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d e r a l R e s e r v e B a n k o f A tla n ta - 1 In t h i s i s s u e : S e le c tiv e C r e d it C o n t r o ls : T h e E x p e r ie n c e a n d R e c e n t In t e r e s t T e n n e s s e e 's E c o n o m ic H o r iz o n D is t r ic t B a n k in g N o te s D is t r ic t B u s in e s s C o n d it io n s B rig h t e n s 9 7 1 S e le c t iv e T h e a n d C r e d it C o n t r o ls E x p e r i e n c e R e c e n t I n t e r e s t by Arnold Dill Ask a ty p ic a l e c o n o m is t h o w m o n e ta ry p o lic y w o rk s and chances are he w ill te ll yo u h o w th e Federal Reserve affects th e to ta l s u p p ly o f m o n e y and ba nk c re d it, th e general level o f in te re st rates, o r b o th . W h e n asked a b o u t the a llo c a tio n o f th is c re d it a m o n g b o rro w e rs , o u r ty p ic a l e c o n o m is t w ill p ro b a b ly say th a t it is th e fin a n c ia l m arkets th a t a llo ca te c re d it to those w h o are w illin g and able to pay m a rk e t in te re st rates. H o w e ve r, he w ill also te ll you th a t th e fin a n c ia l m arkets d o n o t a llo c a te this c re d it u n ifo rm ly and th a t the im p a c t o f m o n e ta ry re stra in t o r ease o n d iffe re n t sectors o f th e e c o n o m y is n o t eq ua l. In p a rtic u la r, c o rp o ra te b o rro w in g in rece nt years seem ed re la tiv e ly im m u n e to m o n e ta ry re stra in t, w hereas c re d it flo w s in to h o u sin g and, to a lesser exte nt, in to sm all businesses and m u n ic ip a litie s , w e re h ig h ly s u sce p tib le to re stra in t. It has been argued th a t c re d it m ig h t be ra tio n e d in a m o re so c ia lly d e sira b le w a y if general c o n tro ls on th e su p p ly o f m o n e y and ba nk c re d it w e re s u p p le m e n te d w ith selective c o n tro ls . In e va lu a tin g this suggestion, w e s h o u ld keep in m in d th a t th e U. S. does have c o n s id e ra b le exp e rie n ce w ith selective c re d it c o n tro ls , p a rtic u la rly d u rin g w a rtim e w h e n extensive c o n tro ls w e re used in an e ffo rt to restrain th e g ro w th o f c re d it to th e p riva te sector. This was to con serve fin a n c ia l resources fo r th e w a r e ffo rt and to reduce in fla tio n a ry pressures. D u rin g p e a ce tim e w h e n th e re have been restraints on th e use o f general m o n e ta ry p o lic ie s o r w h e n th e ir use m ig h t have had un d e sira b le effects, selective c re d it c o n tro ls have also been e m p lo y e d . Peacetim e c o n tro ls have trie d to lim it th e exp an sion o f s p e cia lize d types o f c re d it— na m ely, sto ck m a rke t c re d it and fo re ig n le n d in g — w ith o u t a ffe c tin g th e expansion o f o th e r types. The firs t pa rt o f this a rtic le review s U. S. exp e rie n ce w ith se le ctive c re d it c o n tro ls . Later, the c u rre n t in te re st in these c o n tro ls is discussed in lig h t o f past exp erience . Monthly Review, V o l. LVI, upon the R esearch request to A tla n ta , G e o rg ia No. 5. Free s u b s c rip tio n D epartm ent, Federal and a d d itio n a l Reserve Bank c o p ie s of a v a ila b le A tla n ta , 30303. M O N T H L Y R E V IE W The Experience World War I. This c h ro n ic le o f U. S. exp e rie n ce w ith selective c o n tro ls begins w ith th e C a pita l Issues C o m m itte e (CIC) o f th e Federal Reserve Board. The C IC , given fo rm a l status in A p ril 1918 by th e W a r Finance C o rp o ra tio n A c t, con sisted o f th re e FRB m em b ers and an a d viso ry g ro u p o f c o m m e rc ia l and in v e s tm e n t bankers. S u b co m m itte e s fu n c tio n e d in each Federal Reserve D is tric t. T he p u rp o se o f th e C IC was to p re v e n t a d iv e rs io n o f ca p ita l in to in d u strie s n o t essential to th e w a r e ffo rt (and aw ay fro m L ib e rty Loans and d e fe n se -re la te d in du stries). This was a cc o m p lis h e d by scree ning p ro s p e c tiv e issues o f stocks and bo n d s in excess o f $100,000 and by a p p ro v in g o n ly tho se in th e n a tio n a l interest. The C IC was ke e n ly aw are o f a flo u ris h in g tra ffic in fra u d u le n t se cu ritie s; such secu ritie s w e re n o t E x c e r p ts fro m L e tte r of C a p ita l Issu es C o m m itte e t o F e d e r a l R e s e r v e B a n k s January 1918 e va d in g the CIC, a lth o u g h som e b o rro w e rs m ay have been a b le to su b s titu te s h o rt-te rm b o rro w in g fo r se cu rity issues. M o re o v e r, th e a d m in is tra tio n o f the C IC was aide d by tw o fa cto rs: (1) th e cle are r d is tin c tio n b e tw e e n essential and nonessential b o rro w in g th a t exists d u rin g w a rtim e and (2) an in s titu tio n a l s e ttin g c o n d u c iv e to c o n tro ls — nam ely, the in ve stm e n t b a n kin g in d u stry, w h ic h is m o re o rg a n ize d and g e o g ra p h ic a lly co n c e n tra te d than o th e r areas o f fin a n ce , such as c o n s u m e r and real estate fin a n ce . The C IC had little success in c o n tro llin g th e issuing o f fra u d u le n t securities, m any o f w h ic h w e re exchanged fo r Lib e rty Bonds o f naive investors. W h e n th e C IC te rm in a te d a ctivitie s, Charles S. H a m lin , the n C h airm a n, w a rn e d th e p u b lic a b o u t w o rth le s s secu ritie s and urg ed Congress to en act laws o u tla w in g these e xistin g abuses. C a rte r Glass, the n Secretary o f th e Treasury, shared this co n ce rn , b u t m e a n in g fu l le g is la tio n was n o t fo rth c o m in g fo r m any years, la rge ly because p u b lic o p in io n w o u ld n o t p e rm it it. In retrosp ect, C IC a c tiv itie s p ro b a b ly s h o u ld have been c o n tin u e d , w ith em phasis o n scree ning o u t fra u d u le n t and d o u b tfu l se cu rity issues. " In order to win the war, it is im perative at this time that goods, credit, and savings be placed at the disposal of the g o ve rn m e n t in the largest pos sible measure. . . . ” Stock Market— 1929. A n o th e r s e cu rity m a rke t p ro b le m — the use o f c re d it in pu rch a sin g stock— p ro m p te d th e next a tte m p t to se le ctive ly c o n tro l " f h e comm ittee will not pass upon the in trin sic m erit of securities to be offered fo r sale/ it will only examine into two Questions: E x c e r p t fr o m L e tte r o f F e d e r a l R e se r v e B oard to CO “W hether the offer is tim ely with respect to the finan cia l operations to be undertaken by the Q overnm ent from time to time, and (2 ) W h eth er the objects for w hich the funds are to be raised by the offer of securities are com patible with the public interest as above described." F ed eral R eserve B anks F eb ru ary 2, 1929 " f h e fe d e ra l reserve act does not, in the opin ion of the fe d e ra l R eserv e Board, contem plate the use of the resources of the fe d e ra l reserve banks for the creation or extension of speculative credit. A member bank is not within its reasonable claims fo r rediscount facilities at its fe d e ra l reserve bank when it borrows either fo r the purpose of m aking essential to th e w a r e ffo rt and, th e re fo re , n o t a p p ro ve d . A lth o u g h th e C IC had no e n fo rc e m e n t p o w e rs, its d isa p p ro va l h in d e re d th e m a rk e ta b ility o f an issue. By D e c e m b e r 31, 1918, w h e n it s to p p e d active o p e ra tio n because o f a re tu rn to a p e a ce tim e e co n o m y, th e C IC had screened a p p