to
estimate price indexes biases the measures from their
true values and causes a variety of distortions in the
economy and in the distribution of national income.
Economists have identified several problems and issues
in the construction and use of price indexes. Some
issues are related to the calculation of real G N P estimates from current dollar estimates, while others relate
to the use of price indexes to estimate changes in living
costs.
One way that the methodology of constructing price
indexes can affect the index value and thus the estimated
value of real GNP, is the use of prices listed in producers'
price catalogs rather than prices actually paid by buyers
Tracking price changes from information on list prices
can underestimate actual price declines in times of
economic weakness if price discounting is prevalent.
Similarly, tracking posted prices can underestimate
inflation in boom periods if producers charge extra to
allocate scarce supplies. The "transactions-list price"
issue has been important historically in construction of
the producer price indexes. It is of little importance with
respect to the Consumer Price Index (CPI), however,
because field workers traditionally have collected prices
of consumer goods and services on an actual transactions basis
The Bureau of Labor Statistics (BLS) has addressed
this pricing weakness in its current comprehensive
revision of the Producer Price Index (PPI) program. B L S
is revising and improving the measurement of producer
price changes to reflect adequately prices at which
transactions actually occur. Currently, 191 out of the
493 mining and manufacturing four-digit industries in
the Standard Industrial Classification (SIC), or almost
40 percent, are being calculated using procedures that
adequately capture transactions prices. These 191
industries represent 57 percent of the value of all
mining and manufacturing shipments. By 1986, all 493
mining and manufacturing industries will be calculated
using the improved procedures (Additional industries
are brought into the system at six-month intervals.)
Other problems also bias the producer price indexes
over the business cycle. These problems include adjustment for changes in the quality of products over time,
reliability of reporter response, and other sampling and
price measurement problems. Unfortunately, the net
direction and magnitude of bias is unknown when all of
these factors are taken into consideration.
The most widely used measure of inflation, and the
one used for indexation purposes, is the CPI. Two
frequently noted "shortcomings" of the C P I are the way
it measures homeownership costs and its use of a fixed
market basket. Critics of the C P I argue that these
factors help explain why the C P I increased at a faster
rate than some other indexes of inflation in the 1970s.

8




They also argue that the C P I overstated the rise in the
cost of living in that period.
One reason the C P I may have overstated inflation is
that, before last January, the official C P I treated the rise
in the asset (investment) value of homeownership as an
increase in the cost of living. In fact, a rise in housing
values can represent an increase in wealth for homeowners who are not buying in the period of rising prices.
This is because they could sell or refinance the housing
asset or lessen other forms of saving to capture the
capital gain associated with the housing price increases.
The C P I also tends to be sensitive to mortgage interest
rate changes and to attach too much importance to
housing because mortgage costs are counted along
with the purchase price.
The C P I is said to overstate cost of living increases
because it tracks prices of a fixed market basket of
goods and services despite changing consumption
patterns. If consumption patterns change from the
fixed, base-year market basket, then tracking the cost of
buying the base-year basket will measure inaccurately
the change in the cost of the more recently chosen
market basket. Furthermore, if the prices of the original
market basket increase faster than the actual goods
chosen more recently, then the C P I will overestimate
the increased cost of living.
Economists at the B L S are well aware of these
"shortcomings." Starting with the January C P I for all
urban consumers, B L S changed the way homeownership cost is officially measured. The new approach
measures what a family would have to pay if it rented its
home, filtering out the investment aspects of owning a
home. Thus wild swings in homeownership costs caused
by volatile interest rates are eliminated. (In 1981, onethird of the rise in the C P I was caused by rapidly
escalating mortgage interest rates.)
A major conceptual and measurement problem arises,
however, in attempting to adjust for the changing
market basket. Essentially there is no way of knowing
whether a change in observed consumption patterns
results in a higher or lower standard of living. A change
can be caused either by varying prices or by a change in
consumer preferences For example, if the Smith family
begins to skip its usual Sunday afternoon ride through
the countryside because of rising gasoline prices its
standards of living is lower. If we want to use the C P I to
index incomes to preserve living standards, the index
should not count this market-basket change. If, however, the family foregoes the car ride so they can all go
jogging together, then a measure used to index income
should reflect this kind of market-basket change. This
example illustrates that, in practice, there is no practical
way to formulate the C P I so that it can be used exactly
to index incomes to a particular living standard.

J U N E 1983, E C O N O M I C R E V I E W

curbed aggregate demand and prices while deregulation increased competition and thereby
drove prices down. In 1982, intense price competition in the trucking industry helped restrain
food price increases due to transportation costs.
But the competitive pressure brought on by the
recession itself also strongly deterred many price
increases. In agriculture, for example, bargainbasement prices on farm machinery sold at
foreclosure auctions were due to weak demand.
In other industries, hard times have forced businesses to hold "garage sales" or to offer deep
discounts (on, say, rentals of oil-drilling rigs). In
these and other ways the recession played a
critical role in reducing inflation.
Naturally, some factors responsible for the
current disinflation are likely to change in the
future. For example, favorable weather and crop
conditions will not persist indefinitely. Furthermore, resumption of healthy world economic
growth will reduce downward price pressure
resulting from weak demand. But mounting evidence indicates that fundamental factors affecting
inflation are improving. Even if progress against
inflation abates, gains already made have had
noticeable effects on different groups in society.
One difficulty in assessing who "wins" and
who "loses" from slowing inflation is that the
answer partly depends on whether the changed
environment is anticipated. For example, investors demand an inflation markup in return for
any expected falling purchasing power of money
they lend. Whether they "lose" thus depends on
the accuracy of their inflation forecast.
Another fundamental difficulty is that gains
and losses from slowing inflation are relative. This
means losers from inflation still suffer in a disinflationary environment, but they lose less; the
opposite is the case for gainers from inflation.1
For example, pensioners who receive a fixed
dollar income, such as beneficiaries of insurance
company annuities, suffer a smaller drop in
purchasing power when inflation slows, but their
purchasing power still declines. Similarly, borrowers
paying down old loans with inflation-cheapened
dollars still benefit, but less so, as inflation abates.
Despite these complications, there are gainers
and losers from a slowing of inflation. Prices do

'Although prices actually fell in early 1983, it is unlikely that we are in the
midst of an actual deflation, or sustained period of falling prices. The
existence of long-term wage and resource-supply contracts, indexed

f. FEDERAL R E S E R V E B A N K O F A T L A N T A




not all rise or fall at the same time. Prices in some
markets, such as raw commodities, almost always
begin to rise more promptly than in other markets,
such as for final consumer goods. Prices also do
not all move at the same pace. For example, the
rate of inflation and nominal interest rates do not
move in lock-step. As a result, changing inflation
rates can turn losers into winners.

How do different inflation rates affect lenders
and borrowers? Suppose the actual interest rate
is 10 percent when prices are rising by 9 percent,
as was the case for a time in 1980. This situation
provided an investor with a one percent real
return, only about one-third the historic average.
If an investor had lent $10,000 forone yearthen,
he would have received back only $9,100 in real
purchasing power when the debt was paid off by
the borrower, plus $1,000 in interest worth $900
in real purchasing power. Furthermore, this investor, if in the 50 percent tax bracket, would
have had to pay $500 in taxes on the interest
income. After lending $10,000 for one year, he
would have been left with a total real after-tax
purchasing power of less than $9,600. In other
words, for this lender the real after-tax interest
return was negative.
The borrower, on the other hand, gained in the
same circumstances. If he was also in the 50
percent tax bracket he made an after-tax interest
payment of only $500 (half of the $1,000 paid in
interest was deducted from income) and gained
$900 from the decline in the real value of the
$10,000 principal payment. Thus, his after-tax
real cost of borrowing was minus 4 percent.

social security payments, welfare programs and unemployment compensation, and the minimum wage law make it practically impossible for
prices to fall for a sustained period of time.
9

Other interest rate and inflation scenarios can
generate quite different results, of course.2 For
example, zero inflation with a 10 percent nominal
interest rate would generate an above-average
real after-tax return to the lender and a high cost
to the borrower. In general, disinflation benefits
creditors because the dollars they are repaid will
buy more than they would otherwise. The dollars
received by bondholders and others on fixed
incomes also stretch farther. Debtors, on the
other hand, must pay off in "harder" money,
particularly when inflation slows unexpectedly.
The benefit to them of higher inflation thus
declines.

of corporate stocks and bonds. Firms not already
saddled with a heavy debt load are in better
position in this queue for funds.
• Industries As interest rates and their inflation
markup component drop along with inflation,
interest rate sensitive businesses such as housing
and transportation are benefiting. Potential buyers
of homes and cars who were unable to qualify for
loans at the higher financing rates are coming
back into the market. For example, overall mortgage interest rates fell from a high of 16.1 percent

Gainers and Losers from Disinflation
The changing inflationary environment actually
affects most of us in many ways. As savers we win
as inflation is checked, but we may lose as
homeowners. Where we live and who we work
for also helps to determine whether we gain or
lose as individuals and as group members. We
are likely to be affected in many ways simultaneously, in some ways favorably and in other
ways adversely. For example:
• Businesses With slowing inflation, low-cost
producers with strong balance sheets should be
in better shape than highly leveraged firms. As
inflation slows, benefits to businesses of paying
off debt with cheaper dollars is diminished and
thus liquidity strains on highly leveraged firms
are heightened. This is because actual revenues
fall short of revenues projected on the basis of
continued high inflation, while the dollar payback schedule remains unchanged. In 1982, high
interest rates also limited the capacity of leveraged
firms to roll over or expand debt. That is why
bankruptcies climbed across the nation during
the year.
Moderating inflation and inflationary expectations
have caused nominal interest rates to fall and
long-term funding of investment projects through
bond and equity issues to pick up. The AAA
corporate bond rate dropped from over 15
percent in mid-1982 to 11.5 percent this April.
During this same period, there was a substantial
increase in the gross proceeds from new offerings

'Inflation can either speed up the real effective pay-back schedule for a
loan (but not the total real amount repaid) or cancel a portion of the real
payment that would be paid with zero inflation. The amount cancelled will
be zero only if the nominal interest rate—the real interest rate plus the
inflation markup—fully incorporates the inflation experience.
10




in May 1982 to an average of 13.0 percent in
March. Because of the sharp decline in interest
rates, combined with relatively flat home prices
and rising incomes, the monthly payment (principal and interest) on the median-priced existing
home fell 16 percent from May to March. This
means the average family needed to devote 30.6
percent of its income to buy the home in March,
down from the 38.3 percent in May 1982.
In housing finance, there has been a decline in
variable rate mortgages (VRMs) and an increase
in fixed-rate mortgages. Home buyers prefer
fixed-rate mortgages because they know how
much they will be paying over the life of the loan.
According to the Federal Home Loan Bank Board,
the share of VRMs dropped from 45 percent of
new loans in March 1982 to 30 percent in March.
This decline is linked to lenders' reduced fears
and uncertainty about inflation.
On the other hand, speculative real estate
ventures, particularly those associated with creative financing of office buildings and farmland,
may suffer as occupancy rates and rental increases
fall short of the rise expected before inflation
J U N E 1983, E C O N O M I C R E V I E W

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abated. Rentals have softened in many cities and
the national office vacancy rate climbed rapidly
in 1982. By December, the Coldwell Banker
office vacancy index was 10.3 percent, more
than double its year-earlier level. For many cities,
1982 was a record year for new office construction
and many construction projects will be completed
this year. This new space suggests continued
softness in occupancy and rental rates.
Lower inflation also deflates the capital gain
that can be expected from tangible asset inflationhedges. Tax shelter activities generally, including
oil-drilling activity and purchase or lease of
computers and other tangible assets, are becoming
less attractive. As inflation-caused bracket creep
slows, after-tax real returns to these investments
become less attractive.
• Government The slowing of bracket creep
will slow government revenue growth. But reduced
inflation accompanied by declining interest rates
also will benefit public borrowers by lowering
the debt-servicing burden of public debt. Lower
interest rates reduce the cost of rolling over
existing debt or financing additional deficits. By
lessening bracket creep, lower inflation may
even slow the growth of the underground economy
by reducing the incentive to avoid the real tax
hikes that accompany bracket creep.
• Consumers To the extent that buyers lower
their expectations of inflation, the"buy now, pay
later" attitude will be reined. With prices falling
or increasing less rapidly, the incentive to buy in
advance of use is reduced. Some economists
even argue that consumers are now liquidating
household goods accumulated in the high inflation
period.
The higher after-tax return that accompanies
reduced inflation and bracket-creep should favor
saving at the expense of consumption. (The
Reagan administration's tax cuts also will spur
more saving out of income). If consumers are
slow to perceive reduced inflation, but not the
reduced growth of their paycheck, spending out
of slower-growing income also may lag as consumers feel poorer. However, rising wealth from
higher prices of financial assets such as stocks
and bonds should spur consumer purchases of
goods and services.
• Workers Cost-of-living adjustment clauses
in labor contracts have been moderating to
reflect the lower inflation environment. Lower
adjustments reinforce the gain already made
against inflation by cutting prospective labor
costs to businesses; they also help to keep

workers' jobs. However, other cost-cutting efforts
to ensure profitability in a low-inflation, competitive environment may slow the recall of laidoff workers. The closing of high-cost plants in the
"smokestack" industries is an example of these
efforts.
• Regions If wage rates in non-unionized markets are determined competitively while union
wages lag in adjusting to reduced inflation, then
southeastern workers' incomes may trail those in
other regions. This is because relatively few
southeastern workers work under wage contracts

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FEDERAL R E S E R V E BANK O F ATLANTA




indexed to inflation. In 1980, fully 25.2 percent
of all nonagricultural workers nationally were
union members compared to only 16.5 percent
in the Sixth District states.
Slower inflation should slowthe shift of wealth
from households, which are net savers as a
group, to businesses and governments, which
are net borrowers. This will likely generate complex gains and losses in the Southeast. On the
one hand, businesses are owned disproportionately
by wealthier individuals, and the Southeast has a
disproportionately high share of the poor. (In
1979, Sixth District states had a greater share of
people with incomes below the poverty level
than the nation as a whole.) But government
transfer payments also account for a higher share
of personal income to Sixth District residents
than nationwide. A slowing of these transfers
may result indirectly from a reduction in the shift
of wealth to the public sector.
11

The Southeast also may be affected adversely
as inflation slows because the region is a net
importer of capital, and the benefits of repaying
debt with cheaper dollars will decline. But lower
inflation and deregulation of capital markets also
encourage greater saving and investment. A
larger inflow of capital might result because of
the relatively good investment opportunities in
this part of the Sunbelt.
The cooling inflation environment also has
caused businesses to alter their selling practices.
As the inflation rate has dropped, many sellers
have tried to hold the price line and maintain
market shares by offering liberalized credit terms,
discounts, rebates, and other inducements.

Southeastern and National Outlook
To find out more specifically how business
practices have been affected by the lower inflation environment, the Atlanta Fed surveyed
corporate buyers in the Southeast in April. In
general, their experiences are in line with the
way we, as individuals, have responded as thrifty
consumers. Their outlook for the remainder of
this year also sounds a cautious, but optimistic,
tone.
That mail survey, directed at more than 40
current or former presidents of local chapters of
the National Association of Purchasing Management in seven states, found the respondents
optimistic that inflation will continue to be restrained, at least for the immediate future. The
corporate buyers—from Alabama, Arkansas, Florida
Georgia, Kentucky, Mississippi and Tennesseelook for overall price increases in the modest 5 to
6 percent range as of year-end 1983.
A majority of the survey respondents reported
that buyers are negotiating more with sellers.
They also have been avoiding commitments to
long-range contracts and are, instead, keeping
material input inventories low. As a consequence,
they are buying in smaller quantities, on an asneeded basis, when possible.
Buyers also are very cost-conscious and cash
management-oriented. They appear to have been
3

ln general, stable prices (and an unchanged distribution of factor
incomes) can result if increases in compensation per employee man-hour
equal the trend of labor productivity. Suppose, for example, that
compensation (wages plus fringe benefits) per hour is $10 and that
output per man-hour is one unit Unit labor cost, or the labor compensation cost required to produce one unit of output, is thus $10. If labor
productivity improves by 2 percent, then output per man-hour rises to

12




successful in lowering costs, often by resisting
price increases. One buyer reported that his
company "doesn't honor price increases." Another
noted that "discounting is more than usual."
These spokesmen—and women—for business
also provide at least a partial perspective on the
trend of production costs. The underlying "core
inflation rate" is dominated by movements in
wages and productivity, although capital and
energy costs are sometimes important as well.
Nonrecurring factors such as weather conditions
are of minimal importance in calculatingthe core
rate.3 Our respondents seem to be optimistic
regarding cost increases in 1983, including labor
compensation. Unsurprisingly, given their jobs,
they are uncertain about the outlook for worker
productivity.
Nationally, evidence suggests that the growth
of productivity (real business product per labor
hour), which declined throughout much of the
1970s and into the early 1980s, is poised to
climb in the economic recovery. Although the
average annual productivity index value for 1982
was only one percent higher than in 1977, a
continued economic upswing undoubtedly will
bring a more rapid increase in output than in
man-hours worked. Indeed, first quarter 1983
data for the manufacturing sector showed productivity advancing at an 8.3 percent annual rate;
it fell 1 percent in 1982. A gain in output per
worker typically occurs during the early phase of
expansions as employers rely on their most experienced workers and most efficient equipment
Cost-cutting efforts in recessions pay off in reduced
machinery down-time and better manpower
and equipment in recoveries.
Several longer-run factors that affect productivity also are turning positive. Worker efficiency
may improve throughout this decade because of
management and technological innovations, an
increase in the amount of capital per worker, and
favorable demographic characteristics of the work
force. Certainly, these changes are responsible
for an outpouring of articles on such topics as
robotics and computers, quality circles and Japanese management techniques, and the consequences of a maturing Baby Boom generation.

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1.02 units If the worker receives a 2 percent hourly raise in compensation,
then he will get $10.20 per hour. But the unit labor cost will remain
unchanged at $10. If the price of the output also remains the same, then
the difference between the price of the product and unit labor cost also
remains the same. However, profits will increase by 2 percent because of
the 2 percent increase in production.