lic a tio n s in v o lv in g n e a rly $4 b illio n in securities, a b o u t $1 b illio n o f w h ic h w e re n o t a p p ro ve d . W h a t success th e C IC had can be a ttrib u te d to several factors. First, in v e s tm e n t bankers saw th e C IC as an e x p e d ie n t to a d e sira b le e n d — na m ely, the fin a n c in g o f the w a r e ffo rt. Second, th e C IC was pervasive, scree ning all a p p lic a tio n s by c o rp o ra tio n s (except railroads) o r state o r lo ca l g o ve rn m e n ts w a n tin g to issue secu ritie s in excess o f $100,000. This means th e re w e re fe w le g itim a te lo o p h o le s fo r F E D E R A L R E SE R V E B A N K O F A T L A N T A speculative loans or for the purpose of maintaining speculative loans. " f h e board has no disposition to assume authority to interfere with the loan practices of member banks so long as they do not involve the fe d e ra l reserve banks. It has, however, a grave responsibility w h en ever there is evidence that member banks are m ain taining speculative secu rity loans with the aid of fe d e ra l reserve credit. W h en such is the case the fe d e ra l reserve bank becomes either a contributing or a sustaining factor in the cu rren t volum e of speculative secu rity credit, f h is is not in harm ony with the intent of the fe d e ra l reserve act n or is it conducive to the wholesome operation of the banking and credit system of the co u n try." 79 credit. The dilemma facing monetary authorities in the late 1920's was how to limit stock market credit without causing undesirable declines in "legitimate" business and agricultural loans as well. Finally, in February 1929, the Federal Reserve Board advised member banks that they were not within their reasonable claims for rediscount facilities when they borrowed for the purpose of making or maintaining speculative loans. This move was ineffectual, since it applied only to member banks borrowing from the Federal Reserve— not to other member banks, nonmember banks, or other sources of stock market credit. Actually, in the first three quarters of 1929, foreign banking agencies, corporations, and individuals increased their loans for purchasing securities by nearly $3 billion. The "crash" in October 1929 gave impetus to overdue regulation of security markets. In the years that followed, major sources of stock market credit were subjected to selective control.1 The effectiveness of selective controls of stock market credit has been enhanced by their broad coverage of sources of stock market credit and sympathy for the regulations among the financial community and the general public. World War II. The regulation of consumer instal ment credit was first authorized by an executive order of the President in August 1941. By limiting instalment credit, it was hoped that consumers would reduce their demands for scarce goods and buy savings bonds instead. This would relieve inflationary pressures and ease the shift of resources from production of consumer durables to production of defense-related goods. The drafters of the regulation— members of the staff of the Board of Governors, consultants, and representatives of the Office of Price Administration — had to decide the form, scope, and terms of the regulation. Controls took the form of Regulation W of the Board of Governors. Minimum down payments and maximum repayment periods were stipulated for purchases of durable goods in 47 categories ranging from air conditioners to water 1R egulations G , T , an d U , p re s c rib e d in a cc o rd a n c e w ith th e Secu ritie s Exchange A c t o f 1934, lim it the am ou n t o f cre d it to p u rch a se a n d carry m argin sto ck s that m ay b e e x te n d e d o n se cu rities as collateral b y p re scrib in g a m axim um loan value, w h ic h is a sp e c ifie d p e rcen ta g e o f the m arket value o f the collateral at the tim e the cre d it is e x te n d e d ; m argin req u irem en ts are the d iffe re n c e b e tw e e n the m arket value (100 p e rce n t) an d the m axim um loan value. T h e term , "m argin s to c k s," is d e fin e d in the co rre sp o n d in g regulation. Regulation C an d sp e cia l m argin req u irem en ts fo r b o n d s co n v e rtib le into sto ck s w e re a d o p te d b y the B oard o f G o v e rn o rs e ffe ctive M a rch 11, 1968. 80 pumps. Original down payment requirements, which could be in the form of a trade-in, ranged from 10 percent for furniture and pianos to 33 percent for autos; the standard repayment period was 18 months. These terms, originally set near those prevailing at the time, were tightened and coverage was broadened in March and May of 1942. The regulation was primarily aimed at instal ment sales contracts on durable goods. But it also covered single payment loans, which were required to be paid within 90 days, and charge account balances, which were required to be paid by the tenth day of the second month after the purchase. The implementation of the regulation was formidable, since nearly 200,000 granters of instalment credit had to be registered and informed of their responsibilities. A staff had to be assembled to investigate compliance with the regulation, but actual detection of violation was difficult to verify. Evasion did not require a great deal of ingenuity. For example, down payment requirements could sometimes be evaded by overstating both the price of an article and the value of a trade-in, in effect increasing the amount of the instalment credit extended to purchase the article. Also, durable goods were sometimes sold in component parts to avoid the regulation. Disciplinary action consisted of letters of admonition and "disciplinary conferences" and, eventually, criminal proceedings. However, during the six years the regulation was in effect, there were only six suspensions of licenses, by consent, and only one court case. There was a high level of compliance with Regulation W during the war largely because of the scarcity of consumer durable goods, the liquid state of consumers that reduced the need for instalment credit, public sympathy with the war effort, and the rationing program of the Office of Price Administration. Com pliance, however, began to deteriorate in early 1946, nearly one year before any official relaxation of the regulation. 1947-48. By the time Regulation W was suspended in November 1947, rapid increases in consumer instalment credit and bank loans were fanning inflationary fears. This revived interest in various selective controls, especially since traditional monetary curbs were largely nullified by the Federal Reserve's price support of marketable U. S. Government bonds. In November 1947, the same month that consumer credit controls were suspended, Federal and state bank supervisors sent a letter to commercial banks urging them to: (1) voluntarily curtail all loans for "speculation" in real estate, commodities, or securities; (2) guard against an overextension of consumer credit; and (3) confine credit extension to financing that would help "production" rather than merely M O N T H L Y R E V IE W M in im u m D o w n p a y m e n ts a n d M a x im u m M a tu ritie s I n s ta lm e n t C re d it S e p t. S e p t. 1, 1941M ar. 22, 1942 T ype of c re d it Downpaym ent (perc e n t) 1. Air c o n d itio n e rs , room .............................. u n its 2. Air c o n d itio n in g s y s te m s , h o m e . . . . 3. A ircraft (in c lu d in g g l i d e r s ) ................................... 4. A ttic v e n tila tin g fa n s . . 45. W ater p u m p s .................... 46. W earin g a p p a re l a n d fu rs 47. Yard g o o d s ......................... M axi m um m a tu rity (m o n th s) Downpaym ent (perc e n t) 12 15 18 331/3 15 331/3 12 33V3 15 18 18 33Vs 331/s 15 15 33y3 331/3 12 12 15 18 20 18 33V3 33ys 33V!j 12 12 12 7 h e volum e of bank credit has fin an cin g the w ar effo rt." outstanding bank credit tends to add to the already excessive dem and and to make fo r still higher prices " U n d e r existing conditions, however, the banks should curtail all loans either to individuals or busi nesses fo r speculation in real estate, comm odities, or securities. 7 hey should guard M axi m um m a tu rity (m o n th s) 33Vs been greatly inflated in response to the needs fo r of Down paym ent (p e r c e n t) 15 19 47 grow th May 6, 1942Nov. 30 1946 33Va .......... * against the G o v e rn in g C o n su m er 1947 18 " O u r co u n try is experiencing a boom of danger fu rth e r M axi m um m a tu rity (m o n th s) 1, 20 Excerpts from Statement of Bank Credit Policy Issued by Bank Supervisors, ". . . a R e g u la tio n 1 9 4 1 -N o v . M ar. 23, 1942May 5, 1942 increase consumer demand. Nine months later, in August 1948, a special session of Congress authorized an imposition of consumer credit controls, and Regulation W was reinstated effective September 1948 . In retrospect, these controls were ill-timed ous proportions. 1, U nder D ec. 1, 1946Nov. 1, 1947 Down paym ent (p e r c e n t) 331/3 M axi m um m a tu rity (m o n th s) 15 .......... because contractionary forces were already slowing economic activity when they were imposed. This is especially true of the consumer credit curbs, which went into effect one month prior to a period that the National Bureau of Economic Research later designated as an economic contraction. In addition, the inflationary fears that prompted the controls may have been exaggerated. Part of the increases in published price indexes after the termination of wartime price controls in 1946 reflected an understatement of real price increases in the 1942-46 period that occurred through the elimination of discounts, poorer service, and the deterioration of quality. Also, the rapid increases in bank loans after 1945 reflected a shift in credit demands from the Government to private industry rather than an inflationary expansion of bank credit. The growth of business loans slowed shortly after the November 1947 letter of bank supervisory agencies, a fact that can be attributed to a weakening of credit demands and, perhaps, to other restrictive measures as well as the 1947 letter.1’ In addition, some business credit demands may have been shifted from banks to stock and over extension o f consum er credit an d should not relax the term s of instalm ent fin an cin g. A s fa r as pos sible, extension of bank credit u n d er existing co n di tions should be confined to fin a n cin g that will help production rath er than m erely increase consum er dem and." F E D E R A L R E SE R V E B A N K O F A T L A N T A 2O th e r restrictive m easu res in c lu d e d a re d u ctio n in m e m b e r ban k reserves in th e first half o f 1948, in creases in reserv e req u irem en ts in February, Jun e, an d S e p te m b e r 1948, an d in creases in the d isco u n t rate in January a n d A u g u st 1948. 81 bond markets, where new corporate issues jumped from $4.8 billion in 1947 to $6.2 billion in 1948. At least the 1947 letter had an important advantage over the Federal Reserve Board's 1929 letter regarding stock market credit— it pertained to all commercial banks and not just to member banks borrowing from the Federal Reserve. However, the policy was hindered by the vague distinction between "speculative" and "productive" loans. In the case of consumer instalment credit, growth slowed about the time that Regulation W was reimposed, but largely because the demand for the regulated items was already weakening. The Regulation was relaxed only six months later— in March 1949— and then terminated in June 1949. This was too short a period for serious enforce ment attempts. Korean War. Interest in selective controls renewed in mid-1950, when the demands of the military buildup reinforced a cyclical upswing in economic activity. Prices increased rapidly. Selective controls were used in an effort to limit demands of consumers and business, especially because the Federal Reserve's support of U. S. Government bond prices limited the use of general monetary controls. On August 4, 1950, national and state bank supervisors urged lenders to decline to make business and consumer loans that might be used for speculative purposes or that might otherwise interfere with defense requirements. This action evidently had little impact on the allocation or expansion of bank credit.3 On November 17,1950, the Federal Reserve Board sent a letter to member banks calling "the attention of every member bank to the loan policy announcement of August 4, 1950. . . ." This letter was backed up by sharp increases in reserve requirements in January and early February 1951 and by the end of Federal Reserve support of Government bond prices (the Treasury-Federal Reserve Accord) in March. This stymied bank credit growth in the first half of 1951. After being authorized by the Defense Production Act of 1950, consumer instalment credit controls— again in the form of Regulation W — were reissued in September 1950. The administration and especially the enforcement of M su rv e y o f ch an ges in b u sin ess loans at se le c te d m e m b e r banks in leadin g cities in d ica te d that c o m m o d ity d ea lers, m a nu facturers o f fo o d , liq u o r, a n d to b a cco , sales fin an ce co m p a n ie s, a n d w h o le sa le an d retail trade r e c e iv e d th e largest in crea ses in bank cre d it b e tw e e n July 1 a n d O c to b e r 3 1 ,1 9 5 0 . T h e se industries w e re n o t clo se ly a sso ciated w ith th e d e fe n se effort. 82 Regulation W , however, proved a difficult task, and the original Regulation was amended five times during 1951.4 Nevertheless, Regulation W was evidently partly responsible for slowing consumer instalment credit growth in late 1950 and 1951. Inventories of consumer durables began to build in the second quarter of 1951, a fact the Board of Governors attributed to a heavy volume of consumer buying in the late 1940's and 1950, as well as to the restrictions of Regulation W. A month after Regulation W was reissued, Federal Reserve Regulation X (pertaining to real estate credit) was issued along with companion regulations by the Federal Housing Administration and the Veterans Administration. These regulations, which stipulated maximum loan values and maturities for credit extended for purchasing new one- or two-family houses, proved ineffective because of the large volume of building underway, a heavy volume of financing commitments out standing, and the exclusion of credit granted on existing property. Mortgage debt continued to rise rapidly after the regulation. Administrative difficulties associated with the regulation are evidenced by the fact that the regulation was amended no less than ten times during 1951. Finally, the National Voluntary Credit Restraint Committee (VCRC) was organized by the Federal Reserve in March 1951. Its purpose was to encourage financial institutions to channel their lendable funds into loans that increased "essential production" and away from loans that served only to effect transfers of ownerships, to