J U N E 1983, E C O N O M I C R E V I E W

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The passage of tax incentives to encourage
investment, deregulation of certain industries,
and the closing of energy-inefficient plants in
recent years add to the rosy productivity outlook
for the 1980s. The lowering of inflation also
should enhance productivity by shifting funds
toward high-yield capital projects.4
A second major variable that determines the
core rate, worker compensation, also is moving
toward lowering unit labor cost. (Unit labor cost
measures compensation per unit of output.)
During the 1981-82 recession, many unions
opted for wage freezes to save jobs. Collectivebargaining settlements negotiated in the first
three quarters of 1982 produced the lowest
wage increases since the BLS started compiling
such data in 1967. (About two-thirds of the
improvement was due to a reduction in COLAs.)
Compensation per hour for the entire business
sector rose by just over 7 percent in 1982, the
smallest increase in a decade, and substantially
below the 10 percent average for 1980 and
1981.
National collective-bargaining settlements in
1983 also are expected to be moderate. In fact,
the master agreement that went into effect
March 1 at eight major steel producers' plants
reduced wage rates about 9 percent and limited
cost-of-living payments. It led an overall 1.4
percent drop in collective-bargaining settlements
in the first quarter, the first such drop since the
government began tracking them 15 years ago.
Typically, the master steel contract has set the
pattern for other steel contracts and has set the
tone of negotiating talks in other industries, such
as aluminum and copper.
Most of our survey respondents expect employer expenditures on wages and salaries, Social
Security, private pension and health plans and
other fringe benefits to grow about the same in
1983 as in the fourth quarter of 1982. Duringthe
fourth quarter, these costs gained 5.5 percent.
During the first quarter of 1983, hourly compension nationally increased only 4.7 percent,
the smallest jump since the fourth quarter of
1971.
Because employee compensation accounts
for about two-thirds of all production costs, the

Chart 2. Price Indexes
S p o t C o m m o d i t i e s ( F o o d , Textiles, M i s c e l l a n e o u s )

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"Against these positive trends lies the danger, according to many economists,
that burgeoning federal deficits will "crowd out" private investment.

f. FEDERAL R E S E R V E B A N K O F A T L A N T A




Metals (Steel-Copper-Lead-Tin-Zinc)

Grains (Wheat-Corn-Oats-Rye-Barley)

Source: Journal of C o m m e r c e

improved performance of unit labor cost overshadows the influence of energy, capital costs
and nonrecurring factors on inflation. However,
the news on these fronts also is positive, particularly the drop in world oil prices. Data Resources,
Inc estimates that the $5 rollback of crude oil
prices will slice 2.8 percentage points off the rise
13

in the PPI in 1983 and 1 percentage point off
consumer price inflation.5 Meanwhile, the U.S.
Department of Agriculture expects food prices
to remain stable for another year.
Nonlabor supplier price increases expected
by our survey respondents show no clear statistical
central tendency, nor do their responses to a
question on expected price hikes in their own
industries in 1983.
Unfortunately, statistical tests of the survey
results are inappropriate because of the limited
sample size. In addition, responding firms include
both durable and nondurable manufacturers as
well as nonmanufacturing businesses, and the
outlook among these sectors differs.6 Despite
these statistical limitations, majorities in our
survey do expect historically modest purchase
and sales price hikes.
Typically, the costs of raw materials, whose
prices are among the first to decelerate or actually
decline in economic downturns, begin to accelerate early in expansions. A pickup in demand is
reflected in rising prices of raw materials and
other basic commodities particularly sensitive to
increased demand. Because raw materials are
used to produce more finished goods, higher
commodity prices are built into final goods
prices. In this way, rising basic materials prices
help explain intermediate goods prices which, in
turn, explain prices for final products. These
usual patterns also may explain why the responses
we obtained differ.
Several indexes of commodity prices have
been rising since late in 1982, following sharp
declines in the 1981-82 recession. The Journal of
Commerce's index of spot prices, for example,
increased by 15 percent from November 1982
to mid-April 1983. However, the index was still
18 percent lower than in November 1980 when

S

DRI, U.S. Review, April 1983, p. 171.
A survey of businesses conducted by the U.S. Bureau ot Economic
Analysis in November-December 1982 showed that manufacturers expected the prices of goods and services they sell to increase by 5 percent
in 1983, a slightly higher rate than in 1982. Public utilities prices, though,
are expected to rise by 12.5 percent

6

14




it started a steep 30 percent decline which lasted
for two years (Chart 2). The index was paced
downward in the recession by precipitous peakto-trough declines in metals (49.1 percent) and
grains (30.1 percent) since 1980.
The recent partial recovery of spot prices has
been led by a rebound in metals and grains
prices. From November through mid-April grain
prices jumped by almost 27 percent. The rollercoaster ride of these commodity prices reflects
their sensitivity to demand.
Our respondents strongly indicated that a rise
in raw material prices, including energy costs,
would be a sign of a rekindling of inflation. These
buyers also indicated that they have noticed
some increases in materials prices—specifically,
in metals prices. But, overall, they said that it is
still a "buyers' market."
Many economists argue that the current raw
material price increases confirm a pickup of
economic activity and return of prices to profitable
levels from below-cost prices during the recession.
They say industrial commodities constitute only
a small share of the cost of finished goods and,
thus, exert little direct inflationary pressure.
Nevertheless, future movements in these sensitive
commodities prices will be watched closely as a
leading indicator of the probable course of
future price changes.7
Clearly, because the future is inherently uncertain, so are the inflation expectations of corporate buyers in the Southeast. But their outlook
for overall price increases by the end of this
year—in the 5-6 percent range—is encouraging.
Their experiences also suggest that inflation has
been brought under at least temporary control.
—William j. Kahley

'Some other common, although not always accurate, leading indicators of
a pickup in inflation (or inflation expectations) are rising precious metals
prices and long-term interest rates and a drop in the foreign exchange
value of the dollar. Precious metals are viewed by investors as an inflation
hedge, as are some foreign currencies, while rising long-term interest
rates may incorporate a rising inflation-risk premium.
J U N E 1983, E C O N O M I C R E V I E W

MMDAs and
Super NOWs:
The Record So Far
The money market deposit account (MMDA)
is one of the most successful new accounts
ever to be offered by commercial banks or, for
that matter by any type of financial institution.
In the course of just four and one-half months
this new instrument pulled in better than $340
billion, dwarfing the combined total of the
money market mutual funds. Super NOWs,
while enjoying some success, have by no means
measured up to expectations. This article tracks
the history of these new accounts and reports
on a recent Atlanta Fed survey on their characteristics and public acceptance in the Sixth Federal
Reserve District.

Characteristics of the New Accounts
The MM DA has the following characteristics:
(1) the account must have an initial average
balance of at least $2,500; (2) the account does
not have to have a minimum maturity requirement but the offering institution is required to
reserve the right to require at least seven days

An Atlanta Fed survey revealed wide variations in
interest rates on both MMDA and Super NOW
accounts. Unless its features are adjusted, the Super
NOW account seems unlikely to match the MMDA's
popularity with consumers.

f. FEDERAL R E S E R V E B A N K O F A T L A N T A




15

notice prior to withdrawal; (3) the account has
no interest rate ceiling on deposits as long as
the average balance requirements are met; (4)
the account can be checkable, but the account
holder is limited to a total of three preauthorized
transfers and no more than three checks per
month; (5) deposits in MMDAs up to $100,000
are insured; (6) the reserve requirement on the
MMDAs is zero on personal accounts and 3
percent on nonpersonal accounts; (7) the account is available to all depositors including
corporations.

indications the attempt was extremely successful. For example, one bank in the Coral Gables,
Florida area attempted to raise $5 million by
offering 25 percent on a bridge account going
into an MMDA. Within two days this bank had
raised better than $20 million and was forced
to discontinue the offer. (This bank almost
doubled in size as a result of offering 25
percent on MMDA accounts.)

The Super NOW account differs from the
MMDA in three important respects. First, the
Super NOW account provides the depositor
with unlimited checking facilities. Second, it
carries transaction account reserve requirements
that effectively reduce the interest rate the
financial institution is willing to offer the depositor.
Therefore, the money market accounts, having at
most a small reserve requirement, carries higher
rates than the Super NOW. Third, the Super
NOW account is available to individuals, proprietorships, and nonprofit organizations but not
to corporations.

"The funds remained
even when rates fell..."

Banks and thrifts nationwide actively advertised
the new accounts. Price competition was remarkable in some areas. For example, many
banks and thrift institutions in the Atlanta area
advertised what was termed a "bridge account"
that would automatically convert to an MMDA
on December 14. In order to attract consumer
attention, many of the Atlanta institutions offered
high interest rates on these new accounts.
First National Bank of Atlanta started the
melee by offering 18.65 percent for the first
30 days on its money market deposit accounts.
The 18.65 percent did not reflect market conditions for money but instead represented the
date that the First National Bank was chartered.
Reacting to this offer, many of the banks and
S&Ls in the Atlanta area quickly jumped in and
advertised introductory rates ranging from 20
to 22 percent for the first 30 days. The result
was a very rapid inflow of funds into the new
type of account. In fact, it was such a rapid
inflow of funds that the offers were either
severely limited or eliminated after just a day
and a half to two days. Although the Atlanta
experience was unique in the nation in terms of
the number of institutions involved, a substantial number of financial institutions across the
country offered rates at these levels. By all
16




Although the Atlanta banks were trying to
attract permanent money, the extremely high
rates offered on these MMDA accounts were
expected to draw "hot money," money that is
very sensitive to interest rates. In general the
Atlanta banks expected a substantial outflow
of these funds when rates returned to more
normal levels. A survey of the institutions,
however, revealed that funds shifted into the
new types of accounts were by and large not
hot money. The funds remained even when
rates fell to a level comparable to those offered
by the money market mutual funds. The extremely high rates were in effect for only 30 to 45
days. Some of the bridge accounts were initiated
almost 15 days prior to December 14, the date
on which the MMDA could be offered, which
meant that the depositor could earn the introductory high rate for the period covered by the
bridge account and the first 30 days of the
MMDA. Four days after the 30 day period had
expired, a telephone survey of Atlanta bankers
indicated that they lost less than ten percent of
the funds attracted by the high introductory
offer. The Atlanta banks have continued to
build these accounts and have experienced no
strong runoff as a result of going back to market
rates comparable to those offered by the money
market mutual funds.
Other than the characteristics mandated by
the DIDC, the characteristics of the new account
were left largely to the financial institutions
offering the accounts. For instance, although
the DIDC mandated a $2,500 minimum balance
requirement, financial institutions can require
J U N E 1983, E C O N O M I C R E V I E W

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substantially greater minimum balances. Although the DIDC authorized financial institutions to allow checking privileges on the new
account they are not required to do so. As a
result, the exact characteristics of the MMDAs
differed substantially among financial institutions. For example, some commercial banks, in
the belief that the consumer was looking for an
investment account and not a transaction account, did not offer the checkable privileges on
their MMDAs. This reduced their costs and
allowed them to pay slightly higher rates than
the MMDAs, which carry the checkable privileges.

Financial institutions also have a great deal of
leeway in shaping their Super N O W offering. In
j fact, in an attempt to avoid the reserve requirements imposed on the Super N O W accounts,
at least one financial institution offered what
appeared to be a Super NOW but what was in
fact an MM DA tied by a sweep arrangement to
a regular NOW account. Since the MM DA
f account allows three preauthorized transfers
f and up to three checks per month, a sweep was
^ used to automatically transfer funds from the
MM DA account to a checkable N O W account,
V . thus avoiding the reserve requirements on the
Super NOW while allowing the depositor un* limited checking facilities.
The obvious reasons why the Super NOW
has experienced less success than the MM DA
are that the MM DA was offered first with
i
limited checkable privileges, and the MM DA
pays a higher rate to the depositor because it
*!» lacks reserve requirements on personal accounts.
The depositor gains little by establishing a
Super N O W unless the unlimited transaction
• facility is necessary. Therefore, it is not surprising
that the Super NOW has experienced less
consumer acceptance than did the MM DA
^ # Table 1 shows a comparison of the size of the
MM DA and Super NOW relative to other types
of accounts as of April 1983.
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To understand more about the MMDA and
the Super NOW accounts, the Federal Reserve
Bank of Atlanta surveyed institutions within
our district. We wanted to find out: (1) what
were the characteristics of the Super NOW and
the MMDA accounts currently being offered;
(2) what were the sources from which funds
flowed into these accounts and (3) how were
consumers accepting the new accounts.
FEDERAL R E S E R V E B A N K O F A T L A N T A

I




Table 1. MMDA and Super NOW Deposits in U.S.
Compared to Other Types of Accounts
($billion as of end of April, 1983)
Total
MMDA
Super NOW

341.2
29.4

Demand Deposits
Other Checkable Accounts*
Savings Deposits**

242.3
90.8
322.7

Money Market Mutual Funds***

176.1

* excluding Super NOW
" MMDA
*** General Purpose, broker/dealer and Institutional,
taxable funds only.

Results of the Sixth District Survey
The survey consisted of a random sample of
1 76 banks and S&Ls in the Sixth Federal Reserve
District. It was carried out over a one month
period, and each respondant was resurveyed
during the middle of April to establish comparative rates on the MMDAs and Super NOWs. Of
the total number of organizations surveyed,
approximately 80 percent of the institutions
offered both the MMDA and the Super N O W
account Sixteen percent offered only the MMDA
and only 6 percent said that they offered neither.
Clearly, the Super N O W account is viewed as a
complementary service to the MMDA; the Super
N O W was never offered by itself (see Table
2).

Of those institutions that offered both the
MMDA and the Super NOW, 84 percent
allowed checks to be written against the MMDA
account. Of those institutions that were only
offering the MMDA account, 91 percent allowed
checks to be written against these accounts. In
the case of banks that offered only the MMDA
accounts, we found that 100 percent allowed
checks to be written against the MMDA accounts. Only some S&Ls offering only the
MMDA accounts would not allow checks to be
written against these accounts.
Ninety one percent of the institutions offering
the MMDA required only $2,500 as their minimum. One percent required $3,000, seven
percent required $5,000 as a minimum and only
one required $10,000 or more as a minimum
17

Table 2. Banks and S&Ls Offering MMDA and/or
Super NOW Accounts
Percent of
Banks and
S&Ls

Percent of
Banks

Percent of
S&Ls

MMDA and
Super NOW

80

79

82

MMDA Only

16

16

16

Super NOW
Only

0

0

0

Offering
Neither
Account

6

5

4

Source: Federal Reserve Bank of Atlanta Survey

initial deposit. These same institutions that also
offered Super NOWs indicated that 94 percent
required the $2,500 for the Super NOW, zero
required $3,000, five percent a minimum of
$5,000 deposit and one percent required $10,000
or more. Of those institutions that offered only
the MM DA, 91 percent required $2,500, five
percent required $5,000 and five percent required
$10,000 or more. Few institutions were giving up
the checkable feature as a cost saving method.
Some of the money market mutual funds also
require that you make minimum additional
deposits. We thought it would be interesting to
find out how many of the banks and S&Ls
reserved this privilege also. We found that of the
organizations that offered both the MM DA and
Super Now accounts, 87 percent had no minimum
on additional deposits. Only six percent had
$100 minimums, five percent had $500 minimums
and one percent required a minimum of $2,500
on additional deposits. For the Super NOW, the
same group, 95 percent required no minimum
size on additional deposits, four percent required
$100 and one percent required $500. Of those
institutions offering only the MM DA, 100 percent
indicated that they had no minimum additional
deposit size requirement.
If the minimum balance on the MMDA falls
below $2,500 and following customer notification
is not brought back to this level, the account falls
out of the MM DA category and is reservable as a
transactions account. This effectively increases
the commercial bank's cost associated with the
18




account. If the same occurs on a Super NOW
account, it becomes ineligible to pay money
market rates. Therefore, we examined the penalties on account holders whose accounts fall
below the minimum $2,500. We found that in
the institutions offering both the MMDA and the
Super NOW 69 percent had no charge on an
MMDA that falls below the minimum balance. »
Only 31 percent of these institutions had a
specific charge for an account holder whose
account dipped below the $2,500 minimum.
The range of the charges ran from $3 to $15.
Turning to those same institutions that were
offering Super NOW accounts, we found that 50
percent of those had no charge, but the remaining
50 percent that did charge required between $2
and $15 as a penalty. The same held true for
those institutions that offered only the MMDA
account. Sixty-four percent had no specific
charge on accounts whose balances dipped
below the minimum. Those that did, however,
said their average charge ran between $2 and
$10 for such a penalty.
To expand on this a bit, when the balances
drop below $2,500 the account effectively
converts to a N O W account on which banks and
S&Ls may pay no more than 51/» percent. Most of
the institutions applied these rates when minimum balances dipped below the $2,500 mark
while still considering them MMDAs or Super
NOWs. However, a minority of institutions
either switched the account to a different type of
account, paid a lower rate of interest or paid no
interest when balances fell below $2,500.
Sixty-nine percent of the institutions that
offered both the MMDA and the Super N O W
indicated that if the minimum balance requirement was not met that they simply paid 51/»
percent interest on the account without restructuring the account. Only three percent paid no
interest on these accounts, 1 8 percent switched
them to N O W accounts and nine percent
switched them to passbook savings. The percentages were very similar on the penalties
associated with the Super NOWs. Sixty-five
percent simply left them in the Super NOW
category but paid only the 51/» interest, 2 percent
reduced the interest to 3 percent, 5 percent paid
no interest at all, 20 percent shifted them back to
a regular NOW account by changing the structure
and nine percent switched them into passbook.
Of those institutions that offered only the
MMDA, 91 percent simply reduced the interest
payable on the account to 51/» percent, 5 percent
J U N E 1983, E C O N O M I C R E V I E W

switched them into N O W accounts and the
remaining 4 percent went into passbook savings.
Another penalty associated with below minimum balances had to do with increased fees for
checking. Only 4 percent of the institutions
surveyed actually applied an increase to the fees
they charge for checking privileges if the MMDA
balance dipped below the minimum. The average
increase was approximately 50 cents per check
but ranging between an increase of 20 cents to
$1 per check cashed. On the Super NOWs the
average increase in fees was 30 cents per check
with a range from 15 cents to $1. Interestingly,
none of the S&Ls increased their checking fees
on MMDAs and only six S&Ls increased their
checking fees on Super NOWs when minimum
balances fell below the required level.
We were also interested in how the institution
establishes the rate it pays on the MMDA. In the

"Only 28 percent of MMDAs and
Super NOWs were indexed to a
market instrument."

vast majority of instances the actual rate on the
MMDA was established by a management
decision either based on local market conditions
or on the institution's desire to maintain a
spread, usually four to five percent, between its
loan rate and its cost of funds. Only 28 percent of
those institutions offering both MMDAs and
Super NOWs said they indexed their offer rates
on MMDAs to some type of market instrument.
Eight percent tied their rate to the 91-day
treasury bill rate and 5 percent tied their rate to
the 182-day treasury bill rate. Another 6 percent
tied their rate to an average of the money market
fund rates and 8 percent tied their rates to time
certificate deposits. Only one percent failed to
specify. Twenty-three percent of these same
institutions indexed their rate on the Super
NOW. The percentages going to each of the
above categories of market instruments were
approximately the same. Of those institutions
that offered only the MMDA account, 23
percent indexed their rate to a money market
instrument, 9 percent to 91-day treasury bills,
nine percent to money market funds and 5
percent failed to specify.
f. FEDERAL R E S E R V E B A N K O F A T L A N T A




We found that approximately 72 percent of all
firms adjusted their rates weekly. Eleven percent
adjusted their rates monthly on the MMDAs.
Rate revisions on Super NOWs tracked those on
the MMDA very closely. Interestingly, in terms of
how long these rates are guaranteed, 20 percent
of the institutions did not guarantee the rate at all
on either type of account. Twelve percent had a
one day guarantee, 58 percent guaranteed it for
a week and 10 percent guaranteed it for a month.
Therefore, the guarantee and the interest rate
vary substantially among institutions.
S&Ls tended to pay higher rates on both
MMDAs and Super NOWs than commercial
banks. On average, commercial banks paid
8.2 percent on MMDAs, and their rates ranged
from 6 percent to 9.3 percent during the
middle of April. The average paid by S&Ls on
MMDAs was 8.4 percent, ranging from a high of
9.5 percent to a low of 7.5 percent. Therefore on
the MMDAs, S&Ls paid approximately 25 basis
points more than banks on average.
On the Super NOWs the story is much the
same. S&Ls paid an average of 7.4 percent for
Super NOWs, ranging from 6 to 8.5 percent
Banks paid an average of 7.2 for Super NOWs
ranging from 6.0 to 8.8 percent. These tremendous rate variations among similar types of
institutions as well as between different types of
institutions indicate that neither MMDAs nor
Super NOWs may be classed as a homogeneous account.
Consumers should be aware of the rate
differential—among banks a differential on
MMDAs of 325 basis points and among S&Ls a
200 basis point spread. The differential between
banks and S&Ls over all markets ranged from 50
basis points to 150 basis points for MMDAs.
Similar spreads were found for the Super NOWs.
Consumers who want to maximize the return on
their savings should consider not only the type of
institutions paying the highest yield but also the
return offered by specific institutions; it really
makes a difference.
Turning now to service charges other than
those associated with penalty charges because
of below minimum balances, we find that
approximately 69 percent of the firms surveyed
had no monthly fees associated with the MMDA
and 56 percent had no minimum fees associated
with the Super NOW. Five percent indicated
they had a flat fee on the MMDA that ran from
$2.50 to $10, and 24 percent of the firms
interviewed indicated that they had a flat fee on
19