permit speculative purchases of property or commodities, or to contribute to the production of "nonessential" items.5 It was hoped this would facilitate the 4T h e Fed era l R e serv e Banks h a d to b u ild a n d train e n fo rce m e n t staffs, w h ich w e re d ifficu lt to re cru it b e ca u se o f u n certa in ty a b o u t th e len gth o f th e Regulation. Staffs w e re to o sm all to th o ro u g h ly im p le m e n t th e R egu latio n , w h ich is b o rn e o u t b y th e fact that o n ly tw o-fifths o f th e 180 ,000 re g istere d granters o f in stalm en t c re d it w e re c o n ta c te d a n d exa m in ed from S e p te m b e r 18, 1950 to D e c e m b e r 31, 1951. C rim in a l p ro ce e d in g s w e re o fte n draw n o u t a n d p u n itiv e actio n w as n o t su fficie n t to d e te r o ffe n d ers. A ctu ally, th ere w e re o n ly tw o su sp e n sio n s o f licen se s to engage in in stalm en t c re d it o p era tio n s d u rin g the first 15 m o n th s the regulation w as in e f f e c t A lso , th ere w as a te n d e n c y to d isa ssem b le s o m e g o o d s in to co m p o n e n t parts, sin c e item s b e lo w $5 0 w e re e xem p t from regulations. °S e ctio n s o f th e V C R C 's "S ta te m en t o f P rin cip le s," are re m in isce n t o f th e "re a l bills d o c trin e " that sa id if banks le n d o n ly to fin an ce in ve n to rie s an in cre a se in M O N T H L Y R E V IE W Excerpts from Board of Governors' Program for Voluntary Credit Restraint, 1951 Items from Digest of Opinions Rendered by Regional Voluntary Restraint Committees on Typical Cases, November 1951 "It shall be the purpose of financing institutions to extend credit in such a way as to help maintain and increase the strength of the domestic economy through the restraint of inflationary tendencies and at the same time to help finance the defense pro gram and the essential needs of agriculture, indus try and commerce." "Any increase in lending at a more rapid rate than production can be increased exerts an infla tionary influence. Under present conditions of very high employment of labor, materials and equipment, the extension of loans to finance increased output will have an initial inflationary effect, but loans which ultimately result in a commensurate increase in production of an essential nature are not infla tionary in the long run whatever their temporary effect may be. It is most important, however, that loans for nonessential purposes be curtailed in order to release some of the nation’s resources for expan sion in more vital areas of production." "Cooperation with this program of credit restraint makes it increasingly necessary for financing insti tutions to screen loan applications on the basis of their purpose, in addition to the usual tests of credit worthiness. 7he criterion for sound lending in a period of inflationary danger boils down to the fol lowing: Does it commensurately increase or main tain production, processing and distribution of es sential goods and services?" transfer of real resources to the defense effort and that it would reduce inflationary pressures. The VCRC consisted of four representatives each from the banking, insurance, and investment banking industries, and two each from the mutual savings banks and savings and loan associations. Subcommittees in all Federal Reserve Districts advised lending institutions in determining the appropriateness of specific loans. Three bulletins were issued by the VCRC, setting guidelines for credit extended to finance inventories, plant and equipment expansion, and state and local governments. A digest of decisions on typical cases production, money and goods would rise simultaneously and there would be no pressure on prices. However, banks could lend larger and larger sums of money to finance a given quantity of goods during inflation. FED ERAL RESERVE BA N K O F A TLAN TA Business of borrower and purpose of loan Opinion Delicatessen ...................................... To build a new store building to serve a newly developed resi dential area. Retail farm tractor and imple ment dealer.................................... To erect sales and service build ing in order to retain franchise. Retail ladies’ ready-to-wear.............. To modernize store, add new front and increase floor capacity to maintain competitive position. Dentist ............................................. To purchase furnishings and equipment necessary to operate a dental office. Borrower recently graduated from dental school. Farmer ............................................. To clear 50 additional acres of land for pasturage. Farmer ......................................... To purchase farm land for lease as an investment. Favorable Unfavorable Unfavorable Favorable Favorable Unfavorable was also issued to serve as a guide for regional committees. After the organization of the VCRC in March 1951, the allocation of bank and nonbank credit conformed more closely with the desires of bank regulators— namely, credit expanding to defenserelated industries and contracting for others. To some extent, of course, this allocation of credit reflected shifts in credit demands toward defense-related firms, but in the judgment of the Board of Governors, the program was a success. In appraising the role of VCRC, the Board of Governors concluded that such a program should be undertaken only when several conditions are present; namely, that a rapid inflation exists, that speculative fever is growing, that a rapid expansion of private credit is occurring, that vigorous use of general credit restraints is used, and that selective credit regulations are being used in those specific areas where experience shows such regulations can be effective. The Board concluded: In the absence of these conditions, it is likely to be difficult to arouse widespread interest among 83 the financial community and to enlist the real measure of general acceptance and support without which a voluntary effort will not achieve substantial success. These basic conditions were present in the months following the outbreak of the Korean War and doubtless contributed to the achievements of the Voluntary Credit Restraint Program,6 Balance of Payments— 1960's. Since the expiration of Korean War controls in 1952, selective controls on domestic credit, other than on stock market loans, have not been used. However, in an effort to reduce large and persistent deficits in the U. S. balance of payments during recent years, selective controls have been imposed on foreign lending and investment by U. S. residents. It was thought that the degree of general monetary and fiscal restraint required to eliminate the deficits would have severely reduced real economic growth and would have increased unemployment substantially. Consequently, selective controls were imposed in an effort to stem directly the dollar drain from certain elements of the balance of payments, while gaining time to make more fundamental adjustments. The Interest Equalization Tax (July 1963) made investment in foreign securities less attractive by reducing after-tax yields on these securities. The Voluntary Foreign Credit Restraint Program (February 1965) asked banks and other financial institutions to keep their holdings of foreign loans and investments within ceilings, expressed as a percent of outstanding levels. The Voluntary Cooperation Program (March 1965) asked businesses to help reduce capital outflows by returning more foreign earnings to the