History
The Banking Act of 1933 authorized federal regulatory
agencies such as the Federal Reserve to establish interest
rate ceilings on deposit accounts at commercial banks
and prohibited the payment of interest on demand deposits1
The objective was to limit potentially ruinous price
competition among commercial banks in order to ensure
a safe and sound banking system for the public. As a
result of these regulatory imposed interest rate ceilings on
deposit accounts commercial banks were less able to
compete through price among themselves. They were
also restricted in the degree to which they could compete
through price with financial institutions not subject to rate
limitations. As long as market interest rates remained low
and commercial banks were viewed by the public as
providing a service or set of services that could be
provided by no other type of financial institution, banks
felt little competitive pressure from nonbank competitors.
The public was offered no real alternative to demand
deposit accounts and time and savings accounts that
carried interest rate ceilings.
This situation continued until the late 1960s and early
1970s when banks began marketing large C D s aggressively to attract consumers. Consumers with sufficient
funds also became interested in the direct purchase of
Treasury Bills as interest rates rose. Consumers with
insufficient resources to enter these markets were
unable to acquire the higher yielding assets.
Then, in 1972, innovators created the first money
market fund, basically a mutual fund pools the funds of
many shareholders and invests the resulting funds in
money market instruments. These funds turned out to be
the inspiration for the new MMDA account offered by
commercial banks. Money market funds grew rather
slowly, at the end of 1977, 50 funds held approximately
$4 billion in assets. However, in 1978 in response to
rising short-term interest rates, net assets of money
market mutual funds increased to better than $11 billion.
As short-term interest rates continued to rise through
1979 and early 1980 the number and net assets of
money market mutual funds exploded. By the end of
1980 money market mutual funds contained better than
$74 billion in net assets. These funds continued to
increase during 1981 and 1982, reaching a peak on
December 1, 1982, at $232 billion.
As interest rates rose, small depositors found themselves increasingly disadvantaged by not being able to
earn market rates through their commercial banks. The
banks, in effect, were being subsidized by the small
depositor. A bank was required by law to pay no more
than 5Va percent on time and savings accounts, but could
lend these funds at prevailing market rates. While marketdetermined rates were slightly higher than the ceiling
rates, small depositors were unconcerned. But when
market rates exploded and the spreads widened, the
small depositors began looking for alternative accounts
that would pay market rates. In money market funds,
consumers found what they were looking for.
The money market funds were based on a fairly simple
concept. Small depositors were unable to invest in
relatively safe instruments like commercial paper, commercial bank certificates of deposits, and treasury bills
because of the large minimum denominations in which
these instruments were offered. The money market funds
simply accumulated or pooled the resources of interested
investors and then acquired the money market instruments paying high rates. The result was a money market
instrument available to small depositors that would pay
money market rates.
Later, in search of higher yields or risk diversification,
these funds began to invest in other types of instruments
20




such as bankers acceptances, Eurodollars, repurchase
agreements and U.S. agency securities, but the basic
concept remained the same. Pool the resources of small
investors, invest in money market instruments with minimum denominations larger than the small investor could
afford, and then divide up the earnings of the pooled
funds in proportion to the size of the investors' deposits.
As history shows, this was a very successful strategy.
As money market rates continued to climb during 1979
and early 1980, the money market funds continued to
attract deposits at a rate which alarmed the regulated
institutions. The plight of the thrift institutions exemplified
the problem. As market-determined interest rates rose
and banks and other regulated financial institutions were
unable to offer competitive rates on deposits, an outflow
naturally followed. Funds moved out of banks and thrifts
into the money market funds paying the attractive rates.
This outflow caused the S & L s serious problems because
they had funded long-term loans with short-term deposits
subject to Regulation Q (interest rate) ceilings. In an
attempt to reattract these funds or at least stem the
outflow, commercial banks and thrifts were authorized to
offer money market certificates in June 1978. The
certificates were indexed to the six month treasury bill
rate and were available in denominations as low as
$10,000. Other indexed certificates were to follow, but
the net effect was to raise substantially the thrifts' cost of
funds. In the absence of indexed certificates, depository
institutions would have experienced even greater outflows
which would have aggravated the situation further. As the
investor sought higher returns, S&Ls faced the prospect
of having to fund a larger portion of their outstanding
loans with instruments that paid money market or near
money market rates. Because the majority of their loans
were carried at the low rates prevailing during the period
in which the loan was actually made, the S&Ls found
themselves paying more to attract funds than they were
receiving on their loans. The result was severe pressure
on profits resulting in the inability of a number of these
institutions to survive.
Reflecting in part these pressures, Congress passed
the Depository Institution Deregulation and Monetary
Control Act of 1980, which among other things authorized
the phaseout of Regulation Q restrictions. This act also
established the Depository Institutions Deregulation
Committee, (DIDC) composed of the secretary of the
Treasury, the chairman of the Federal Reserve Board, the
Comptroller of the Currency, the chairman of the Federal
Deposit Insurance Corporation, the chairman of the
National Credit Union Administration and the chairman of
the Federal Home Loan Bank Board. The purpose of this
committee is to oversee and establish rules for the
ultimate deregulation of interest rate ceilings.
The plight of the savings and loan industry and
continuing high interest rates were partially responsible
for the passage of the Garn-St Germain Depository
Institutions Act of 1982. Section 327 of this act directed
the Depository Institutions Deregulation Committee to
authorize commercial banks, S & L s and mutual savings
banks to offer money market accounts free of any
interest rate ceilings. The committee was instructed to
structure the new account in such a way as to make it
directly competitive with accounts offered by money
market mutual funds. The committee quickly responded
and on December 14, 1982 the MMDA was born. The
DIDC then surprised the financial community by giving
birth to another account dubbed the Super NOW.
Regulated institutions found themselves with two new
accounts directly comparable to that offered by the
money market funds.
J U N E 1983, E C O N O M I C R E V I E W

'

Super NOWs that varied from $1 to $10. Of
those firms offering Super NOWs, another 20
percent had tiered fees that ranged from $2 to
$10 depending on the size of the account
We found that institutions differed in the way
they established their rate schedules on the
MMDAs and the Super NOWs. Some institutions
pay a flat rate on all funds in either one of these
accounts. Other institutions tiered their rates by
deposit size. In the category of institution
offering both the MMDA and the Super NOW,
we found that 92 percent paid a flat rate on all
funds deposited. Only 8 percent of that group
tiered their rates. The flat rates ranged between 6
percent and 9.5 percent, an average of 7.9
percent This indicates that among institutions
there was better than a 3% point differential
between rates paid during the middle of the

"An estimated 20 percent or less
of MMDA funds came from money
market mutual funds."

month of April. I n terms of those tiered rates, we
found that the progression normally had cutoff
points at $5,000 and $20,000 and the increase in
the interest rate differentials averaged about 40
basis points. These same institutions indicated
that on their Super NOW account 95 percent of
them had flat rates. The rates range between
5.25 and 8.75 percent, indicatingagain a range of
approximately 31/2 percentage points depending
on the institution. The tiering structure was
slightly different on the Super NOW accounts;
the breaking points tended to be at $5,000 and
$20,000 and the interest rate differential varied
from 25 basis points to 100 basis points with the
average being somewhere in the neighborhood
of about 75 basis points. Of those financial
institutions that offered only the MMDA account
their flat rate, tiered rates and spreads matched
those of the institutions that offered both the
MMDA and the Super NOW.
Only six institutions had any type of withdrawal penalty. Seventy-two percent of the
institutions that offered both MMDAs and Super
NOWs had no fee for writing checks against the
MMDAs, and 60 percent had no charge for
f. FEDERAL R E S E R V E B A N K O F A T L A N T A




checks written against the Super NOW. Of the
same type of firms, one percent indicated that
there was a flat service charge on the MMDA,
and 18 percent had a flat fee on the Super NOW.
Twenty-five percent of these firms had a service
charge based on the number of checks written
against the MMDA, and fourteen percent had
the same type of charge on the number of
checks written against the Super NOW. Again,
these charges can affect the effective yield on
the MMDA or Super NOW, and the consumer
should be aware of the vast differences in
charges by various institutions.
Some institutions use additional benefits to
attract consumers to the Super N O W or the
M M D A The most popular types of additional
benefits were: revolving line of credit, traveler's
checks, a toll free phone number, bill paying
feature (pay by phone), bonus on MMDAs if
check is drawn on a money market fund, and free
checking account with an MMDA.
Where did the $340 billion that flowed into
the banks and S&Ls come from? Although many
of the firms contacted could not answer this
question, those that estimated the sources said
about 20 percent or less came from money
market mutual funds. Approximately 60 percent
of the funds were inhouse. The remainder came
from other banks and S&Ls in the local area or
credit unions. Because the MMDA became
available soon after the maturity date on a large
volume of the all savers certificates, it was
virtually impossible for these banks to indicate
exactly where these funds were coming from. A
lot of money transferred from the all savers
certificate was put into very short-term instruments in order to be switched into the MMDA
account at some later date as were funds from
other money market instruments. Some of these
funds apparently went into the overnight repo
market, some were simply deposited into savings
accounts, and some went into demand deposit
accounts. In addition, funds being transferred
from one institution to another may have gone
through the demand deposit account of either
the receiving institution or of another local
institution that perhaps did not offer the MMDA,
therefore further clouding the issue.

Conclusions
The MMDA and Super N O W are not standardized animals. They vary in terms of their rates,
their penalties, their structure among institutions
21

Table 3. Summary Table. Selected Characteristics of the MMDA and Super NOW
Bank
1. Percent of Firms using
Flat Rate Interest
Tiered Rate Interest
2. Flat Rate Interest
Average
Range
3. Fees for checking
None
Flat Fee
By Balance of Account
By Number of Checks Written
4. Rates
Reviewed: Daily
Weekly
Monthly
No specified time
Guarantee: None
1 Day
1 Week
1 Month
5. Monthly Fees
None
Flat Fee
Tiered Fee
6. Range of Monthly Fees
Flat
Tiered




Super NOW

Super NOW

MMDA

90%

91°/
9

95%
5

8.158
6.0 - 9.25

7.163
6.0 - 8.75

8.143
7.5 - 9.5

7.363
6.0 - 8.5

67%

46%
29
9

91%

0
7

78%
4
4
14

10%

10%

10

0
1

33

16

7%
76

8%
74

10

11

6

7

10

13%
11

13%
67

2

74

71
14
5
24%
14
49
14

26%

12

4
12

10

67
9

85%
7
7

57%
27
17

86%
3

74%
4

10

22

$5.00 - 10.00
$3.00 - 10.00

$1.00 - 10.00

$1.00 - 4.00
$3.00- 10.00

and across institutional lines. Both the MMDA
accounts and the Super NOW accounts showed
substantial rate differentials, both among institutions offering these accounts and between
types of institutions offering the account. Service
charges and penalties also varied greatly. While a
good percentage of the funds that flowed into
MMDA accounts and the Super N O W accounts
obviously came from money market funds, a
larger percent came from other accounts within
the bank or within the institution. To the extent
the funds flowing into MMDAs and Super
NOWs are coming from core deposits, the
bank's cost of funds is driven up. But to the
extent the funds are coming out of large CDs and
money market certificates the bank's cost of
funds may be declining. On the MMDAs and the
22

S &L

MMDA

$2.00- 10.00

52
10

$3.00 - 5.00

$1.00- 10.00

Super NOWs banks do not enjoy the Regulation
Q subsidy associated with other types of deposit
accounts. They are able to compete effectively,
however, against the money market mutual
funds.
It appears that the banks not only offer an
MMDA that is competitive with the money
market mutual funds as directed by the Carn-St
Germain legislation, but these accounts also are
perhaps in some way more attractive than the
money funds accounts, as they are held locally
and they provide insurance to the account
holder. The lack of consumer response to the
Super NOW account likely is the result of first,
the MMDA coming on stream just slightly ahead
of the authorization for Super NOWs, and
second, the fact that evidently most people who
J U N E 1983, E C O N O M I C R E V I E W

are investing in MMDAs are looking at the
instrument as an investment, not as a transaction
account. This can also be gleaned from the fact
that the average account balance in the MMDAs
runs somewhere in the order of $23,000 at
commercial banks.
Unless the minimum balance requirement on
the Super N O W is lowered or some other
feature of the account is changed to make it
more attractive to the consumer, it will probably
not match the popularity of the MM DA. The

MMDAs probably will continue to experience
warm consumer acceptance. Our survey suggests
that the Super N O W as currently structured may
be a redundant account allowing only the
advantage of unlimited checking privileges while
returning approximately 1 to 1.5 percent less to
the deposit holder. The advantage of unlimited
checking is clearly outweighed for most depositors
by the cost to the deposit holder.
— David D. Whitehead

Interstate Banking Is P r o h i b i t e d . . .
Or Is It?
The first composite picture of the extent to which U.S. and foreign banking organizations
are providing interstate financial services is now available from the Federal Reserve Bank of
Atlanta
This special report, compiled with the cooperation of the 11 other Federal Reserve Banks, is
an expanded version on an article in the May issue of this Review. It shows that in late 1982
banking organizations already controlled more than 7,500 interstate offices providing a wide
range of financial services
The 130 page inventory includes names of parent institutions, names of their interstate
subsidiaries, the states in which these subsidiaries are located, and the number of offices of
each subsidiary on a state-by-state basis as of late 1982.
Interstate Banking: Taking Inventory
—David D. Whitehead
—130 pp.
—$25.00
copies at $25/each
Total
Checks payable to: Federal Reserve Bank of Atlanta
Send with name and address to: Information Center, Federal Reserve Bank of Atlanta
P. O. Box 1731, Atlanta, Georgia 30301

f. FEDERAL R E S E R V E B A N K O F A T L A N T A




23

The PIK Program's
Mixed Effects
The Payment-in-Kind (PIK) program is part of a package of programs
intended to help farmers battered by drought and low income. Farmers
have embraced the programs wholeheartedly, but many farm-related
businesses are concerned about weakening demand for chemicals,
fertilizers, fuel, equipment, and labor.
Responding enthusiastically to expanded government farm programs, southeastern farmers intend
to reduce acreage sharply for certain farm commodities. As a result, production of corn, wheat,
sorghum, rice, and cotton in the Sixth Federal
Reserve District in 1983 will be much below last
year. The impact seems certain to affect virtually
every part of the District's economy.
Southeastern farmers, like their counterparts
across the country, already appear to be benefiting
from the 1983 programs that have brought hope
to an agricultural economy battered by years of
drought and substandard incomes. But if the
expanded programs have introduced a measure
of optimism for farmers, they have brought
concern to farm-related businesses and workers
whose livelihood depends on the acreage planted
and harvested each season.
For farm suppliers, the cutback means a drop
in farmers' purchases. Spending on fertilizer, fuel
and farm chemicals will fall 10-20 percent in
1983. The number of farm workers needed also
will shrink as many acres are idled. A sharp
drawdown of crops in storage will occur, and
southeastern livestock and poultry farmers may
find feed prices significantly higher by 1984
should yields be below average this season.
24




J U N E 1983, E C O N O M I C R E V I E W

Chart 1. Total Acres Idled by Farm Programs
Sixth District 1983

Chart 2. Acres Out of Production
Sixth District 1983

1 6 0 0 r Thous. Acres

' Thous Acres

1200 |V

J
-

m

1
?

800
400

Non-Pik
Pik

^ ^

l.llll
Ala

Fla

Ga

La

Ms

Tn

Source: Agricultural Stabilization and Conservation Service
United States Department of Agriculture

The Farm Programs

,
•

Jf

4

•
>

f.

In an attempt to reduce burgeoning stocks of
various farm commodities and to improve farm
income, the Department of Agriculture this year
is offering a diversified package composed of the
familiar reduced acreage (RAP) and paid land
diversion (PLD) programs, and the new paymentin-kind program, or PI K, offered for the first time.
While there are differences in how the programs treat individual crops, the general framework is similar. A certain portion of a farmer's
acreage, usually 10 or 15 percent, may be left
idle under the acreage reduction program, while
an additional 5 or 10 percent can be diverted for
cash under the paid land diversion program. By
participating in the acreage reduction program,
the farmer becomes eligible, amongotherthings,
to borrow from the Commodity Credit Corporation
(CCC) and to participate in the PIK program.
Under the PIK program, the farmer can follow
two paths. He can opt to reduce his acreage by
an additional 10-30 percent, or bid to remove his
entire acreage from production. In return for
reducing acreage, the farmer receives in payment a
quantity of the pertinent commodity, on a proportional basis. Wheat farmers, for example, will
receive 95 percent of their established yield,
while feed grain, cotton, and rice farmers receive
80 percent of their yield. These crops will be
supplied from C C C stocks.
Because farm financial conditions are poorand
commodity prices weak, participation in these
various programs has been phenomenal. The
FEDERAL R E S E R V E B A N K O F ATLANTA




600

300

Al
Ala

Fla

MI

Ga

La

Ms

Tn

Source: Agricultural Stabilization and Conservation Service
United States Department of Agriculture

acreage reduction varies considerably by state
(see Chart 1), but for the District approximately
4.4 million acres will be shifted out of crop
production in 1983. This represents 37 percent
of the acreage planted in these crops in 1982 and
1 6 percent of the acreage devoted to all major
crops in the District.
The PIK program has drawn a strong response
from southeastern farmers this year, which may
betheonlytimethefull program is offered. Chart
2 shows the acreage held out under the PIK and
non-PIK programs. It clearly indicates that in
Alabama, Georgia, and Tennessee farmers intend
to idle considerable acreage in return for commodity payments. The difference in response to
PIK and non-PIK programs has not been as great
in Louisiana and Mississippi, where cotton and
rice farmers have participated actively in non-PI K
programs.
In the entire District cotton acreage experienced
the heaviest enrollment, 1.4 million acres, with
corn and sorghum close behind at 1.3 million
(Chart 3). A closer examination by crop and state
reveals that the largest single enrollment was
cotton in Mississippi, where 630,000 acres were
signed up. Corn and grain sorghum (which USDA
counts together) will be reduced the most in
Georgia, with over a half million acres in PI K and
non-PIK programs. There is some room for slippage
in the non-PIK program because farmers might
decide to plant acreage they originally had intended to idle. For leaving the reduced acreage
program, a farmer must repay any advance deficiency or diversion payment plus interest and a
25

Chart 3. Idled Acreage By Crop
Sixth District 1983
1 6 f~ Million Acres

III.

Com & Sorghum

Wheat

Cotton

Rice

Source: Agricultural Stabilization and Conservation Service
United States Department of Agriculture

small interest penalty. Leaving the PI K program,
however, results in a much costlier penalty. For
each PIK bushel or unit the farmer would have
received, he must pay a penalty at the following
rates: corn, $.572; sorghum $.544; rice $.228;
cotton $.1 52; and wheat $.86. The cash penalty
for withdrawing from PIK is steep enough that
farmers are unlikely to pull out after signing up.

The Impact on Production
Since no one will know for certain how much of
what crop farmers will plant until they actually do
so, production estimates can only be approximate.
It is safe to say, however, that production of
commodities involved in the farm program will
be sharply lower than in 1982. The substantial
acreage reduction farmers are locked into will
ensure a production decline.
Given the intended acreage reduction and its
myriad effects, it is important to estimate crop
production this season. Fortunately, the USDA
conducted a special May survey of planting
intentions that should provide an acceptable
approximation. The survey, combined with average
yields, suggests sharp declines in most crops
covered by the program. In the District production
of corn may decline 34 percent from 1982
assuming average yields; wheat may decline 30
percent, cotton 49 percent, and rice 32 percent.
Grain sorghum, on the other hand, may decline
only 2 percent from last year. Obviously, if yields
are below average, then production will fall even
further. Heavy rain during March and April delayed
26




corn planting for many southeastern farmers. It is
possible that corn yields will be affected adversely
with some farmers perhaps deciding to plant
other crops.
But will production be as low as these figures
indicate? A certain answer to that question would
provide the holder immediate fame and fortune.
Consider the following points: (1) the most
fertile land will be in production while the
marginal land will be idled, (2) farmers may
fertilize and tend their planted acreage better,
(3) the result of the previous two points should
be a higher average yield than normal unless, (4)
the weather adversely affects yield. Given the
large acreage which is not being planted, production of the pertinent crops will be much
lower than in 1982. The point to remember is
that the acreage in PIK will not be planted in
1983 and it is this which impacts on all farm
suppliers and hence the entire District economy.
Final production figures will affect farm income,
consumers, and users of farm commodities such
as textile mills.

Farm Revenue
The combined revenue from estimated harvests
and the PIK payments should cause net farm
income to climb in the District. The average price
in 1983 for most commodities is likely to exceed
that of 1982, when farm products faced weak
demand and a large surplus. What's more, total
farm costs will be much lower as PIK payments
reduce the overall per unit cost for a given
commodity. I n other words, if a farmer produces
50,000 bushels of corn at a cost of $2 a bushel,
his total cost will be $100,000. If the farmer
receives a PIK payment of an additional 10,000
bushels, to sell or store, it will reduce his per unit
cost by 33 cents per bushel. Thus, his break-even
cost will be lowered. This is offset somewhat, of
course, by the cost of planting a cover crop on
conservation acreage. The fact remains, however,
that the break-even point declines even as greater
price strength may occur. The profit per bushel
therefore, should, rise in 1983. With a reduction
in total costs, farmers' net revenue should climb.
Revenue of southern corn farmers may be
especially good if yields are favorable. Corn
harvest begins in July in many areas while corn
farther north is harvested later. Since PIK corn
payments for most southern states won't be
made until October, there is at least a month or
two when corn prices may be higher than average.
J U N E 1983, E C O N O M I C R E V I E W

An older element in the government's farm
programs is the paid land diversion program that,
in essence, compensates farmers for idling a
portion of their land. Only farmers who grow
corn, sorghum, wheat, or rice may participate. In
the Sixth District, a total of 218,481 acres will be
shifted this year from growing the aforementioned
| crops into conservation.
District farmers who participated in the paid
land diversion program this year have already
received as much as half their diversion payments
* if they requested an advance. If the pattern of
the past is followed, wheat growers will receive
the remaining amount in December, with feed
grain farmers' payments stretching into next
spring. While such payments represent only a
1
fraction of the District's farm income, their time, liness may prove invaluable to cash-starved farmers.
Although the amount varies considerably by
state (see Chart 4), farmers in the District as a
whole will receive approximately $22 million in
* 1983.
Another portion of the farm program also
generates cash for farmers. Deficiency payments
I are made to enrolled farmers on their crop
production if commodity prices fall below an
established, or target, price. At present, there is
. no way to forecast accurately the amount of
deficiency payments to be made in 1983.
i

)

'

Farm Suppliers

The farm programs clearly will affect farmers
positively, but what about the multitude of
businesses that supply farm inputs, transport or
« store farm commodities, or utilize farm production in their industry? District farmers, for
* instance, spend over $1 billion annually on
. fertilizer and lime. Billions of additional dollars
are spent on chemicals, seeds, and other supplies.
With sharp declines in planted acreage, farm
suppliers can expect significantly weaker demand
* formanyoftheirproductsduring1983. Chemicals,
fertilizer, and fuel needs will be well below
preceding years. Spendingon farm chemicals for
major southeastern crops appears likely to fall
15-20 percent during 1983. The sharpest decline
so far seems to be in chemicals for cotton,
* reflecting the significant amount of idled acreage
this growing season. Insecticide suppliers pro'
bably will bearthe brunt of lowered sales. Because
i peanut growers anticipate a small increase in
planting, chemical sales for that crop may increase
.

f.

FEDERAL R E S E R V E B A N K O F ATLANTA




Chart 4. Estimated Diversion Payments
Sixth District 1983

Ala

Fla

Ga

La

Ms

Tn

Source: Federal Reserve Bank of Atlanta

slightly. Unfortunately for chemical dealers in
Georgia, substantial corn acreage is being idled
this year. Since corn accounts for substantial
herbicide use, demand for those chemicals will
decline sharply. Yet some herbicides will be used
on conservation acreage.
Demand for fuel by the farm sector will decline
an estimated 15 percent in 1983 because less
fuel will be needed for tractors, combines, and
other farm equipment. In addition, drying of
grain will require less fuel than in 1982. Subsequently, sellers of fuels used by farmers can
expect lower volume. The primary impact would
appear to fall on diesel fuel, used in most farm
equipment.
With the weak demand, combined with lower
prices, many farmers will find themselves paying
out less for fuel than at any time in recent years.
Farmers who grow crops affected by farm programs are expected to lower their total fuel costs
by as much as 30 percent this growing season.

Farm Equipment and Labor
While not as immediately evident as the reduction in some inputs, farmers' savings on labor
and in the wear and tear on equipment should
be substantial. Estimates indicate that 16 million
fewer hours of labor will be needed for major
crops this year. While planting of cover crops on
conservation acreage will offset this somewhat,
labor requirements may still fall 10-15 percent.
Since most of this labor involves machinery, the
reduced usage will cut maintenance costs and
27

lengthen the life of the equipment. This is especially true for grain combines and cotton harvesters.
The negative aspect will be a reduced demand
for farm workers, particularly for those who help
in harvesting crops. Based on the acreage reductions in specific crops and other factors, the
demand for farm workers probably will decrease
most in Mississippi and Louisiana. Those states
grow proportionately more crops requiring extra
farm workers.
Farm equipment dealers who have survived
the last two years largely on repair work may find
1983 to be harsh. With a likely fall-off in equipment repair and little sign of increasing sales
before 1984, many dealers will find 1983 their
worst year before improvement begins in 1984.
Some good news, however, is likely for dealers
this year. With the prospect of improving income,
farmers will be better able to make payments on
purchased equipment. In addition, as the farm
economy slowly rebounds, less equipment should
be returned to dealers.

Fertilizer
One of the major farm inputs, fertilizer, will be
in considerably less demand in 1983 across the
South. Farm suppliers and fertilizer manufacturers,
of course, will be hit hardest by the slowdown.
Under PI K, major crops will require an estimated
50,000 fewer tons (16 percent) of fertilizer this
year than in 1982. Georgia and Mississippi farm
suppliers will be affected most adversely, as their

......

300

Chart 5. Shortfalls in Corn Production
rj . . in Southeast and Delta States

Million Bushels

Southeast
240

Delta

180
120

1979/80

1980/81

1981/82

1982/83

Source: George Allen, "Regional Feed Grain Surplus and
Deficit Balances", in Feed Outlook and Situation
Report, March 1983, ERS, U S D A p. 14

states have the largest enrolled acreage. Dealers
in cotton-growing areas also will be affected
since a large portion of the District's cotton
acreage will be idled this season. The large
reduction in corn and sorghum acreage will have
an inordinate effect on nitrogen demand because
their production requires substantial quantities
of nitrogen. Given that marginal acreage is the
most likely to be withdrawn from production and
that marginal acreage requires higher-than-normal
fertilization, then a disproportionately large drop
in fertilizer seems likely.
One significant aspect of the present farm
program seldom mentioned is the reduction in
soil erosion as acreage is idled. The more than
four million acres being devoted to conservation
usage will sharply lower erosion in 1983. It has
been estimated that, on average, five tons of soil
are lost per acre of row crops each year in the
South.1 If this is accurate, then the idling of four
million acres of cropland will save 10-20 million
tons of soil in 1983. Actually, the amount may be
even higher because marginal land is the first
taken out of production by farmers, and this land
is most susceptible to erosion. Consider for
example Class IV land, which is considered "fair"
land. In the Southeast it is estimated to lose 8
tons of soil per acre and in the Delta region 10
tons per acre from sheet and rill erosion when
cultivated. Future years should see increased
'Basic Statistics, the 1977 National Resources Inventory, Soil Conservation
Service, U S D A p. 161

28




J U N E 1983, E C O N O M I C R E V I E W

Table 1. Enrolled Acreage

RAP

Paid
Diversion

PIK
(10-30)

PIK
Whole Farm

ALA
FLA
GA
LA
MS
TN

24,760
28,419
71,563
275,164
381,681
69,996

11,199
29,123
44,171
51,124
54,969
27,895

352,996
60,968
662,528
396,423
568,501
252,456

192,778
74,106
268,593
63,288
131,635
344006

TOTAL

851,583

218,481

2,293,872

1,074,406

profitability from higher yields on the land now
being conserved.
Southern livestock and poultry producers may
feel as much impact from the PIK program as do
farm suppliers. The South is traditionally a grain
deficit region, consuming more grain than it
produces. Chart 5 shows USDA estimates of the
corn deficit of the Southeast and Delta regions.
While not exactly comparable to the boundaries
of the Sixth District the deficits should be a good
approximation. In addition, April corn storage
figures indicate a decrease since January of 33
million bushels (31 percent). While April 1983
corn storage remains 8 percent above April 1982
with 76 million bushels, feed usage has been
occurring at a rapid rate.
Potential problems for those feeding corn or
other feed grains exist in a number of areas.
Feed grain prices strengthened during the spring
months placing the egg industry in a serious
cost-price squeeze. By July corn stocks will be
low, production will be below normal, and PIK
payments for all southern states except Florida
and Louisiana will not be made until October.
Supplies during July and August, therefore,
should be substantially below normal in the
South.
In the longer term, the sharp cutback in corn
production in the South (already a grain importing region) will mean: (1) lower stocks
going into 1984, (2) a need for larger corn
shipments from the Midwest, and (3) higher
prices for corn in the South.
The precise impact of these cutbacks is
most difficult to assess. Evidence suggests that
the grain deficit in the South will be wider this
f. F E D E R A L R E S E R V E B A N K O F A T L A N T A




year because of curtailed planting. For instance,
we can estimate corn production for the Sixth
District in 1983 at approximately 136 million
bushels compared to 1982's production of 165
million. This would mean that a large amount of
grain must be shipped from other regions,
resulting in higher prices for feed. If yields are
low, the impact will be that much more severe.
Higher feed prices might halt the expansion in
the District's hog industry. Higher prices also
would affect the poultry industry, since profit
margins have been lackluster for some time.

Farm Credit
With participating farmers' expenses declining, the demand for farm credit has weakened.
Lower interest rates in 1983 have failed to
offset the fall off in farm credit demand. Limited
information available from the Farm Credit
System indicates a distinct drop in the number
and amount of farm loans throughout the
South. District offices of Federal Land Banks
reported that the number of loans closed in
March in the South declined 48 percent from
the previous year. Production Credit Associations also noted a 22 percent drop from
March 1982 in the amount of loans made.
What impact will PIK have on financiallydistressed farmers? The most immediate effect
will be the guarantee to the enrolled farmer of a
partial, or whole, crop in 1983. Over one
million acres of land were signed up in the
"whole PIK" program, which means a substantial
number of farms will be completely out of
29

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farming for this season. For these farmers there
is no crop production risk, since their PI K
payment will be their 1983 "production." They
will have no costly inputs to buy and the only
risk they bear is "price uncertainty" which, by
various marketing techniques, can also be disposed of. The certainty of income for these
farmers should increase the willingness of creditors to stand by them.
Even those farmers who are producing a
partial crop this year can use their PIK entitlements in many instances to purchase needed
inputs or even as collateral for a loan. The
certainty of the PIK payment, with the issuance
of certificates, is essentially equivalent to being
paid in advance. In addition, many farmers
were eligible under the RAP and PLD for advance payments of up to half their diversion
and deficiency payments. For some farmers,
this cash may have provided a badly needed
lift.
Perhaps the greatest impact on farmers is
indirect in nature. The establishment of the PIK
program with the subsequent participation by
farmers may have assisted in bringing to a halt
the slide in value of farm assets. By helping
farmers to remain in business and improving
morale in the farm community, the farm program possibly supplied the impetus to keep
the farm economy from suffering even worse.
For some farmers a halt in their deteriorating
equity position may be the biggest plus of all
for the farm programs.

Next Year?
What about next year? Will PI K be extended to
cover 1984? Secretary Block stated in May that
he was 90 percent certain a wheat PI K program
would exist in 1984. In fact, it is anticipated that
the wheat program will be announced quite
soon. There is more likelihood, on the other
hand, that no program will exist for cotton
or rice. The stocks of these two commodities are
expected to be in a more acceptable position by
1984. For corn and grain sorghum, the possibility
of a PIK program is directly dependent on the
outcome of this season. If yields are below
average, then stocks might be depleted to such a
point that a PIK program would not be needed
next year. If average or above-average yields
prevail over most of the nation, then stocks are
expected to remain in excess of that desired. A
32




limited PI K program might then be in order. Such
a limited program would be more agreeable to
farm suppliers and agribusinesses.

Conclusion
The central purpose of the nation's expanded
programs appears to have been fulfilled. Commodity prices have strengthened and net farm
income projections have increased. The farm
economy seems to be on the road back to
financial health.
Yet the 1983 farm program's acreage reductions
represent bad news for some businesses and
workers in the Southeast. The most immediate
impact will fall on suppliers of farm inputs such as
fertilizer and chemicals. The precise effect will
vary from one state to another depending on the
number of enrolled acres and the pertinent
crops. Another effect should be a continued
lessening of demand for farm credit. Although
figures are not yet available on spring lending
activity, earlier indications suggested that credit
demand had slackened. The acreage reduction
will set off vibrations throughout various sectors
of the economy, and a few areas have already felt
some impact.
—W. Gene Wilson
J U N E 1983, E C O N O M I C R E V I E W

Correspondent Banking
And the
Payments System

The correspondent banking industry is composed
of banking institutions that provide services to
other banks, in return for fees or deposit balances.
Although the high visibility of the largest money
center banks often conveys the impression that
correspondent banks are the largest banks, the
correspondent industry is composed of banks of
many sizes. The data in Table 1 from the latest
American Bankers Association survey illustrate
that correspondent banks act as financial intermediaries at virtually all levels of the banking
industry.
The services correspondent banks sell to their
respondents are diverse, including every function
which a larger, versatile banking company is
capable of producing, and which smaller banks
with much lower overhead cannot provide inhouse. In one sense, the correspondent function
is the larger bank's marketing arm aimed at
financial institutions as the client base.

The most prominent correspondent services
are check collection, wire transfer of funds, loan
participations, buying and selling "fed funds"
(short term loans between banks), and trading in
government securities. Less uniformly provided,
but still significant, are electronic data processing
(EDP) services.
Correspondent services are critical, directly
and indirectly, to the functioning of the nation's
payments system. We will define the payments
system to be the total set of institutions and
procedures which act to transfer economic value.
Efficient operation of the payments system produces benefits to many economic sectors and
levels of society: households, businesses, financial institutions, and governmental bodies.
The payment of value for goods or services
purchased is executed in many different ways; in
all cases, the payee benefits from prompt transfer.
Four important correspondent services that
influence the system are shown in Table 2.

In the near future, correspondent banking will see fewer
providers of services. Yet increased investment and price
competition should increase efficiency in the nation's
payments system.

f. FEDERAL R E S E R V E B A N K O F A T L A N T A




33

Thus, correspondent banks play an integral
role in the payments system, both directly (by
presenting documents for payment and actingas
an intermediate settlement agent) and indirectly
(by providing liquidity to other financial institutions which execute customers' payments.)1
Because the U. S. banking system is composed of
over 14,000 banks of vastly different sizes and
scopes of service, the need for the correspondent
function arises from geographic distance, market
imperfections, economies of scale,limited knowledge and resources on the part of smaller
institutions, and tradition.
Prior to 1980, the Federal Reserve System
functioned at the "high end" of the correspondent bank size hierarchy. Fed members, often
the largest banks, utilized Fed services at no fee
(if the implicit fee represented by reserve requirements is not considered), and passed on these
services, priced, to their customers, the smaller
banks. With the Depository Institutions Deregulation and Monetary Control Act (DIDMCA),
however, this world changed. With the direct
pricing of Federal Reserve services, the largest
correspondent banks had a new competitor—
the Fed itself—and the Fed had new customers—
the smaller institutions that previously had been
primarily customers of the large banks.
After an initial drop in service volume, the Fed
has shown a keen competitive instinct; most
correspondent banks, faced with newly modified
Fed services (including a streamlined inter-district
transportation network) feel a sharp competitive
pinch. This drastic change in the competitive
environment has produced several strong responses within the correspondent industry:
sharp protests in the political arena and agonizing
reappraisal of the correspondent function as a
line of business by senior management in many
institutions.
The problem as perceived by the banks is
primarily evidenced by a squeeze on profits in
correspondent banking. Previously, demand deposit balances more than adequately covered
the costs of services provided; in fact the existence
of surplus balances led many observers to believe
that the correspondent division was among the
bank's most profitable. Now, however, as many
as one-half of the banks responding to the ABA
survey say that profits are flat or declining.

'Final settlement is accomplished by the Federal Reserve System.
Paul F. Metzker, Charles Haywood, and William N. Cox, "Displacing the

2

34




Table 1. Size Distribution of Correspondent Banks'

Deposit Size
L e s s than $250 million
251-500 million
501-1 billion
1-2 billion
2-5 billion
More than 5 billion

Percent of Banks
11
22
22
16
20
9
100%

'Shown are banks responding to the 1982-3 American Banker
Association survey of correspondent banks believed to be
representative of the correspondent banking industry.