U. S., repatriating short-term funds held abroad to earn higher interest, holding direct investment expendi tures in developed countries to target levels, and making greater use of funds borrowed abroad. The Voluntary Cooperative Program became mandatory after January 1, 1968, and the other programs have been extended and expanded as balance of payments problems have continued. The 1966 "Crunch." Still another attempt to control selectively the allocation of member bank credit occurred during the very tight money market conditions in 1966. The problem facing monetary authorities was to slow business loan growth at large banks without further curtailing credit flows into mortgages and municipal securities. More intense general monetary restraint, Policy and the Management of the Public Debt, Joint Committee on the Economic Report, Part I, 82nd Congress, 2nd Session, 1952, p. 440. n M o n e ta ry 84 it was feared, would have aggravated stresses in the money and capital markets and would have increased the drain of funds from mortgageoriented thrift institutions. In a September 1966 letter, the Board of Governors told member banks that "the national economic interest would be better served by a slower rate of expansion of bank loans to business within the context of moderate overall money and credit growth." The Board specifically disapproved the practice of financing increases in business loans by liquidating other bank assets (municipal securities in particular) and by curtailing mortgage lending. The Board concluded: "Accordingly, this objective (the moderation of business loan growth) will be kept in mind by the Federal Reserve Banks in their extensions of credit to member banks through the discount window." The problem with that approach, as previously mentioned concerning the Board's 1929 letter regarding loans to purchase stock, was that it applied only to a certain class of banks— member banks borrowing from the Federal Reserve— and not to other bank and nonbank sources of business credit. Business loan growth at major banks actually halted about the time the letter was issued. Even more so than the September letter, however, this seemed to be the result of a weakening in loan demand— which stopped business loan growth at all classes of banks— and another restrictive move— the runoff of CD's at large banks. The Lessons Learned At best, most U. S. selective credit controls have been somewhat successful. But experience has also revealed that selective controls have some serious administrative and enforcement difficulties, which, together with a general distaste for direct economic controls, partly explains why they have not been relied on more heavily. Administrative costs have been one of the most obvious drawbacks. Congress had to authorize the controls and designate an administering authority. Then staffs were needed to write, implement, and enforce the regulations. Those affected by the controls had to be informed of their responsibilities; this sometimes included collecting additional data and submitting reports. Compliance had to be checked and, in the case of compulsory controls, disciplinary actions taken against offenders. In addition, experience indicated a recurring need to amend these regulations in order to plug loopholes and to adjust the effects of the controls. All of these proceedings involved considerable "red tape" and public and private expense. The administrative task and expense was less when controls were relatively simple, such as in M O N T H L Y R EVIEW the case of the Capital Issues Committee, where security issues in excess of $100,000 were screened. In general, the more complex the controls and the greater the number of borrowers and lenders in the market subjected to them, the more unwieldy the administration. Perhaps the greatest shortcoming of selective controls has been the difficulty of enforcing them. Inadequate or ununiform accounting methods and drawn out criminal proceedings interfered with enforcement. Even more important, the substitutability of various sources and types of credit made it easy to evade the controls. For example, businesses that were denied Capital Issue Committee approval for a prospective security issue were, in some cases, able to turn to alternative credit sources, such as banks or life insurance companies. When denied additional loans to purchase stocks, speculators sometimes indirectly financed their portfolios by financing durable goods or mortgaging real estate holdings. In other words, it was not always possible to determine if loan proceeds were actually used for that stated purpose. Because of the substitutability of various sources of credit, experience has shown that, to be effective, controls must be pervasive— that is, applied to all sources of a given type of credit. For example, in 1929, it did little good for the Federal Reserve Board to attempt to limit stock market loans at member banks without also trying to limit these loans from other sources. Given the enforcement difficulties of selective controls, public support has usually been necessary in order to achieve satisfactory compliance. Part of the generally high level of compliance with controls during wartime can be attributed to public acceptance of the need for Government interference in economic decisions during a national emergency. Conversely, deterioration in compliance with instalment credit regulations after World War II and near the end of the Korean War was related, in part, to a growing dissatisfaction with controls. Recent Interest In the past year, the allocation of credit flows and conditions in financial markets were nearly the reverse of those that led to Congressional authorization of standby credit controls in December 1969. Monetary policy has eased and interest rates have dropped; thrift institutions have been swamped with funds; and credit flows to mortgage markets have expanded sharply. Credit flows to state and local governments have also markedly increased, while flows to businesses have declined slightly. Yet, the very institutional arrangements that helped produce these reversals could again dry up mortgage credit if market FED ERAL RESERVE BAN K O F ATLAN TA interest rates turn upward rapidly once more. Should this happen, interest in using selective controls for influencing the allocation of credit could again mount. For now, it is only conjecture as to what types of controls might be suggested. However, one selective control proposal that has been receiving considerable attention is the extension of reserve requirements to member bank assets. By setting different reserve requirements against various types of assets, it is argued, effective rates of return on various assets can be altered and, in turn, bank lending behavior and the allocation of credit influenced. If one type of bank loan— for instance, loans to businesses— was considered inflationary, reserve requirements applied to increases in these loans would be set relatively high, whereas requirements for favored assets— perhaps residential mortgages or municipal securities— would be set at a lower rate. In this way, banks would be encouraged to invest in mortgages and municipal securities and discouraged from increasing their business loans. Remembering that selective controls must be pervasive to be effective, asset reserve require ments, or some equivalent, would also have to be applied to nonmember banks and other sources of business and mortgage credit. Otherwise, if member