On close examination, the sudden drop in
profits in correspondent banking is due not only
to direct competition by the Fed, but to several
related and unrelated trends. Related directly to
the DIDMCA is the rapid growth in clearing
houses and broader clearing arrangements among
banks. Unrelated but having the same adverse
impact on correspondent service volume has
been the continued growth of multibank holding
companies, which internalize service provision,
further concentrating the market for services to
financial institutions.
Yet another factor is that the technology of the
payments system is changing rapidly, and will
continue to do so. The primary means of transferral of value by households is the paper check.
Prior to the 1980s, there was no effective substitute for paper checks in the household market.
With the advent and rapid acceptance of ATMs,
however, this isN changing. The latest knowledgeable projections2 indicate a decline in paper
check volume beginning no laterthan 1984, with
various substitute technologies such as cash
dispensers, credit cards (and perhaps, eventually
home videotex devices) becoming increasingly
dominant. This evolution begs the question of
how the correspondent banking industry will
manage its own evolution of service provision,
away from check collection as the dominant

Personal Check: AThree-Phase Framework for Analysisand Projection,"
to be published in the August 1983 issue of this Review.
J U N E 1983, E C O N O M I C R E V I E W

Table 2. Influences upon the Payments System by
Correspondent Services

Correspondent
Service
Check Collection

Nature
of
Influence

Method
of
Influence

Direct

Effects payment of
obligations by
presenting physical
evident of
obligation to pay
to the payors
financial
institution

Wire Transfer of
Funds

Speeds payment

Loans to Banks
and/or Overlines

Indirect

Provides liquidity
to financial intermediaries enhancing
transfer of funds
from surplus to
deficit regions

Trading in Fed
Funds for
Respondents

Indirect

Short-term source
of liquidity to
financial
institutions

Trading in
Government
Securities

Indirect

Broadens and
improves market for
financial assets

service, and toward something else. What will
the "something else" be?
From the statements being made and actions
being taken by correspondent banks, it is apparent
that the face of the correspondent banking
industry is changing for good. There will almost
certainly be fewer service providers in the future.
It also seems likely that larger institutions will
prevail, and that scale economies in service
provision will prevail.3 As we look forward to
increased concentration in the correspondent
banking industry, is it possible to anticipate what
effect will be felt on the payments system?
Within this single broad question, several subsidiary questions arise:
3

Scale economies in correspondent banking are hotly disputed. See the
November 1982 Atlanta Fed Economic Review and a Federal Reserve
Board staff paper by David B Humphrey, Costs, S c a l e Economies,

f. FEDERAL R E S E R V E B A N K O F ATLANTA




1. What is the likely structure of the correspondent industry five years hence?
2. If industry structure changes significantly, how
will the payments system be affected?
3. Will these changes yield a net positive or
negative benefit to society?

Likely Changes to Correspondent
Industry Structure
It is highly probable that the largest institutions
in geographic markets will gain market share and
influence, while smaller ones will become less
important factors in providing correspondent
services. Figure 1 depicts how large and small
correspondent banks rank the importance and
the profitability of different services.4 This display
demonstrates that importance varies in the expected direction with profitability—the more
profitable, the more important. The services
shown can be grouped into two classes: those
more important and profitable to larger banks
(check collection, safekeeping, and EDP services)
and those important and profitable to smaller
correspondent banks (fed funds, securities buying
and selling). Loans and loan participations appear
to be roughly equally important in large and small
banks, probably reflecting relatively efficient credit
markets.
These perceptions by large and small banks
suggest that some services have a "commodity"
quality—they are price-sensitive (and therefore
sensitive to cost/volume economies). The desirability of these services as a business line to the
service provider cannot be enhanced by the
quality of bank-to-bank collection, and EDP services will increasingly be the domain of larger
banks that can compete based on price.
On the other hand, there are services in which
size of provider does not seem to make a
difference, and where in fact, smaller providers
may be more profitable than larger ones. These
"relationship" services will continue to be provided at all levels of the banking hierarchy.
When we combine these perceptions with
bankers' assessments on the nature of competition
in their markets (Table 3), a pattern emerges that
may shed light on the future shape of the
industry. Banks that are the largest correspondents
Competition, and Product Mix in the U.S. Payments Mechanism, Board
of Governors, Federal Reserve System, 1980
""Large" is defined by lelative size of correspondent volume in the primary
market for each bank.
35

Table 3. Competitive Factors Reported By Correspondent Banks
Who Is Your Most
Important
Competitor?

Why Did You
Gain
Customers?

Why Did You
Lose
Customers?

What Impact
Has Fed
Had?

More Or L e s s
Profitable?

Largest
Correspondent
In Market

Federal Reserve

Credit,
calling,
reputation

Price

Hurt Profits

Same or less

Other
Correspondent
Banks

Large Bank

Calling

Price

Hurt Profits

More

Source: Based on the 1982 national survey of U S correspondent banks by the ABA's correspondent banking division. S e e the ABA Banking Journal,
March 1983, pp. 43-46 for additional survey data

in their own markets believe the Fed is the most
important competitor, while others in the market
point more often to the largest bank. Virtually all
banks feel they have lost business based on
price, while business gained is attributed to other
factors; no significant difference is seen across
different size banks. All banks believe the Fed
has hurt correspondent banking profitability;
however, the largest banks, to a greater extent
than the others, believe their departments are
declining in profitability.
What is apparently happening in many markets
is that the largest correspondent bank, competing
head-to-head with the Fed for business it perceives
to be important, is remaining in services that are
not now profitable, but not raising prices to
redress the profitability problem. Some smaller
correspondent banks are raising prices, in contrast. There is also evidence that smaller correspondents have reduced or are thinking of reducing emphasis on services that do not appear
to be profitable. These are usually the "commodity" services mentioned earlier—particularly
EDP and check collection.
Why should size of correspondent business
make a difference in these business decisions?
The answer lies in some combination of scale
economies, existing processing capacity, and
strategic commitment to correspondent networks. One difficulty in identifying economies of
scale is that the correspondent services defined
earlier as "commodity" services involve very

5

A major issue with the larger banks, therefore, is whether the Federal
Reserve(the volume leader in most markets) is playing fair when it allows
Reserve banks in some districts to price below total cost (including a cost

36




lumpy capital investment decisions. If a bank is
the market leader and calculates that the business
is presently unprofitable, it may nevertheless
choose to remain in the business without increasing price on the assumption that smaller competitors will drop out, and that having a multiplicity
of service relationships with many banks in its
region has strategic importance. Obviously, a
larger bank is better able to undergo such a
period of marginal profitability than a smaller
one.5
Non-bank providers and major out-of-region
bank providers are gaining volume in many
markets because of a mix of quality, economic,
and competitive factors. Some smaller b a n k s users of correspondent services—have experienced
a simultaneous increase in cost of service, reduction
in quality (from those providers who have not
been able to upgrade service) and competition
from the regional correspondents in wholesale
and retail (nonfinancial institutions) markets.
This is leading many users to purchase commodity
services from other sources that can provide high
quality services efficiently, and that are not
threatening as competitors. Smaller banks may
group together, using "bankers' banks" to provide
the service or buy them from third parties.
As consumer acceptance of substitutes for
paper checks grows, smaller institutions are needing
more assistance in providing ATM and credit
card services (and perhaps in a later phase,
videotex services). This is producing a slow but

factor used to "adjust" the Fed to private sector equivalent cost of capital
and tax burden).

J U N E 1983, E C O N O M I C R E V I E W

Figure 1

Importance and Profitability of Eight Correspondent Services
(As viewed by Larger "L" and Smaller "S" Competitors)

L e s s Important

More Important
Arrows point trom the consensus of larger competitors to the consensus of smaller competitors
Gray=Comparative advantage for larger competitors Green =Comparative advantage for smaller competitors

systematic shift to "high-tech" correspondent
services, including sponsorship of shared ATM
networks or off-line processing of ATM transactions. Because of the investment required in
equipment, software, and skills, the larger correspondent banks will find this business evolution
more feasible than the smaller.
These trends should continue and strengthen,
resulting in a market shake-out: fewer major
bank competitors for most correspondent services.
Since commodity services like check collection
and EDP are the most vulnerable to efficiency
gains, we will see nonbanks enter these fields as
well. Banks that have volumes large enough and
that are superior in computer processing will
remain in the commodity lines of business, while
those with smaller business bases and/or that are
not demonstrably superior processors will inevitably drop out or accept market share losses.
f. FEDERAL R E S E R V E B A N K O F ATLANTA




Effect on the Payments System
Since correspondent banks presently play an
important role in the payments system, and since
the structure of the correspondent industry is
changing toward more concentration, it is reasonable to expect these changes to have some
effect on the payments system itself. What
changes are likely?
The initial effect is likely to be an increase in
payments efficiency. Providers of payments services
are forced to upgrade quality and volume, or
withdraw. If network relationships with other
financial institutions are strategically important
to a bank in the long run, the bank will make the
investment required to yield stable profits in the
new competitive environment. The new investments will improve service. (Over the last decade,
growth in cash management services to business
37

has already increased payments efficiency in the
business sector.)
In the short-run, prices for payments services
will not decline, because input costs will continue
to rise. However, prices will be under constant
competitive pressure. This environment will produce positive incentives to providers and users
to move to electronic transmission. As more
payments are made electronically, prices in the
long run will fall, and permanent efficiency gains
can be realized.
Therefore, there is hope that the changes in
industry structure may hasten the painfully slow
evolution from a paper to an electronic system.
The paper system was previously characterized
by a highly fragmented market, in which the Fed
played a stable, predictable role. The new and
future environment will be divided between the
Fed, larger banks, and nonbanks—companies
specializing in information transmittal.
At the same time, most of the trends noted
would be expected to support increased concentration in the banking industry, since the trends
favor large scale and continued investment. Of
course, the bank merger movement is progressing
quite apart from payments services, and correspondent industry structure is less important
than other forces in encouraging the decline in
the number of independent banks. However,
larger banks motivated to expand influence over
larger areas and into many regions will be the
same banks that have the capacity to provide a
continued broad range of correspondent services
to banks in many regions. Growth in the capacity
to do correspondent processing is consistent
with the capacity growth required to operationally
link acquired institutions.
Bank earnings are likely to continue to decline
as a result of this structural change. Smaller
correspondents that substantially reduce their
presence may be able to show expense reductions
that produce net earnings gains. However, most
providers will be under such heavy price and
investment pressures that earnings from correspondent activities may not ever recover to past
levels. Increased concentration will not produce
windfall profits in the foreseeable future, as
economic theory might predict; this outcome
results from strong market pressure from the Fed
and increasingly from nonbanks, and from geographic expansion by the larger banks, which
brings new competition into regional markets.
The essence of what is occurring is that the
payments services component of correspondent
38




banking—the provision of "commodity" type
services—is rapidly changing from a "banking"
business to an "information" business. The banking
companies that remain in this part of correspondent banking will have to become, essentially,
communications companies. This requires a major
transition that a few of the largest banks are already
well along toward achieving. Organizationally,
the management of this communications activity
requires major systems/operations emphasis, and
the traditional correspondent division within
those banks that make the transition will have to
acquire new skills and knowledge.

Correspondent Industry Change:
Beneficial or Not?
If industry restructuring will result in efficiency
gains in the short run, and help conversion to
electronic payments in the long run, is there any
reason to believe that net positive benefits to
society will not result?
In order to assess a net"downside" impact on
the payments system, it is necessary to predict
that one or more of the following will occur:
1. Banking industry concentration will produce oligopolistic pricing and windfall profits.
2. Fed market share will increase to a monopolistic level, discouraging private sector
initiative and stifling possible efficiency gains.
3. Net disincentives to continue systems improvements will arise from (1) and/or (2).
To consider these possibilities, we need to forecast the future position and behavior of the two
major participants: the Fed and large banks. For
each participant, is there reason to believe that it
would either gain enough market position to
enjoy monopolistic pricing power, or be discouraged from continuing improvements to payments technology?
The Federal Reserve
After an initial volume decline, the Fed has
been regaining market share. With its revised
inter-district transportation network and continuance of prices that are lower than most
competitors, it may gain further market share.
However, the market has shown itself to be very
price-sensitive. A characteristic of payment services
is the existence of many options for executing
payment. It would require a wholesale withdrawal of large banks and other providers from
the system for the Fed to enjoy a monopolistic
J U N E 1983, E C O N O M I C R E V I E W

"It would require a wholesale
withdrawal of large banks and other
providers from the system for the
Fed to enjoy a monopolistic
pricing advantage; this is not likely.
Whafs more likely is that large
nonbank communications firms will
expand their presence and outinvest both the Fed and the banks"

pricing advantage; this is not likely. What is more
likely is that large nonbank communications
firms will expand their presence and out-invest
both the Fed and the banks.
Does industry restructuring have any effect on
the Fed's speed of movement toward electronic
payments? This is impossible to answer, given
the unpredictability of Federal Reserve Board
policy vis-a-vis investing in communications systems
or decisively moving toward electronic presentment. It seems safe to say that the industry
shake-out will not produce a slower Fed movement toward electronics than would have otherwise existed.
Large Banks
The natural inclination of the larger banks for
the foreseeable future will be to extend their
geographic presence. This will result in increased
competition in all lines of business, and as
technology improves, in downward pressure on
prices. Monopolistic pricing power within banking
markets will tend to become less and less a
concern. A single large bank may become a
pricing leader in a given market, by keeping
prices low, supported by increased volume.
However, attempts to raise prices to increase
profits are unlikely to succeed, given difficulty in
differentiating the commodity service being delivered, and an increasing lack of market protection
based on state-based restrictions on market

«

FEDERAL R E S E R V E B A N K O F ATLANTA




entry. As the business becomes more and more
communications oriented, prices for commodity
services will become more nationally based, and
less sensitive to local conditions.
Overall, the large banks that remain in the
correspondent services business will have a
positive incentive to move faster toward the use
of advanced electronic communications systems.
The increased commitment caused by the market
share shifts, pressure to compete with the Fed
and nonbanks, and determination to extend
market influence will push toward systems improvement. The cost-saving motivation here is
analogous to events in retail banking, where high
costs of doing business have forced the banks
that have chosen to remain in retail to educate
consumers toward automated banking.

Conclusions
The correspondent banking industry is undergoing major changes in reaction to Federal Reserve pricing and competition and to other
competitive trends in the financial services industry. Pressure on correspondent profitability
will result in fewer providers of service, particularly
of "commodity" services such as check collection.
Bank earnings, on net, will suffer in this market
shake-out, as the larger correspondent banks
that continue to provide all services will have to
invest heavily. Larger banks that wish to remain
dominant in their regions and to expand in
influence beyond their regions will make the
required investment.
Increased investment and price competition
will result in efficiency gains by the payments
system. Despite a reduction in the number of
service providers, competitive intensity will be
greater than in the past. Incentives to move
toward electronic payments will increase. Increased industry concentration is unlikely to
lead to monopolistic pricing power, given the
increasing importance of nonbank communications
firms in the market. The result probably will be
increased pressure on price.
— Peter Merrill

39

Southeastern Credit Unions:
From Delicatessen
To Supermarket?

Many larger credit unions are moving toward
a more complete line of consumer services.
The decision to move from "delicatessen" to
"supermarket" is a difficult one, and C U s
will face some large and unfamiliar competitors

Credit unions occupy a distinctive niche in the array of
retail financial institutions. Organized to serve members who
share a "common bond," such
as schoolteachers or employees
of a particular corporation, credit
unions have come to be regarded
by their members as:
(1) friendly and personal,
often administered by
fellow employees;
(2) a convenient place to
deposit savings at a
reasonable rate of return,
usually by direct deduction from pay checks;
and
(3) a source of consumer
loans at inexpensive
interest rates.1
The distinctive niche has its
drawbacks, however. Most credit
union members, even as they
praise the special advantages of
CUs, do not regard them as
"primary financial institutions."
In the minds of most customers,
credit unions are a supplementary source of financial services.
In a 1982 survey of members by
the Credit Union National Association (CUNA), fewer than three
out of ten members described
their credit unions as their "primary financial institution," while
six out of ten named their banks.
So, in general, credit unions
have become something like a
financial delicatessen—used and
admired by a loyal body of
customers who nevertheless turn
to a supermarket for the bulk of
their grocery needs.
Many managers and board
members of established credit
unions are dissatisfied with this

I

8

»
*

j
•
•
'

V
^

'These are major findings of the 1982 and 1977
"National Member Surveys" conducted by the
Credit Union National Association Madison,
Wisconsin.

40




J U N E 1983, E C O N O M I C R E V I E W

t

Question: Who will be your most significant
competitors between now and 1990?

Most
Significant

Second
Most
Significant

Third
Most
Significant

20
0
2
1
0
0
0

2
11
5
2
2
0
1

0
2
6
5
4
2
4

Banks
S&Ls
Money Market Funds
Retailers
Other Credit Unions
Finance Companies
Not Sure

situation. They are increasingly weighing the
merits—and the risks—of transforming their
"delicatessens" into financial supermarkets,
competing head-to-head with commercial banks
and other providers by offering a broader
selection of financial services. In doing so, they
hope to become the "primary financial institution" for the remaining seven-tenths of their
members.
There are several particular reasons why
many credit unions are showing "supermarket

"The distinctive niche [of credit
unions] has its drawbacks,
however."
fever" today. Many managers of larger CUs feel
they are close to saturation in terms of marketing
traditional credit union services to a limited
customer base, and therefore view expansion
in the breadth of services as the only realistic
way to continue growing. Most larger CUs have
begun to offer share-draft (checking) accounts,
since this became permissible in the Southeast
in early 1981, and success with these accounts
f. FEDERAL R E S E R V E BANK O F ATLANTA




has whetted their appetites for additional services. Also, today's credit union manager increasingly is experienced and professional, tending
to view expansion as the key to more responsibility and recognition of his or her job. Credit
unions have seen their members tantalized by
a growing array of financial services, such as
credit cards and automatic teller machines,
from a variety of new competitors including
money market mutual funds and savings and
loan associations. Many credit union managers
feel, increasingly, that they must "run faster
just to stay in the same position." Finally, some
credit union leaders are worried that they will
lose the unique tax advantages they have
enjoyed since the 1930s and are concerned
with maintaining profits and markets if that
happens.
The key question facing larger credit unions
today, then, can be put in terms of a pair of
alternatives:
—Should a credit union move toward a fullservice orientation and become a supermarket
or
—Should the credit union remain specialized,
even if that means refraining from offering
certain services and staying in the delicatessen
business?
41

Since December of 1982, have you
lost funds to the New MMDA or
Super NOW Bank Accounts?
23

Not at
all

23

Only a
small
amount

23

A
significant
amount

Of 2 3 s u r v e y e d

Survey of Larger Southeastern
Credit Unions
We asked this question and others of the
managers of 23 large credit unions in Georgia
and Alabama in March. The occasion was a
conference of these credit unions, "Directions
'83," arranged by the credit union centrals of
the two states. The credit unions represented
were relatively typical of larger associations,
except that they probably are more concerned
about the future and their role in the future
than their counterparts who were not present.
Two-thirds of these institutions said they are
"willing to give up some of the traditional
contact, if necessary, to move toward fullservice orientation." One-third wanted to stay
in the "delicatessen" niche.
Opinions were fairly strong on this subject.
One credit union said, for example, that the
best tactical move a credit union could make
right now would be "to find out what services
your members really want and provide them."
The worst move a credit union could make,
according to the same manager, would be to
"act like a turtle and pull into a shell, ignoring all
the change taking place." This kind of opinion
characterized three-quarters of the institutions
we questioned. Still, there were dissenters.
One credit union said "the worst thing we
could do is to jump into many new available
services without proper personnel, resources,
and research."
42




Perspective on the Credit Unions
The credit union movement offers one of the most
fascinating chapters in U. S. financial history. Credit
unions were promoted in the 1920s and 1930s by
Edward Filene, a Boston department store magnate, as
a means of offering an institutional borrowing and
saving capability to blue collar workers in whom the
banks showed little interest. Filene had borrowed the
idea from Canada, and it also had antecedents in nineteenth century Europe. One of the key concepts associated with the credit union movement has been the
"common bond" of employees either working in a
particular trade or for a particular employer.
The credit union movement gained substantial impetus
with the passage of the Federal Credit Union Act in
1934. As part of the New Deal banking legislation, this
act made it possible for credit unions to obtain federal
charters and sanctioned the substantial growth of
smaller credit unions in the 1940s and 1950s. By the
early 1970s, the credit union movement had achieved
substantial maturity. By then there were over 20,000
credit unions and their deposits had been insured by a
federal insurance program. The composition of depositors
was becoming much more white collar in character,
concentrated in government and the armed services,
and credit union managers were becoming more and
more professional.
The next big movement came in the late 1970s, when
northeastern credit unions joined other thrift institutions
in pushing for the negotiable order of withdrawal account
which was called the share-draft account in.the case of
credit unions. Under the Monetary Control Act of 1980,
credit unions were allowed to offer these interestbearing checking accounts nationwide at the beginning
of 1981. In return, the larger credit unions—those with
deposits over $5 million—were required to hold reserves
with the Federal Reserve System.
S o share drafts essentially represented the first step
by many of the larger institutions, who were frustrated
at being a secondary financial institution for their
customers, toward a full-service financial institution
situation. There remained, however, the associations'
"common bond" with particular employee groups or
employers. This is very important to most credit unions.
It makes direct deposit of pay checks into the accounts
relatively easy, it often provides for payroll deduction of
loan payments, and it offers the credit union publicity
within the employee group or work place. It also offers
an implicit screening of loan applications, since the
employees generally know each other well—and possibly even provides a certain amount of leverage on the
employee to be punctual with loan repayments. What's
more, it offers a certain image of a cooperative, depositororiented institution rather than a profit-motivated bank
In some cases, the employee group or employer has
provided volunteer assistance and office space and
has even allowed credit unions to use available computer
facilities. These employee and employer credit unions
comprise by far the majority of the credit unions in the
1980s. Community charters for neighborhood credit
unions have not yet become quantitatively important.

J U N E 1983, E C O N O M I C R E V I E W

Question: Which financial services do you offer
or are you seriously considering?
Now
Offer
Share Drafts
Mortgage Loans
Preauthorized Transfers
Credit Cards
ATMs
Debit Cards
Telephone Bill Payments

Interestingly, every one of the 23 credit
unions we surveyed said banks will be their
primary competitors (20), or their second most
important competitors (3), between now and
1990. In contrast, none of the institutions felt
other credit unions would be their primary
competitors in the late 1980s. This reflects the
"common bond" limitation and a lack of overlap

"Only one-third wanted to stay in
the 'delicatessen' niche."

among each credit union's members. S&Ls
ranked far behind the dominant position of the
banks in response to this question. Only a small
number of the respondents saw S&Ls, retailers
and money market funds as potential competitors
in the 1980s.
Even so, the credit union managers feel they
are doing well against these competitors. Every
institution surveyed already offered share-draft
accounts, in competition with bank checking
accounts. When we asked the extent to which
they had lost funds to the new money market
deposit accounts or Super NOWs in early
f. FEDERAL R E S E R V E B A N K O F ATLANTA




23
13
13
4
6
2
1

Seriously
Interested
0
5
5
9
5
8
16

Not
Seriously
Considering
0
5
5
10
12
12
6

1983, 11 of the institutions replied that they
had "lost no funds at all," and only one said it
had "lost significant amounts" to the new
accounts being offered by banks and S&Ls.
The shape of the competition and the specifics
of the move toward a "supermarket" configuration became clearer when we asked about the
specific products. In addition to the share-draft
accounts, two-thirds of the credit unions offer
mortgage loans. One-fourth already have automatic teller machines—an amazing statistic considering the high cost of these devices—and twothirds of the rest are considering their installation
very seriously.
These credit union managers feel their members really want the ATM and plastic card
capability and will leave the credit unions
unless they offer these services. CUNA, the
industry's trade group, has negotiated openend contracts with several ATM manufacturers
and with a large ATM network provider (ADPExchange), and member credit unions are utilizing
these connections. More than half of the credit
unions we surveyed are either offering or are
seriously interested in offering credit cards,
while a slightly smaller proportion are investigating debit cards. So these institutions look to
such products to broaden the array of services
in their move from delicatessen to supermarket
They are optimistic that they will succeed in
this process. Twenty of the 23 credit unions
43

Question: Between now and 1990,
do you expect that your
market share will....

Question: Between now and 1990,
do you expect that your
profitability will —

Grow
Remain Stable
Shrink

Increase
Hold Steady
Shrink

20/23
3/23
0/23

surveyed expected their market share with
their customers to grow during the 1980s, and
16 of the 23 expected their profitability to
increase. None of the 23 associations expected
market share to decrease; only two expected a
decrease in profitability. This is particularly
interesting in light of the experience these
associations already have with the share-draft
accounts and their plans to add ATM, mortgage
loan, and credit card capabilities.

Other Findings of the Survey
There were other interesting elements of our
survey. Unlike banks, credit unions may accept
out-of-state deposits. But they are using this
capability only rarely. None of the credit unions
reported that they had more than 10 percent of
their deposits from out-of-state. Two-thirds
had less than 5 percent, and the remaining
one-third were situated close to their state
lines.
These credit unions, with considerable variation, employ approximately one full-time employee for every $1 million in assets. This is
considerably higher than other financial institutions and reinforces these institutions' traditional
emphasis on personal service and personal
contact. Many leaders of the credit union
industry privately estimate that a credit union
must maintain a spread of 3 percent to 4
percent between the cost of deposits and the
interest rates received on loans in order to
44




16/23
7/23
0/23

make a profit.2 A recent study by Booz, Allen
and Hamilton suggests that banks require about
that spread or even a little less, while S&Ls
require about 2 percent and money market
mutual funds require only about 1/2 of 1
percent. All of these services are priced substantially below the fees typically imposed by
commercial banks in the same markets.

"Credit unions see commercial
banks as their number one
competitor."
The survey also suggests that even though
credit unions have been able to pay higher
interest rates than banks on their savings
accounts, and more recently on their sharedraft accounts, they have not compensated for
this by imposing higher fees for checking account
services. This is interesting because many financial industry obseivers are suggesting that banks
and others will have to resort to direct fees to
compensate for higher interest rates on deposit
funds. Only seven of the 23 credit unions
assess monthly charges for checking services

'Confirmed by telephone with Robert C. Von der Ohe, Vice President,
Economics and Research, Credit Union National Association. May 11,
1983.
J U N E 1983, E C O N O M I C R E V I E W

Checking Account Fees Charged By Credit Unions
Monthly Fees on Active Shared Draft Accounts
Number Charging Monthly Fees: 7/23.
Average Fee: $2.64 per month
None of the Credit Unions charges more than $5.00 per month.
Two Credit Unions impose a charge for each check written.
Fees For Returned ("Bounced") C h e c k s
Number Charging For Each Returned Item: 21/23.
Average Fee: $8.52 per item.
One Credit Union charges more than $10.00 per item.
Two Credit Unions charge less than $5.00 per item.
Fees For C h e c k s Stopped By the Writer
Number Charging for Each item: 19/23.
Average Fee: $5.97 per item.
One Credit Union Charges More Than $10.00 per item.
Eleven Credit Unions Charge L e s s Than $5.00 per item.

regardless of minimum, and these charges
average $2.64 per month. The associations
charge an average of $8.52 for return items and
an average of $5.97 to stop a check.3

Smaller Credit Unions Somewhat Similar
To see what differences were apparent in the
smaller cousins of these large credit unions, we
also conducted a supplementary telephone
survey of 11 representative small Georgia credit
unions whose names were supplied to us by
the Georgia Credit Union Central. These credit
unions ranged in size from $2 to $8 million in
deposits.
Like their larger counterparts, they see banks
as their number one competitors; ten out of 11
said so. They are also similar in seeing S&Ls as a
somewhat weak second, and in not talking

J

David Whitehead, "MMDAs and Super NOWs: Characteristics and Performance," Economic Review, Federal Reserve Bank of Atlanta June
1983.
f. FEDERAL R E S E R V E B A N K O F ATLANTA




about other credit unions as potential competitors.
Six of the 11 said in telephone interviews
that they would be willing to give up some of
the personal ties, if necessary, in order to move
toward full service banking. The remaining 5
were reluctant to commit to either of the
statements mentioned above. So it appears, on
the basis of this sketchy evidence, that the
smaller credit unions are heading in the same
direction as larger associations, but probably
not so aggressively.
In comparison to the large credit unions,
only seven of the 11 small associations offer
the share draft, but most say they are seriously
considering the addition of automatic teller
machines. None now offers them, which is not
a surprise in view of the substantial fixed cost.
The associations say they are not seriously
considering any other products, such as mortgage
loans or credit cards. They also agree with their
larger counterparts that regulatory costs have
increased (nine out of 11), and they also are
fairly optimistic about the future of their money
share and their profitability.
45

What Percentage of Your
Depositors Live Out-of-State?

Question: During the past five years,
the cost of conforming to
regulations has —
Increased
Stayed about the same
Declined

20/23
3/23
0/23

Of 2 3 s u r v e y e d

Where Will It Lead?
Clearly, many larger, well-established credit
unions are moving seriously toward a more
complete line of consumer financial services.
Many have already been successful with sharedraft checking accounts, and many report that
their customers are asking for additional services,
so there is reason to expect success.
On the other hand, these CUs are moving
into territory already filled with competitors.

46




Savings and loans, stock brokers and retailers
are offering the same services. There is a limited
amount of retail financial business to be split
among all these competitors. In the end, whether
individual associations succeed with this broadening of services will depend on the particular
competitive situation faced by each C U and on
how well it carries out the move into new
services.
—William N. Cox

J U N E 1983, E C O N O M I C R E V I E W

Depository Institutions:
Trends Show Major Shifts
In the early 1980s, commercial banks, mutual
savings banks, savings and loan associations
and credit unions in the United States entered
a new era. Many of the old restraints that had
affected their behavior and performance since
the Great Depression were removed. Many
new competitors also came into their markets
from outside the chartered depository institutions, which had been their main competitors for 50 years.
The depository institutions entered this era
with very different functions and attributes.
Yet each type of institution will have to function
in much the same environment as the others
from now on. What are these attributes and
how did depository institutions acquire them?
An accurate perspective on historical trends
should help us project how the institutions
will behave in the '80s and how they will
perform. The data presented here seldom are
assembled in one place with consistent definitions across institutions and over time. Utilizing this integrated data base, this article
examines a number of interesting trends in
the evolution of depository financial institutions
over the last 20 years.

Market Shares and Offices
Twenty years ago, banks had more assets
than other financial institutions and offered a
wider array of services. In 1960, for example,

After growing more slowly than S&Ls or credit unions for most of
the last 20 years, commercial banks have surged since
1979. Thrifts and credit unions were hurt more seriously by the
recent period of high interest rates and recession.

f. FEDERAL R E S E R V E B A N K O F A T L A N T A




47

Chart 1. Return on Average Assets
Depository Finanical Institutions

Chart 2. Net Interest Margin
Depository Financial Institutions

Source for Charts 1, 2, 4, 5 and 6:
Commercial banks - Board of Governors of the Federal
Reserve System
Mutual Savings banks - Board of Governors of the Federal
Reserve System; FDIC, Annual Report
Saving and loan associations - Federal Home Loan Bank
Board, Combined Financial
Statements

commercial banks held more than twice the
volume of assets of S&Ls, mutual savings banks,
and credit unions combined. They vastly exceeded
S&Ls and mutual savings banks in the number of
offices, but had only a few more offices than
credit unions. Commercial banks at the time
were general financial institutions offering both
deposit and loan services to businesses and
consumers. S&Ls, mutual savings banks and credit
unions, on the other hand, offered limited services
primarily to consumers. The vast majority of
commercial banks' liabilities were subject to
interest rate ceilings, whereas those of the thrift
institutions were not subject to such ceilings
until 1966. Banks' return on assets in 1960 was
well above that of mutual savings banks, but not
quite so high as S&Ls' return. Banks' net interest
margin, however, greatly exceeded that of both
types of thrift institutions (see Charts 1 and 2).
Between 1960 and 1980, the different types of
institutions were dealt different hands (by the
economic environment regulations and, possibly,
their own motivations) with which to play the
competitive game of the 1980s. Over most of the
period since 1960, commercial banks have grown
more slowly than S&Ls or credit unions. Mutual
savings banks, on the other hand, confined as
they are to the more slowly growing Northeast,
have lagged all three of the other types of
institutions.
Since 1979 this trend has reversed dramatically
as commercial banks grew rapidly and regained
some of the business they lost during the 1970s.
In this period, the other types of depository
48




institutions were facing serious financial problems
and were unable to compete as effectively against
commercial banks (see Table 1).
Even during the period when assets of commercial banks were growing more slowly, however, they were the only kind of depository
institutions whose number was expanding even
as the number of other depository institutions
declined. In the case of S&Ls, the decline was
quite rapid. The number of mutual savings banks
and S&Ls declined throughout the period while
that of credit unions rose from 1960 until 1970,
their peak year. Their numbers have declined
consistently since. Mutual savings banks and
S&Ls disappeared almost exclusively through
merger. Credit union numbers declined mainly
through voluntary liquidations.
Commercial banks, on the other hand, increased
in number from approximately 13,500 to almost
15,000 during the period. Even if we count
banking units (bank holding companies plus
independent banks), the number has declined
only slightly since 1960 (see Table 2).
In recent years the continued increase in the
number of banks and decline in the number of
thrifts may have been partially the result of more
liberal branching standards for S&Ls promulgated
by the Federal Home Loan Bank Board. The
influence of these standards came well after the
number of thrifts started to fall, however. Further,
the number of mutual savings banks has declined
although they were not affected by the Bank
Board's standards. The sharp declines in the
J U N E 1983, E C O N O M I C R E V I E W

T a b l e 1. A v e r a g e A n n u a l A s s e t G r o w t h
I n s u r e d D e p o s i t o r y F i n a n c i a l Institutions

1960-1981
1965-1970
1970-1975
1975-1980
1980-1981

Chart 3. Distribution of Financial Assets
Depository Financial Institutions
1960 and 1981

Commercial
Banks,
Domestic
Offices

Mutual
Savings
Banks

Saving
and Loan
Associations

Credit
Unions

9.31
8.66
10.53
10.08
9.67

7.34
6.27
9.31
7.30
2.00

11.42
6.50
14.05
13.34
5.80

13.29
11.22
16.13
13.82
7.17

Commercial Banks

Sources: Commercial Banks - Federal Reserve Board
S&Ls - FHLBB. C o m b i n e d Financial Statements
Credit Unions - CU NA Yearbook 1979 and Credit Union Statistical
Reports 1981

3
f number of thrifts in recent years are probably
| more closely related to financial problems.
Over the longer term, this increase in the
number of commercial banks, together with a
decline in other institutions, should not be surf prising. In fact, it is quite consistent with studies
of economies of scale in financial institutions.
These studies indicate that commercial banks'
1
unit costs begin to rise slightly once the unit has
I assets in the neighborhood of $50 million to
$75 million. Studies of savings and loan associations,
* which may be generally applicable to mutual
, savings banks, indicate that costs decline to a
much greater size of institution, possibly in the
I neighborhood of $500 million in deposits. The
more specialized thrift institutions thus appear
! able to take advantage of much greater scale
economies than do commercial banks. Consequently, thrifts appear to have more motivation
* to merge and combine in order to achieve large
scale production.
Further consolidation of both types of institutions—thrifts and commercial banks—probably
has been inhibited by branching laws that pro5
hibited interstate banking and in many cases
intrastate branching for banks and thrifts until
late in the 1970s when the Federal Home Loan
p Bank Board changed its policies to allow more
statewide branching for S&Ls. Prohibitions against
commercial bank statewide branching still exist
I in many states. Sixteen have limited branching, 11
still only allow unit banks, and 1 2 states still have
* significant prohibitions against multibank holding
companies. Further reasons for lack of consolidation may include the U. S. Supreme Court's
antitrust guidelines that ignore nonbank competition and nonlocal competition in dealing
with combinations of commercial banks. These
guidelines as enforced by the regulatory agencies
f

«

FEDERAL R E S E R V E B A N K O F ATLANTA




25%

34%
Mutual S a v i n g s B a n k s

Savings and Loan Associations

84%

Credit Unions

1960

1981

U.S. Government Securities
State and Local Government Securities
Mortgages
Consumer Credit
Other Loans'
Corporate Bonds
Other Finanical Assets

Source: Federal Reserve System, Flow of Funds
'Primarily business loans
'The shift in credit union assets from other assets to U.S. Government
Securities resulted primarily from a shift out of deposits at S&Ls.

49

Table 2. Number of Depository Financial Institutions
(Insured and Noninsured)
In The United States

Year
1960
1965
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981

Commercial Banks
Banking
No. of
Units(2)
Charters(1)
13,484
13,818
13,705
13,804
13,950
14,194
14,488
14,654
14,697
14,740
14,741
14,738
14,870
14,882

13,105
13,403
12,931
12,951
12,837
12,630
12,642
12,688
12,708
12,750
12,753
12,815
12,787
12,693

Mutual
Savings
Banks(3)

Savings
& Loans

Cedit
Unions(5)

Total
Unlts(6)

515
506
494
490
486
482
480
476
473
467
465
463
460
441

6,320
6,185
5,669
5,474
5,298
5,170
5,023
4,931
4,821
4,761
4,725
4,684
4,592
4,347

20,456
22,119
23,699
23,284
23,115
22,999
22,964
22,703
22,615
22,407
22,177
22,002
21,731
20,814

39,936
42,213
42,793
42,199
41,736
41,281
41,109
40,798
40,617
40,385
40,120
39,964
39,570
38,235

Sources: Commercial and Mutual Savings Banks: FDIC Annual Report (1940-1980) Federal Reserve System Annual Report {1981).
Bank Holding Companies: Federal Reserve Bulletin (1940) Assn. of Bank Holding Companies (1950), Federal Reserve
System Banking and Monetary Stats. (1960-1970), Annual Stats. Digest (1971-1981).
Savings and Loan Associations: U.S. League of Savings Assns., Savings and Loan Fact Book.
Credit Unions: CUNA, Yearbook, 1979(1940-1979), Credit Union Statistical Report, 1981 (1980-1981).
Securities Dealers: S E C Annual Reports.
Notes: (1)
(2)
(3)
(4)
(5)
(6)

Includes 480 banks not insured by FDIC in 1981.
Banking Units = (Commercial Banks + Bank Holding Companies - Bank Subsidiaries of Bank Holding Companies).
Includes 111 banks not insured by FDIC in 1981.
Includes 568 savings and loan associations not insured by F S L I C in 1981.
Includes 3,581 credit unions not Insured by N C U S I F in 1981.
Banking Units, Savings and Loan Associations, Mutual Savings Banks, Cedit Unions, and Securities Dealers.

have limited the number of bank mergers and
consequently the amount of bank consolidation.
Evidence continues to build, however, that
large organizations in commercial banking enjoy
few advantages in competing with small ones.
The smaller organizations appear to be better
capitalized. They have not lost significant market
shares when confronted with competition from
larger banks. Smaller banks continue to hold
approximately the same share of banks' assets
that they did in the early 1970s. They have,
however, increased their share of all banks'
profits.
While numbers of institutions declined or
remained stable, commercial and mutual savings
banks and S&Ls together increased the number
of offices that they operated by almost 250
50




percent, to 81,158 (see Table 3). Commercial
banks lagged with only a 230 percent gain while
mutual savings banks jumped 368 percent (Data
on credit union offices is unavailable, but we
expect that their gain was small.)