bank business loans were cut back because of a penalty reserve requirement, it is likely that corporations would turn to nonmember banks and to the nonbank sector of the money and capital markets. In the case of home mortgage credit, banks do not supply a large enough portion of this credit— only about 15 percent in the 1960-70 period— to be able to significantly counter the slowdown in mortgage lending during tight money. The asset reserve requirement scheme raises some difficult technical and philosophical ques tions; some of the more obvious include: (1) Who shall determine the relative asset reserve requirements on whose social priorities? (2) How can asset reserve requirements, or some equivalent, be extended to nonmember banks and the nonbank sector of the money and capital markets? (3) When, and by how much, should relative asset reserve requirements be changed to have the desired effect of credit allocation? (4) How would asset reserve requirements affect the relationship between reserves and the money supply? Even if satisfactory answers to these questions can be found, there is still a fundamental objection to the use of asset reserve requirements, or any other selective control mechanism, to reduce gyrations in home mortgage financing. Such 85 controls fail to get at the source of the problem— which is not bank portfolio behavior— but the in ability of mortgage-oriented thrift institutions to compete effectively for savings flows when market interest rates are rising rapidly.7 The 7During periods of tight money, the supply of home mortgage credit was more seriously curtailed than other areas of credit, basically because interest rates on competing instruments have eclipsed rates paid by mortgage-oriented thrift institutions, the chief suppliers of home mortgage credit. Funds were then shifted from these institutions to intermediaries not specializing in home mortgages or into money and capital market instruments. long-run solution to this problem is not selective controls but, rather, improving the functioning of the financial markets that causes the problem in the first place. This may involve making changes in institutional arrangements such as the diversifi cation of existing mortgage-oriented intermediaries, the development of new ones, and changes in the mortgage instrument and in the mediums for investing in mortgages.■ Capital, $250,000; su rp lu s an d o ther capital funds, B a n k $250,000. A P R IL 1, 1971 A n n o u n c e m MARCH e n t s 20, 1971 LAUDERDALE LAKES NATIONAL BANK Lauderdale Lakes, Florida O p e n e d for business. O ffice rs: A. W . Saarinen, president; W illia m E. N evlin g, executive vice presi dent; and James O v e rd orff, cashier. Capital, $500,000; su rp lu s and other capital funds, $250,000. BARNETT BANK OF AUBURNDALE Auburndale, Florida O p e n e d for b usin ess as a n on m em b e r. O ffice rs: A n d re w P. Ireland, chairm an; A lto n F. Ridley, p resident; A. G. H an co ck, Jr., executive vice presi dent; John P. D erham , Jr., se nior vice president; E. R. K o m lo d i, com p trolle r; G ilb e rt K. Grass, vice president and cashier; June D. W illia m s, assistant vice president: and Richard T. Furry, auditor. 86 A P R IL 12, 1971 MIDWAY NATIONAL BANK Miami, Florida O p e n e d for b usin e ss as a m em ber. O ffice rs: C harles M . V olk, chairm an an d chie f executive officer; C harles W . M e yers, president; and Fred erick B. Brundrett, cashier. Capital, $300,000; surplus and other capital funds, $300,000. M O N T H L Y R EVIEW T H e n n e s s e e ' s o r i z o n B E c o n o m i c r i g h t e n s by John M. Godfrey During recent months, Tennessee's business picture has brightened considerably. In contrast, when we last reviewed Tennessee's economy, the pace of economic activity had begun to slacken.1 Also, at that time, we expected future developments in the economy to be largely dependent on economic conditions nationally. As we now know, business activity declined in the nation, and, as expected, these same economic developments carried over into Tennessee's business activity. Now we need to determine what aspects of the Volunteer State's economy have declined and what areas of the general economic horizon have brightened. Personal Income: Up, but Weak Although Tennesseans' incomes presently exceed what they received this time last year, much of this growth is illusory and clouds the underlying weaknesses that have developed in the State's economy since 1969. In terms of purchasing power, the average Tennessean's income is virtually the same as it was in late 1969, since rising prices have offset nearly all of the increased dollar gains of the last year and a half. After rising at a fairly brisk pace throughout the latter part of the 1960's, the growth of personal income slowed during the first year of the new decade. Perhaps a more ominous sign was the slight dip in income during the third quarter of last year. However, there was encouragement from the rebound that occurred during the next three months. Equally important as an indication of the slower economic activity was the change in the different income components. Wage and salary payrolls grew more slowly, with the greatest weaknesses appearing in the private sector. The manufacturing industries were especially hard hit, but a faster rate of 1john M. Godfrey, "Tennessee's Pace Begins To Slacken," this Review, October 1969, pp. 127-129. FED ERAL R ESERVE BA N K O F ATLA N TA 87 Personal income growth slowed in ’70 % Chg., Ann. Rate -14 -7 M 1968 1969 1970 i il m 1970 iv income growth in the Federal, state, and local government sectors partly offset this softness. Transfer payments— primarily a reflection of larger Social Security payments and increased unemploy ment compensation— also rose sharply and helped stabilize total income. In fact, increased governmental incomes and transfer payments last year accounted for more than half of the increase in personal income. A favorable combination of production and prices for crops and livestock helped boost total receipts. As a result, farm proprietors were one part of the private sector to obtain a large increase in gross income. But the income gains from this area subsided in the latter part of 1970. In addition, costs have risen and are cutting into this increased income. Taken as a whole, the fourth quarter recovery in personal income was encouraging. Income derived from the private sector is now advancing, particularly in manufacturing and in the service industries. This should signal that the Tennessee economy has turned the corner and is now well on the road to recovery. Employment Turns Up Some additional evidence of the upturn in Tennessee's nonfarm sector is confirmed by developments in nonfarm employment, but some signs of weakness are still lingering. Employment growth slowed during 1969 and the early part of 1970 and then declined until early fall. Since 88 then, total employment advanced more than 4 percent, sparked by a brisk performance throughout many nonmanufacturing lines. Meanwhile, manufacturing employment is now leveling off, but this reflects the settlement of some of last year's large labor-management disputes. Despite a higher level of employment in Tennessee now than a year ago, employment growth is still less than satisfactory and not sufficient to absorb those who have been laid off and those who have just entered the job market. As a result, unemployment approached 5 percent in the first quarter of 1971, up from an average of 3.5 percent in 1969 and 4.4 percent in 1970. This increase in unemployment will not begin to subside until there is more rapid real growth. Signs of the slowdown showed up most in the manufacturing sector, where employment cutbacks last year were severe. This sector is still not operating at full capacity. Total manufacturing payrolls, however, are rising, although not nearly as rapidly as in previous years. Higher pay for the employed tended to counter the loss in income, which resulted from reduced employment and the elimination of plant overtime and premium pay. During periods of slack economic activity, industries that manufacture durable goods products normally exhibit the sharpest declines in output and employment. Last year was no exception. Reduced employment in the lumber industry is partly explained by the drop in residential construction. Agricultural equipment sales also slowed, followed by reduced operations. Non durable goods manufacturers fared relatively better than durable goods producers. There are, however, some soft spots that will not recover immediately, even when the economy accelerates: Reductions in defense contracts are continuing to affect those business firms tied to the ordnance sector, where employment cutbacks have been relatively large. Also, chemical manufacturers, the aircraft industry, and defense- and aerospacerelated research activities have been forced to retrench in the wake of declining defense expenditures. The Tri-Cities area has experienced relatively large employment losses in the chemical industry— associated with declining defense orders— but has managed to counter these losses by expanding production of electrical equipment. Just recently, a Nashville manufacturer of aircraft wings cut back employment in order to stretch out production. The apparel industry— the State's largest manufacturing employer— experienced only a minor slowdown, contrasting with the less enviable performance of apparel makers in other states. But declines in orders for textile products, including sharply reduced defense orders, forced some plants to contract their operations. Other M O N T H L Y R EVIEW Labor conditions: slight improvement since last summer But weakness lingers, especially in manufacturing 1967 = 100 1969 1970 1971 employment losses centered around paper producers and were the result of reduced orders and a cost-price squeeze. These pressures led a few large producers to close some marginal operations in an attempt to improve their overall profit picture. Other areas have performed better than manufacturing. As government activities expand to meet increased public demands, more and more jobs are opening up to the point where nearly one out of every seven nonfarm jobs is with either the state or local government. Gains in these types of jobs were nearly 30 percent greater in 1970 than in 1969. More than half of the state and municipal employment is centered around providing educational related services, an area that is rapidly expanding. Enrollment at the State's universities, colleges, vocational schools, and technical institutes is continuing to rise, and larger budget appropriations have followed in order to meet these educational needs. Other growth in Tennessee's governmental employment has occurred in the highway department, in providing health and sanitation services, and police and fire protection. Even though sales in 1970 failed to advance with their previous vigor, employment in the trade industries rose. Several new distribution centers opened last year, helping to hold employ ment in wholesale trade almost constant. New jobs in retail trade did open up with the completion of convenient, suburban shopping centers. Until last year, when employment growth in FED ERAL R ESERVE BA N K O F ATLA N TA the various service-type firms dropped below one percent, this rapidly growing part of the Tennessee economy vied with the state and municipal govern ments in providing new employment opportunities. The financial and insurance lines posted satisfac tory gains in 1970, but the number of new jobs in other service lines dropped sharply. Less demand for lodging and miscellaneous business services was partly responsible for this overall weakness. Construction Recovers By all measures, the construction industry in Tennessee staged a marked recovery throughout 1970, and 1971 will probably be an even better year. The total value of construction contracts advanced nearly 5 percent in 1970, but con struction activity continued to be buoyed mainly by the letting of large TVA electric power generating plant contracts, new military construction awards, and road, water, and sewer projects. This renewed surge of building activity, however, only brought most areas of construction up to their pre-1970 performance. In spite of work stoppages in some areas, total construction employment climbed nearly 8 percent, but this was not enough to bring the level of employment back up to earlier levels. During 1970, residential and nonresidential building contract activity combined rose nearly 25 percent in dollar volume, reversing the weak 1969 performance. A large part of this advance came from higher building costs, rather than from 89 any sharp recovery in physical output. To illustrate: While the value of residential construction awards last year was slightly higher than in 1967, the number of dwellings was nearly 8 percent below the 1967 level. Beginning in 1970 and continuing on into the first quarter of 1971, deposit inflows at thrift institutions hit record highs. This development should spur further advances in homebuilding, since mortgage financing has become more readily available and financing terms have eased. Even though the funds for interim construction financing also eased last year, permanent mortgage credit generally did not become available soon enough to have its full impact immediately. More recently, there are growing signs that lenders are not only increasingly willing to extend mortgage credit but have increased their mortgage commitments, all to the good of future construction activity and the economy. Checkbook spending has begun to recover 1967 = 100 Seas. Adj. _B a n k Debits i Tennessee* —150 Seas. Adj. . Bank Debits j 110 - 160 V Chattanooga 110 150 Knoxville A*120 _ Farm Receipts Advance Tennessee farmers had higher gross incomes last year. Net income also advanced but was reduced by rising costs, particularly for taxes, interest payments, and wages. Cash receipts for livestock and related products went up nearly 6 percent. Higher prices for Tennessee's major crops— tobacco, soybeans, hay, cotton, and corn— more than made up for the reduced production of these crops. The number of Tennessee farms declined by nearly 3,000 in 1970, but not all of this land has been lost to production. Most of the land is being consolidated into larger units, giving rise to more efficient and productive operations. In addition, fewer family workers and more hired help are now being employed. Consumers Reduce Spending The slowdown in income growth and consumer apprehensions over increased unemployment and rising prices have caused a slower rate of spending. As measured by sales tax receipts, spending on the part of consumers in the state trailed the advances of other years. Spending in Chattanooga and the Tri-Cities (measured by total check payments) remained the strongest of all major trading areas in the state. There is some encourage ment that the small