Balance Sheet Trends
Balance sheet trends in the four types of
institutions were quite similar between 1960 and
1981. The only major exception reflects a difference in the portfolios of assets and liabilities of
commercial banks and oftheotherthree types of
institutions, a difference that has persisted since
1960.
Chart 3 shows this continuing difference. Despite some asset shifts, commercial banks continue
to be general institutions holding substantial
J U N E 1983, E C O N O M I C R E V I E W

Table 4. Net Worth - Asset Ratio,
Insured Depository Institutions
(percent)

Table 3. Number of Offices of
Depository Financial Institutions
(Insured and Noninsured)
in the United States

Year

Commercial
Banks
No. of
Charters

Mutual
Savings
Banks

Savings
and
Loans

Total
Units

1960
1965
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981

24,103
29,736
35,585
37,174
38,822
40,912
43,193
44,916
46,101
47,911
49,598
51,590
53,649
55,440

1,002
1,222
1,581
1,686
1,840
1,974
2,122
2,322
2,553
2,781
3,006
3,338
3,583
3,583

7,931
9,179
9,987
10,435
11,149
12,206
13,798
1 5,449
16,729
17,848
18,975
20,192
21,325
22,135

33,036
40,137
47,153
49,295
51,811
55,092
59,113
62,687
65,383
68,540
71,911
74,788
78,557
81,158

Sources:
Commercial and Mutual Savings Banks: FDIC Annual Report (19401980), Federal Reserve System Annual Report (1981).
Savings and Loan Associations: U.S League of Savings Associations,
Savings and Loan Fact Book.

proportions of securities of both the U.S. and
state and local governments, mortgages, business
loans and consumer loans. Mutual savings banks
have continued to specialize in U.S. government
and corporate securities and mortgages. S&Ls'
asset portfolios remain dominated by mortgages,
and credit unions still specialize in consumer
loans.
Limitations on activities of the thrift institutions
and credit unions made it impossible forthem to
expand their activities into business lending and
in some cases, consumer lending and transactions
deposit taking. These limitations have only been
reduced since 1980. The 1980s will see whether
dropping these limitations will induce the four
types of institutions to be more similar in their
portfolios and in the types of accounts they offer
and hold.
Even before those limitations were reduced,
however, broad similarities in balance sheet
trends existed among the institutions. These
similarities include decreased liquidity and capital
for all institutions, increased use of nondeposit
liabilities, declines in deposits subject to interest
ceilings in the 1970s, declines in securities holdings,
increases in total loans as proportions of assets
and declines in mortgage loans to total loans for
thrift institutions throughout most of the period.
f. FEDERAL R E S E R V E B A N K O F ATLANTA




Year

Commercial
Banks

Mutual
Savings
Banks

1960
1965
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981

7.99
7.46
6.58
6.32
5.95
5.67
5.65
5.87
6.11
5.92
5.80
5.75
5.80
5.83

8.54
7.80
7.35
6.95
6.80
7.00
7.14
6.66
6.42
6.40
6.53
6.69
6.25
5.35

Savings
and
Loan
Associations

Credit
Unions

6.94
6.79
6.96
6.53
6.22
6.23
6.19
5.81
5.58
5.45
5.51
5.58
5.26
4.27

4.81
5.59
6.27
5.90
5.71
5.53
5.58
5.32
5.07
4.72
4.39
4.43
4.32
4.50

Sources: Commercial Banks - Federal Reserve Board
Mutual Savings Banks - FDIC, Annual Report
S&Ls - FHLBB, Combined Financial Statements
Credit Unions - CUNA, Yearbook 1979 and Credit
Union Statistical Reports 1981

As markets for short-term assets improved
during the 1960s and 1970s, the quick availability
of liquid assets induced financial institutions to
decrease holdings of short-term easily marketable
assets. Cash and securities as a percentage of
assets at all four types of institutions declined.
Taking their place were more loans and securities
of other types. Capital as a percentage of total
assets also fell during the 1960s and particularly
during the 1970s (see Table 4). The late 1970s
saw a leveling off of this decline for commercial
banks and indeed in 1980 and 1981 commercial
banks' capital-asset ratios increased. In the late
1970s and early 1980s, however, because of
substantial earnings problems, capital asset ratios
at the thrifts increased the steepness of their
descent. Credit unions' net worth-assets ratios
declined overall in the 1970s but rebounded
slightly in 1981.
Limits on interest that could be paid for deposit
liabilities induced commercial and mutual savings
banks and S&Ls to increase nondeposit liabilities
during the late 1960s and the 1970s (see Table
5). Commercial banks led in this movement,
increasing nondeposit liabilities earlier and taking
on a greater proportion of nondeposit liabilities
than the thrifts by the mid 1970s. S&Ls jumped
back into the lead as users of nondeposit funds in
1981. Commercial banks and mutual savings
51

Table 5. Nondeposit Liabilities to Total Liabilities
Insured Depository Financial Institutions
(percent)

Year

Commercial
Banks

Mutual
Savings
Banks

Savings
and
Loan
Associations

1.84
6.49
1960
2.83
4.50
1.41
10.71
1965
1.57
10.74
1970
7.40
7.87
1971
1.35
9.56
8.87
9.29
1972
1.36
11.08
1973
10.86
1.86
1974
10.93
2.20
12.51
1975
10.37
2.00
10.40
1976
10.65
1.84
9.35
1977
11.39
1.92
10.90
1978
13.18
2.71
12.90
14.54
14.13
1979
3.59
15.27
14.45
1980
4.00
16.85
17.80
1981
5.99
Sources: Commercial Banks - Federal Reserve Board
Mutual Savings Banks - FDIC, Annual Report
S&Ls - FHLBB, Combined Financial Statements

banks held mainly private nondeposit liabilities
in the forms of commercial paper, notes and
debentures and other borrowings. Savings and
loan associations' nondeposit liabilities came
primarily through loans from the Federal Home
Loan Banks, although their borrowings from other
sources also increased as a proportion of assets.
As higher interest rates and innovation by
nondepository institutions eroded interest rate
control in the 1970s, the regulators were forced
to remove interest rate ceilings for more and
more types of deposits. This culminated in Congress ordering the Depository Institutions Deregulation Committee (Dl DC) to remove the interest
ceilings gradually through April 1986.
Predictably, deposits not subject to interest
rate ceilings increased rapidly in the late 1970s
with inflation and high interest rates. Those
subject to interest rate ceilings declined quite
rapidly (see Chart 4). Throughout the period,
demand deposits at commercial banks grew at a
much slower pace than time and savings deposits.
The gap between growth rates increased in the
latter part of the 1970s as interest rate ceilings
were removed from time and savings deposits
while demand deposits remained subject to an
interest prohibition (see Table 6). The adoption
of NOW accounts that lifted the ceilings on
personal transactions deposits did little to stem
the tide.
52




Table 6. Average Annual Growth in Demand and
Time and Savings Deposits
Insured Commercial Banks

Year
1960-1981
1965-1970
1970-1975
1975-1980
1980-1981
Source: Federal Reserve Board

Demand
Deposits

Time
and
Savings
Deposits

4.40
6.07
5.37
6.12
-10.93

12.57
9.65
14.35
16.55
17.14

Thrift institutions, although limited to a great
extent in the types of assets they could hold,
steadily but slowly decreased the proportion of
mortgages in their portfolios throughout the
1970s after increasing mortgage holdings in the
1960s. Mutual savings banks took on more
corporate securities; S&Ls took on more consumer
loans and government securities.

Income and Expense Trends
In contrast to the similar balance sheet trends
among commercial and mutual savings banks,
S&Ls and credit unions, quite different earnings
trends evolved for these institutions during the
1960s and 1970s. Commercial banks' earnings
were considerably more stable during this period
than those of the other institutions. For the
whole period, the difference between the high
and low return on assets for commercial banks
was only 14 basis points. The spread for savings
and loan associations and mutual savings banks
(even before the earnings debacle of 1979,1980
and 1981) was at least three times that of
commercial banks (see Chart 1). Similarly, return
on equity (or return on net worth) varied much
more greatly among S&Ls and mutual savings
banks (see Chart 5).
After the introduction of market indexed certificates in mid-1978, rising interest rates pulled
thrift institutions' interest costs up much more
rapidly than interest revenues could rise. Thus,
thrifts' earnings plummeted from 1979 through
1981. Thrifts' problems would not have been
avoided had market rates not been introduced.
Without market rates, thrifts could not have bid
for deposits. This would have forced nondeposit
borrowing at market rates or induced a liquidity
crisis.
J U N E 1983, E C O N O M I C R E V I E W

Chart 4. Deposits Subject to Interest Ceilings
Depository Financial Insititutions
(Percent of Total Deposits)

Chart 5. Return on Average Net Worth Depository
Financial Institutions

Mutual
Savings
Banks

40
30

-20

'70

72

'74

'76

'78

f.

FEDERAL RESERVE BANK O F ATLANTA




i

i

i

'80

As might be expected, thrifts' earnings appeared
£> to be driven mainly by changes in interest rates.
Bank earnings, on the other hand, do not appear
^ to have been so sensitive to interest rates as they
were to activity in the economy. Recession,
which brings on more business failures and more
* loan delinquencies, was more closely related to
6 earnings declines at commercial banks than
were higher interest rates (see Chart 6). And
expansion in the real economy was closely
related to expansion in bank earnings. Thus,
* while thrifts' earnings appeared to be interest
rate driven, commercial banks' appeared to be
loan-loss driven.
a Throughout the period, interest revenue increased as a proportion of total revenue for
M commercial banks and S&Ls but not for mutual
savings banks. This increase in interest revenue
as a proportion of total revenue continued into
t the late 1970s and early 1980s, when depository
financial institutions were urged to unbundle
i financial services and to generate revenues through
f fees rather than through interest.
For the entire period, interest costs rose more
rapidly than interest revenue for these institutions.
The difference in cost and revenue growth rates
?
was sufficient to keep net interest margin in the
y « same range until the thrifts'problems hit in 1979
(see Chart 2). Even in the 1979-82 period,
commercial banks' earnings remained stable.
Thrift institutions, because of their asset and
liability mismatch, suffered from rising interest
ii rates and decontrol of deposit interest ceilings
through sharply declining earnings. These earnings

i

i
'60

i i

'65

i

i

i

i

'70

i

i

i

i

i

'75

I

I

'80

declines brought massive losses and cut thrifts'
capital severely. Commercial banks weathered
the high interest rates in relatively good shape
with continued stable earnings, net interest margin
and return on assets and with rising capital-asset
ratios. Much of their financial advantage going
into the latter part of the 1980s stems from this
particular period.

How Now?
Currently, commercial banks appear to be in
good shape compared to thrift institutions. Earnings
of the industry have not fallen, although recessions
plagued the economy in 1980 and 1982. Capital
increased more than assets in the 1980-1981
period. Several of the 1970s trends, however,
appear to be continuing. Deposits subject to
interest ceilings have continued to fall in the last
three years. New MMDA and Super N O W accounts bid fair to continue this trend. Commercial
banks are becoming more dependent on liabilities
whose costs fluctuate with the market. The
interest dependence of commercial banks does
not seem to be declining despite moves to
unbundle and charge fees. Non-interest expenses
also continue to rise.
Thrift institutions, however, appear much more
seriously harmed by the recent period of high
interest rates and recession. As a result of negative
net interest margins and returns on assets, thrift
institutions' capital has declined to historically
low levels. Since most are mutual institutions
and, short of stock conversions, have no practical
53

Chart 6. Commercial Banks
Net Loans Charged to Reserves as a
Percentage of Assets, and Return on
Average Assets
1.2

r

Return on
Average A s s e t s ^ ^

0.9
0.6

Percent

^

^

^ ^ ^

-

Net Loans Charged
to Reserves

0.3

'60

'65

,—v
/
'70

'75

way of raising capital except through earnings,
their net worth has dropped.
Interest rates have fallen since mid 1982, and
some thrift institutions have reported second
half earnings increases. Earnings are low, however,
and borrowing from the Federal Home Loan
Bank is high. The use of other nondeposit funds is
up, and the volume of deposits subject to interest
rate ceilings continues to fall rapidly at these
institutions.
Credit union reserves are down since the mid
1970s. Their deposit-type liabilities make up a
smaller and smaller proportion of total liabilities,
indicating that these institutions, with the others,
are becoming more and more sensitive to market
interest rates.
— B. Frank King

54




J U N E 1983, E C O N O M I C R E V I E W

IX

FINANCE
ANN.

ANN.
APR
1983

MAR
1983

APR
1982

CHG.

APR
1983

MAR
1933

APR
1982

593,039
17,493
186,114
392,442
FEB
472,409
21,945

579,199
16,053
174,957
391,195
JAN
472,915
1 9,343

530,388
9,864
93,760
427,399
FEB
507,374

CHG.

$ millions
UNITE

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings ic T i m e

1,266,033 1,240,521 1,129,500
303,661
291,377
295,680
78,331
72,737
59,083
324,217
304,431
152,093
588,934
603,360
652,132
57,318
53,480
46,215
5,148
4,584
3,098
45,795
43,471
39,607

12

+ 3
+ 33
+113
-

10

Savings & Loans
T o t a l Deposits
NOW
Savings
Time

+ 24
+ 66
+ 16

Mortgages Outstanding
Mortgage C o m m i t m e n t s

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings & T i m e

140,298
36,536
10,385
35,794
63,007
5,308
425
4,448

138,502
34,446
9,685
33,342
64,198
5,058
372
4,303

123,395
35,805
7,785
15,108
68,277
4,388
318
3,721

Savings & Loans
T o t a l Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings <5c T i m e

14,939
3,749
926
2,987
7,797
883
83
747
~

14,740
3,516
875

7,986
855
71
729

13,942
3,610
669
1,580
8,520
760
63
635

Savings & Loans
T o t a l Deposits
NOW
Savings
Time

C o m m e r c i a l Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings & T i m e

49,157
13,218
4,433
16,041
16,614
2,414

47,796
12,487
4,116
14,954
17,190
2,285
198
1,804

40,783
13,014
3,447
6,476
19,069
2,013
174
1,582

Savings it Loans
T o t a l Deposits
NOW
Savings
Time

C o m m e r c i a l Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings & T i m e

20,217
6,647
1,373
4,462
8,667
1,017
50
895

19,569
6,178
1,275
4,304
8,714
962
861

16,991
6,164
1,093
1,647
9,029
796
28
725

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings & T i m e

22,834
6,107
1,384
4,90 6
12,931
172
15
164

24,201
5,835
1,295
4,495
13,077
163
13
154

22,203
6,277
1,070
2,480
12,948
119
13
111

s m e r c i a i Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings & T i m e

11,418
2,451
813
2,244
6,203
N.A.
N.A.
N.A.

11,147
2,322
757
2,027
6,302
N.A.
N.A.
N.A.

10,218
2,415
573
749
6,710
N.A.
N.A.
N.A.

+1

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
.... Savings & T i m e

21,733
4,364
1,456
5,154
10,795
822
55
778

21,049
4,108
1,367
4,746
10,929
793
51
755

19,258
4,325
933
2,176
12,001
700
40
668

+ 13
+ 1
+ 56
+137
- 10
+ 17
+ 38
+ 16

m

t.

222

2,816

39

|||||!

12
77
99

- 13

Mortgages Outstanding
Mortgage C o m m i t m e n t s

+ 26
+171
- 4

Savings <5c Loans
T o t a l Deposits
NOW
Savings
Time

+ 28

+ 79
+ 23

m3

3
29
98

0

45
15
48
12

+ 42
+200

Mortgages Outstanding
Mortgage C o m m i t m e n t s
Savings <5c Loans
T o t a l Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage C o m m i t m e n t s
Savings <5c Loans
T o t a l Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments
Savings & Loans
T o t a l Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage C o m m i t m e n t s

+

4,752
147
829
3,850
FEB
3,602
97

4,592
136
756
3,768
JAN
3,625
76

4,455
83
578
3,820
FEB
3,984
51

52,834
2,074
16,680
34,370
FEB

51,160
1,881
15,416
34,259
JAN

47,400
1,146
8,000
38,194
FEB

+ 11

10,626

10,416

311
2,475
8,014
FEB
8,427
276

268

2,373
7,928
JAN
8,481

9,792
170
1,206
8,463
FEB
9,325
131

+ 9
+ 83
+105
- 5

8,908
191
2,475
6,334
FEB
7,293
300

8,681
179
2,174
6,402
JAN
7,245
235

7,683

+ 16

100

+ 91

1,240
6,357
FEB
7,191
209

+100

2,537
79
518
1,973
FEB
2,037
25

2,525
69
485
1,999
JAN
2,029
24

2,403
45
225
2,148
FEB
2,201
17

+ 6
+ 76
+130
- 8

7,042
185
1,622
5,276
FEB
5,895
168

6,858
173
1,511
5,200
JAN
5,995
153

6,297
88
688
5,541
FEB
6,185
57

+ 12
+110

286

7

+ 77
+

+
-

+

43
1
10
90

+ 81

+109
- 10

- 10

+111

- 0
+1
+ 44

- 7
+ 47

+136
- 5
- 5
+195

Notes: All deposit d a t a a r e e x t r a c t e d f r o m the F e d e r a l R e s e r v e R e p o r t of T r a n s a c t i o n A c c o u n t s , o t h e r D e p o s i t s and Vault C a s h (FR2900),
and are r e p o r t e d f o r the a v e r a g e of t h e week ending t h e 1st Wednesday of t h e m o n t h . T h i s d a t a , r e p o r t e d by i n s t i t u t i o n s with
over $15 million in d e p o s i t s as of D e c e m b e r 31, 1979, r e p r e s e n t s 95% of d e p o s i t s in t h e six s t a t e a r e a . T h e m a j o r d i f f e r e n c e s b e t w e e n
this r e p o r t and t h e "call r e p o r t " a r e s i z e , t h e t r e a t m e n t of i n t e r b a n k d e p o s i t s , and t h e t r e a t m e n t of f l o a t . T h e d a t a g e n e r a t e d f r o m
t h e R e p o r t of T r a n s a c t i o n A c c o u n t s is for banks over $15 million in d e p o s i t s as of D e c e m b e r 31, 1979. The t o t a l d e p o s i t d a t a g e n e r a t e d
f r o m t h e R e p o r t of T r a n s a c t i o n A c c o u n t s e l i m i n a t e s i n t e r b a n k d e p o s i t s by r e p o r t i n g t h e net of d e p o s i t s "due t o " and "due f r o m " o t h e r
d e p o s i t o r y i r s t i t u t i o n s . The R e p o r t of T r a n s a c t i o n A c c o u n t s s u b t r a c t s c a s h in process of collection f r o m d e m a n d d e p o s i t s , while t h e call
r e p o r t does n o t
Savings and loan m o r t g a g e d a t a a r e f r o m t h e F e d e r a l H o m e Loan Bank B o a r d S e l e c t e d B a l a n c e S h e e t D a t a . T h e
S o uFRASER
t h e a s t d a t a r e p r e s e n t t h e t o t a l of t h e six s t a t e s . S u b c a t e g o r i e s w e r e chosen on a s e l e c t i v e basis and do not add t o t o t a l .
Digitized for
N.A. = f e w e r t h a n f o u r i n s t i t u t i o n s r e p o r t i n g .

http://fraser.stlouisfed.org/
±1HFPAI
PCSFPVF
ATI AMTA
Federal
Reserve
BankRANK
of St.HP
Louis

CONSTRUCTION
FEB
1983

MAR
1982

$ MU.
44,533
4,783
11,255
5,186
1,778
812

44,869
4,999
11,867
5,228
1,580
781

52,090
7,091
15,374
6,114
1,659

Nonresidential Building P e r m i t s - $ MiL
Total Nonresidential
6,582
Industrial Bldgs.
634
Offices
1,443
Stores
962
Hospitals
377
Schools
136

MAR
1983

ANN

ANN
%
CHG

MAR
1982

FEB
1983

MAR
1983

CHG

12-month Cumulative R a t e

802

+
+

15
33
27
15
7
1

Residential Building P e r m i t s
Value - $ Mfl.
Residential P e r m i t s - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ MiL

6,487
677
1,430
968
345
105

6,626
816
1,365
1,074
281
84

+
+
+

1
22
6
10
34
62

Residential Building P e r m i t s
Value - $ Mil.
Residential P e r m i t s - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ MQ.

377
39
73
67
30
7

371
46
72
61
30
5

422
75
55
50
31
6

+
+
+

11
48
33
34
3
17

Value - $ Ma.
Residential P e r m i t s - Thous.
Single-family units
Multi-famUy units
Total BuUding Permits
Value - $ Ma.

N o n r e a d e n t i a l Building P e r m i t s - $ MiL
3,398
T o t a l Nonresidential
Industrial Bldgs.
354
Offices
718
Stores
549
Hospitals
210
Schools
53

3,307
380
708
519
178
21

3,351
389
584
593
157
21

+ 1
- 9
+ 23
- 7
+ 34
+152

Residential Building P e r m i t s
Value - $ Mil.
Residential P e r m i t s - Thous.
Single-family units
Multi-famUy units
Total Building Permits
Value - $ Mil.

N o n r e a d e n t i a l Building P e r m i t s - $ Mil.
983
T o t a l Nonresidential
127
Industrial Bldgs.
Offices
229
84
Stores
Hospitals
26
Schools
10

980
134
227
84
25
13

1,050
187
255
112
30
32

-

6
32
10
25
13
69

Residential Building P e r m i t s
Value - $ MU.
Residential P e r m i t s - Thous.
Single-family units
Multi-family units
T o t a l Building Permits
Value - $ MiL

Mil.
1,064
61
316
122
60
53

1,066
63
310
165
62
52

905
89
293
166
27
19

+ 18
- 31
+ 8
- 27
+122
+179

Residential Building P e r m i t s
Value - $ MU.
Residential P e r m i t s - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ MiL

Nonresidential Building P e r m i t s - $ M Ü.
169
T o t a l Nonresidential
Industrial Bldgs.
11
16
Offices
40
Stores
Hospitals
10
5
Schools

161
13
14
39
5
5

172
20
44
32
6
0.8

- 2
- 45
- 64
+ 25
+ 67
+525

Residential BuUding P e r m i t s
Value - $ MU.
Residential P e r m i t s - Thous.
S ingle-family units
Multi-famUy units
Total Building Permits
Value - $ MiL

- 18
- 29
- 32
- 15
+100
+ 80

Residential BuUding P e r m i t s
Value - $ Ma.
Residential P e r m i t s - Thous.
Single-family units
Multi-famUy units
Total Building Permits
Value - $ MiL

Nonresidential Building P e r m i t s
T o t a l Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools

N o n r e a d e n t i a l Building P e r m i t s
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools

Nonresidential Building Permits
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools

N o n r e a d e n t i a l Building P e r m i t s - $ Mil.
591
T o t a l Nonresidential
40
Industrial Bldgs.
Offices
92
100
Stores
Hospitals
42
9
Schools

601
41
100
100
44
9

725
56
135
118
21
5

+

45,373

42,812

37,576

620.5
500.2

584.3
480.4

511.0
391.3

+ 21
+ 28

21

89,906

87,681

89,665

+ 99

8,056

7,529

7,432

+

128.7
96.1

121.6
91.1

105.7
92.3

+ 22 «1
+
4

14,638

14,016

14,058

274

260

269

5.9
4.3

5.5
4.3

4.6
5.2

+ 28

651

631

691

-

6

4,678

4,350

5,015

-

7'

66.6
57.0

62.6
53.0

61.3
62.5

+
-

8,067

7,658

8,366

--

1,586

1,500

1,040

+ 53

30.0
15.0

29.0
14.9

20.6
9.7

+ 46
+ 55

2,568

2,480

2,090

+ 23

758

708

580

+

12.9
10.1

12.1
9.5

9.4
7.9

+

28
23

8 •

+

_

- 17 V«

4

31

+ 37

1,822

1,774

1,485

+

208

193

145

+

43

a

4.0
2.5

3.8
2.2

3.0
1.9

+ 33

32

s
]

377

354

317

+ 19

* I
!

!
"
1

+

mu
552

517

385

+ 43

9.4
7.2

8.6
7.2

6.8
5.1

+ 38
+ 41

1,143

1,118

1,109

+ 3*

NOTES:
Data supplied by the U. S. Bureau of the Census, Housing Units Authorized By Building Permits and Public C o n t r a c t s , C-40.
Nonresidential data excludes the cost of construction for publicly owned buildings,
the six states. The annual percent change calculation is based on the most recent month over prior year. Publication of F. W.
Dodge construction c o n t r a c t s has been discontinued.


http://fraser.stlouisfed.org/
56
Federal Reserve Bank of St. Louis

i

4

J U N E 1983, E C O N O M I C R E V I E W

*,

M
f
•

•

•

•

•

GENERAL

UNITED S T A U S "
Personal Income
($bil. - SAAR)
Taxable Sales - $bil.
Plane Pass. A r r . 000's
Petroleum Prod, (thous.
Consumer P r i c e Index
1967=100
Kilowatt Hours - mils.
Personal Income
($bil. - SAAR)
Taxable Sales - $ biL
Plane Pass. A r r . 000's
Petroleum Prod, (thous.)
Consumer P r i c e Index
1967=100
Kilowatt Hours - mils.
ALABAMA
,Personal Income
($bil. - SAAR))
$ bil.
000's
(thous.)
Index
1967=100
- mils.
FLORIDA
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. A r r . 0 0 0 ' s
Petroleum Prod, (thous.)
Consumer P r i c e Index Nov. 1977 = 100
Kilowatt Hours - mils.

CURR.
PERIOD

PREV.
PERIOD

YEAR
AGO

4Q

2,581.8
N.A.
N.A.
8,729.1

2,483.7
N.A.
N.A.
8,687.2

+ 5

APR

2,616.1
N.A.
N.A.
8,712.0

APR
DEC

295.5
170.3

293.4
160.5

284.3
172.4

+ 4
- 1

FEB
APR

267.9
N.A.
4,332.1
1,407.0

262.1
N.A.
4,373.3
1,400.0

246.9
N.A.
3,984.9
1,395.0

DEC

N.A.
26.2

N.A.
25.0

N.A.
25.5

+ 3

4Q
NOV
FEB
APR

34.7
23.0
90.6
55.0

33.9
22.5
93.7
56.0

32.9
21.7
91.6
56.0

+
+
-

DEC

N.A.
3.5

N.A.
3.4

N.A.
3.7

- 5

70.9
68.4
2,379.9
65.0
MAR
159.0
7.1

68.4
67.9
2,387.5
65.0
JAN
157.9
6.8

61.1
67.4
2,177.5
81.0
MAR
155.1
6.7

55.2
39.4
1,454.8
N.A.
APR
297.6
4.1

54.0
37.2
1,474.2
N.A.
FEB
295.1
3.8

51.2
38.1
1,319.6
N.A.
APR
280.2
4.1

FEB
APR

44.7
N.A.
260.4
1,200.0

44.4
N.A.
262.6
1,191.0

42.5
N.A.
247.1
1,164.0

DEC

N.A.
4.1

N.A.
4.3

N.A.
3.7

FEB
APR

20.4
N.A.
25.2
87.0

19.9
N.A.
28.9
88.0

19.3
N.A.
28.6
94.0

DEC

N.A.
1.8

N.A.
1.7

N.A.
1.6

4Q

Personal Income
($bil. - SAAR)
Taxable Sales - $ biL
Plane Pass. A r r . 0 0 0 ' s
Petroleum Prod, (thous.)
Consumer P r i c e Index
1967 = 100
Kilowatt Hours - mils.

0

+

9

+ 8
+ 1

5
6
1
2

ANN.
APR
1983

MAR (R)
1983

APR
1982

CHG.

Agriculture
P r i c e s R e c ' d by F a r m e r s
Index (1977=100)
137
Broiler P l a c e m e n t s (thous.)
84,992
Calf P r i c e s ($ p e r c w t . )
67.20
Broiler P r i c e s ( t p e r lb.)
24.7
Soybean P r i c e s ($ p e r bu.)
6.04
Broiler F e e d C o s t ($ p e r ton)
215

134
84,834
68.40
25.4
5.82
210

135
83,782
62.60
26.2
6.11
215

+
+
+
-

Agriculture
P r i e e s R e c ' d by F a r m e r s
Index (1977=100)
121
Broiler P l a c e m e n t s (thous.) 32,818
Calf P r i c e s ($ p e r c w t . )
65.21
Broiler P r i c e s (<t p e r lb.)
24.1
Soybean P r i c e s ($ p e r bu.)
6.18
Broiler F e e d C o s t ($ p e r ton) 10.83

119
32,526
64.98
24.8
6.00
10.89

118
32,082
59.18
24.6
6.36
10.95

+ 3
+ 2
+10
- 2
- 3
- 1

Agriculture
F a r m Cash R e c e i p t s - $ mil.
(Dates: JAN, JAN)
158
Broiler P l a c e m e n t s (thous.)
10,916
Calf P r i c e s ($ p e r c w t . )
63.20
Broiler P r i c e s (4 per lb.)
24.1
Soybean P r i c e s ($ p e r bu.)
6.02
Broiler F e e d Cost ($ pCe r ton) 11.00

-

10,718
63.60
24.8
5.99
11.00

158
10,746
57.00
24.6
6.33
11.00

0
+ 2
+11
- 2
- 5
0

Agriculture
F a r m Cash R e c e i p t s - $ mil.
(Dates: JAN, JAN)
524
Broiler P l a c e m e n t s (thous.)
2,040
Calf P r i c e s ($ p e r c w t . )
71.60
Broiler P r i c e s (<t p e r lb.)
23.5
Soybean P r i c e s ($ per bu.)
6.02
Broiler F e e d Cost ($ p e r ton) 12.70

1,983
69.40
24.0
5.99
12.40

538
1,960
62.40
25.0
6.29
12.30

- 3
+ 4
+15
- 6
- 4
+ 3

F a r m Cash R e c e i p t s - $ mil.
(Dates: JAN, JAN)
224
Broiler P l a c e m e n t s (thous.)
13,009
60.60
Calf P r i c e s ($ per c w t . )
Broiler P r i c e s (t p e r lb.)
24.0
Soybean P r i c e s ($ p e r bu.)
6.20
Broiler F e e d C o s t ($ per ton) 11.00

13,223
61.50
24.5
5.90
11.00

205
12,873
55.00

+ 9
+ 1
+10

23.5
6.37
11.50

+ 2
- 3
- 4

Agriculture
F a r m Cash R e c e i p t s - $ mil.
(Dates: JAN, JAN)
204
Broiler P l a c e m e n t s (thous.)
N.A.
Calf P r i c e s ($ p e r c w t . )
65.50
Broiler P r i c e s (C p e r lb.)
24.5
Soybean P r i c e s ($ p e r bu.)
6.29
Broiler F e e d C o s t ($ p e r ton) 9.00

219
N.A.
61.00
27.0
6.50
9.50

- 7

N.A.
65.90
26.0
6.18
9.50

+
-

216
6,503
62.30
25.5
6.30
11.00

+30
+ 6
+ 9
0
- 3
0

1
1
7
6
1
0

—

4Q
APR
FEB
APR
Miami
DEC

Personal Income
($bil. - SAAR)
4Q
Taxable Sales - $ bil.
3Q
Plane Pass. A r r . 000's
FEB
Petroleum Prod, (thous.)
Consumer P r i c e Index - A t l a n t a
1967 = 100
Kilowatt Hours - mils.
DEC
Personal Income
($bil. - SAAR)
Taxable Sales - $ biL
Plane Pass. A r r . 0 0 0 ' s
Petroleum Prod, (thous.)
Consumer P r i c e Index
1967 = 100
Kilowatt Hours - mils.

ANN.
%
CHG.

LATEST
DATA

4Q

4Q

+16
+ 1
+ 9
-20
+ 3
+ 6

+ 8
+ 3
+10

+ 6
+ 0

+ 5
+ 5
+ 3

+11

+ 6
-12
- 7

+13

Agriculture
F a r m Cash R e c e i p t s - $ mil.
(Dates: JAN, JAN)
Broiler P l a c e m e n t s (thous.)
Calf P r i c e s ($ p e r c w t . )
Broiler P r i c e s (« p e r lb.)
Soybean P r i c e s ($ p e r bu.)
Broiler F e e d C o s t ($ p e r ton)

280
6,865
68.00
25.5
• 6.08
11.00

-

-

-

-

6,603
65.50
26.5
5.97
11.50

7
9
3
5

Personal I n c o m e
Agriculture
($bil. - SAAR)
42.0
41.5
39.9
+ 5
F a r m Cash R e c e i p t s - $ mil.
4Q
Taxable Sales - $ biL
28.7
27.4
26.9
+ 7
(Dates: JAN, JAN)
DEC
192
166
+16
Plane Pass. A r r . 000's
121.2
126.3
120.5
+ 1
Broiler P l a c e m e n t s (thous.)
N.A.
FEB
N.A.
N.A.
Petroleum P r o d , (thous.) A P R
N.A.
N.A.
N.A.
Calf P r i c e s ($ p e r c w t . )
61.40
63.40
56.90
+ 8
Consumer P r i c e Index
Broiler P r i c e s (< per - lb.)
23.5
24.0
22.5
+ 4
1967 = 100
N.A.
N.A.
N.A.
Soybean P r i c e s ($ p e r bu.)
6.33
5.91
6.30
+ 0
Kilowatt Hours - mils.
DEC
5.6
jLO
5.7
- 2
Broiler F e e d C o s t ($ p e r ton) 9.20
9.10
9.30
- 1
Hôte»
Personal I n c o m e d a t a supplied by U. S. D e p a r t m e n t of C o m m e r c e . T a x a b l e Sales a r e r e p o r t e d as a 1 2 - m o n t h c u m u l a t i v e t o t a l .
Plane
Passenger Arrivals a r e c o l l e c t e d f r o m 26 a i r p o r t s . P e t r o l e u m P r o d u c t i o n d a t a supplied b y U. S. B u r e a u of Mines. C o n s u m e r P r i c e
Index d a t a supplied by Bureau of L a b o r S t a t i s t i c s . A g r i c u l t u r e d a t a supplied by U. S. D e p a r t m e n t of A g r i c u l t u r e . F a r m Cash
Receipts d a t a a r e r e p o r t e d as c u m u l a t i v e f o r t h e c a l e n d a r y e a r t h r o u g h t h e m o n t h shown. Broiler p l a c e m e n t s a r e a n a v e r a g e weekly
rate. The S o u t h e a s t d a t a r e p r e s e n t t h e t o t a l of t h e six s t a t e s . N.A. = not a v a i l a b l e . T h e annual p e r c e n t c h a n g e c a l c u l a t i o n is b a s e d
on most r e c e n t d a t a over prior y e a r . R = r e v i s e d .


FEDERAL RESERVE BANK OF ATLANTA


57

EMPLOYMENT

Civilian Labor Force - thous.
T o t a l Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

FEB
1983

MAR
1982

109,873
97,994
11,879
10.3
N.A.
N.A.
39.6
347

109,647
97,265
12,382
10.4
N.A.
N.A.
38.8
339

108,761
98,471
10,290
9.0
N.A.
N.A.
39.1
327

+ 1
- 0
+15

+ 1
+ 6

Civilian Labor Force - thous.
Total Employed - thous.
T o t a l Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

14,025
12,537
1,488
10.5
N.A.
N.A.
39.8
301

14,064
12,466
1,598
11.1
N.A.
N.A.
39.7
300

13,854
12,501
1,353
9.8
N.A.
N.A.
39.4
285

+ 1
+ 0
+10

Civilian Labor F o r c e - thous.
T o t a l Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

1,738
1,478
260
14.6
N.A.
N.A.
40.0
302

1,740
1,456
284
15.9
N.A.
N.A.
39.8
298

1,683
1,452
231
13.8
N.A.
N.A.
38.8

+ 3
+ 2
+13

Civilian Labor Force - thous.
T o t a l Employed - thous.
T o t a l Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

4,610
4,202
408
8.9
N.A.
N.A.
40.3
294

4,679
4,235
444
9.7
N.A.
N.A.
40.0
290

4,565
4,174
390
8.9
N.A.
N.A.
39.9
274

Civilian Labor Force - thous.
T o t a l Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
_________

2,676
2,460
216
8.3
N.A.
N.A.
40.0
281

2,651
2,424
227
8.3
N.A.
N.A.
40.4
284

2,626
2,419
204
8.1
N.A.
N.A.
38.9
260

+ 2
+ 2
+ 6

Civilian Labor Force - thous.
T o t a l Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

1,839
1,616
223
12.0
N.A.
N.A.
39.4
377

1,833
1,610
223
11.9
N.A.
N.A.
39.4
379

1,838
1,672
166
10.2
N.A.
N.A.
41.5
383

+ 0
- 3
+34

Civilian Labor Force - thous.
T o t a l Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

1,052
930
122
11.4
N.A.
N.A.
39.2
258

1,043
913
130
11.7
N.A.
N.A.
39.1
258

1,054
942
112
9.6
N.A.
N.A.
38.6
246

Civilian Labor Force - thous.
Total Employed - thous.
T o t a l Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $

2,110

2,118

2,092
1,842
250
11.8
N.A.
N.A.
38.4
268

Notes:

1,851
259
11.7
N.A.
N.A.
39.6
293

1,828
290
12.8
N.A.
N.A.
39.7
294

281

ANN. ;

ANN.
%
CHG.

MAR
1983

+ 1
+ 6

+ 3
+ 7

+ 3
+ 8

- 5
- 2

-0
-1

+ 9

% M

MAR
1982

FEB
1983

MAR
1983

CHG. ;

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., <5c Real Est.
Trans. Com. & Pub. Util.

88,240
18,147
3,478
20,129
16,030
19,216
5,378
4.884

87,718
18,069
3,395
20,033
15,970
19,032
5,360
4,873

89,679
19,207
3,631
20,306
16,176
18,828
5,304
5,049

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. Util.

11,380
2,128
602
2,697
2,172
2,292
657
690

22,347
2,126
603
2,685
2,168
2,279
653
689

22,440
2,210
658
2,673
2,172
2,21.9
645
701

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., <5c Real Est.
Trans. Com. <5c Pub. Util.

1,304
326
58
265
293
219
59
70

1,302
325
58
265
293
219
58
70

1,315
341
55
264
292
214
58
72

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. Util.

3,846
462
236
1,026
644
949
287
234

3,838
464
237
1,023
641
944

3,816
470

234

1,012
641
911
280
230

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., ¿c Real Est.
Trans. Com. & Pub. Util.

2,209
495
94
521
445
384
118
145

2,198
494
94
517
444
380
117
144

2,184
504
101
508
437
368
115
145

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. Util.

1,589
192
115
364
313
307
80
124

1,589
193
116
364
312
306
80
125

1,629
212
127
365
311
300
79
131

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. Util.

783
196
39
159
182
124
33
39

780
195
39
159
182
123
33
38

798
206
41
159
185
122
33
39

Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. * Pub. Util.

1,649
457
60
362
295
309
80
78

1,640
455
59
357
296
307
79
78

ira

286

-

2

- 4

+ 2I

Ili
_1

-1
- 4
+5

262

+2

- 9
- 9
-

0>

++ 1
+1
-

2

01

1,698
477
72
365
306
304
80
84_

All labor force data a r e from Bureau of Labor S t a t i s t i c s reports supplied by s t a t e agencies.
Only the unemployment rate data a r e seasonally adjusted.
The Southeast data represent the t o t a l of the six s t a t e s .
The annual percent change calculation is based on the most recent data over prior year.


58


J U N E 1983, E C O N O M I C REVIEW




t<

R

*

!
Federal Reserve Bank of Atlanta
P.O. Box 1731
Atlanta, Georgia 30301
Jress Correction Requested

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A



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Atlanta, Ga«,„
P e r m i t 292