spending advance occurring during the last few months signals a general revival in spending. Last year when spending was sluggish and un employment an unpleasant possibility, households placed a large portion of their savings in banks and savings and loan associations. Consumers in Tennesseee, like those in other parts of the country, reduced their use of instalment debt and tended 90 140 A a A / \ 100 i 1969 1970 1971 * District portion to repay their outstanding loans. This trend was particularly evident in bank loans for automobiles and home repairs and modernization. Strong Deposit Inflows Spur Bank Investment Purchases The weakened economic picture and hesitant consumer spending also influenced the operations of Tennessee's banks. While total deposits advanced nearly 9 percent last year at the member banks in the Sixth District portion of Tennessee, interest-bearing deposits surged nearly 20 percent— a gain of more than a quarter of a billion dollars. And this trend is continuing, since consumers and businesses added over one-half again as much to these bank accounts during the first three months of 1971. The banks, in turn, have found loan demand generally weak. Exceptions, however, included increased lending for conventional mortgages and some business loans, particularly at banks outside of the larger cities. The greatest addition to bank credit during the past year came from the nearly 20-percent gain in securities held by banks. Rebuilding liquidity was a major concern last year. This is M O N T H L Y R EVIEW Rapid time deposit inflows in early ’71 went mainly into investments ■ INVESTMENTS % chg., a n n. rate M a rc h 1971 from e nd of 197 0 U.S. Govt. Other DEPOSITS LOANS -40 Time -30 -2 0 Demand n -1 0 I ____ ■ “ Note: —1 0 evident from the increase in U. S. Government securities in Tennessee bank portfolios during 1970, a sharp contrast to the decline in 1969. But generally overlooked is the important role local banks play in financing securities sold by the state and local government bodies. Last year, the state of Tennessee, city and county governments, and housing and other special authorities sold over $500 million in new obligations — 50 percent more than in the year before. The predominant uses of the bond proceeds were for schools, housing, and urban renewal. Financing of these projects partly explains the large volume of construction activity throughout the State. The Tennessee member banks in this District alone added over $60 million in municipal obligations to their investment portfolios, and, undoubtedly, a large portion of this total consisted of "home-state" securities. Moreover, if savings continue at a high rate and if loan demand remains relatively slack, banks can be counted on to aid in financing many local public projects. These undertakings provide both an attractive tax-exempt investment outlet for bank funds and a boost for the Tennessee economy.* Member bank figures, Sixth District portion FED ERAL RESERVE BAN K O F ATLAN TA 91 LATEST MONTH PLOTTED: MARCH N o t e : A ll f i g u r e s a r e s e a s o n a l l y a d j u s t e d a n d c o v e r a ll S ix th D i s t r i c t m e m b e r b a n k s . * D a ily a v e r a g e fig u re s “ F ig u re s a re fo r th e last W e d n e s d a y o f e a c h m o n th . S I X T H D I S T R IC T B A N K I N G N O T E S Federal Funds Transactions M illio n $ M illio n “ Member Banks Reserve City - - f = A ^ Purchases / A -400 /t -2 0 0 (| + 0 Net Purchases Net 1 ----------------X . A Net Sales 1969 N o te: Net Purchases —400 - 900 ^ r< r $ 1400 1970 Country -600 Net Sales 400 1971 1969 1970 1971 N e t p u r c h a s e s (p u rc h a s e s less sales); n e t sales (sales less p u rc h a s e s ) 92 M O N T H LY REVIEW DISTRICT BANKS: HEAVY SELLERS OF FEDERAL FUNDS Figures for the opening months of 1971 indicate that District banks have returned to their normal pattern of selling more Federal funds than they purchase.1 Sales during this period exceeded pur chases by about $450 million per day. During 1969 and early 1970, banks strayed from this usual pat tern because of a need to replace reserves lost by deposit outflows and a strong demand for loans. Purchases (borrowings) exceeded sales by $250 million in late 1969, but by the spring of 1970 banks again were selling more than they purchased. Customarily, reserve city and very large country banks in the District are net buyers of Federal funds, whereas most country banks are net sellers. But in 1970, both groups of banks increased their sales of these overnight reserves, particularly during the last quarter of the year. At that time, Sixth Dis trict banks increased their gross sales of Federal funds per day by more than $300 million, bringing total daily sales to $1.3 billion. This growth was equally shared by reserve city and country banks. No further increases in Federal funds sales occurred during the early months of 1971: Sales stabilized at the high level achieved in late 1970. Borrowings in the Federal funds market have also remained stable, averaging about $900 million per day. Several factors account for these developments. District banks have experienced strong deposit gains during the last six months, with nearly all the gains coming in the form of time and savings deposits. This continuing increase in resources, combined with a weakness in regional loan demand, has en couraged small and large banks alike to sell their excess reserves in the Federal funds market, al though the Federal funds rate, until recently, has declined sharply during the past nine months. As pressures on bank reserve positions eased during this period, the Federal funds rate dropped from a 1Federal funds transactions involve the purchase (borrow ing) or sale (lending) of reserve balances of member banks at Federal Reserve Banks, usually for one business day and at a specified rate of interest. Key Short'Term Rates Percent J 1970 D J 1971 high of around 9 percent to the current level of about 4V4 percent. Other money market rates followed a similar pattern. Even when the Federal funds rate dropped below yields on comparable short-term investments, many bankers still looked upon Federal funds as a more attractive short-term investment than Treasury bills and other short-term U. S. Government securities. This preference was directly related to the fact that Fed funds are easy to trade, have very little market risk, and are more readily available, because they are returned to the lending bank within a very short time period. Unless reserve pressures tighten substantially, District banks will probably maintain their overall position as net suppliers of Federal funds. However, if loan demand increases, banks can be expected to become less willing to put their resources into this money market instrument. JOSEPH E. ROSSMAN, JR. S i x t h D i s t r i c t S t a t i s t i c s S e a s o n a lly A d ju sted (A ll d a t a a r e L a te st M o n th 1 97 1 One M o n th A go in d ex e s, Tw o M on th s Ago One Year A go S IX T H D IS T R IC T Tw o M o n th s Ago 4.9 39.9 4.9 40.6 4.3 40.5 3 42 25 2 26 6 34 2 2 47 2 57 333 244 264 311 216 253 1 39 1 16 141 10 1 14 0 117 136 130 1 19 108 119 1 09 11 9 10 9 117 12 1 12 1 121 135 90 1 34 89 132 97 11 8 141 90 4.6 41.0 4.4 40.8 r 4.0 41.0 3.0 41.2 43 6 318 332 4 23 309 326 4 21 300 318 391 260 279 133 133 132 132 127 117 130 U n e m p lo y m e n t R a te (P e rc e n t of W o rk F o r c e J t ...............M ar. Avg. W e e k ly H rs. in M fg. (H rs.) . . . M ar. IN C O M E A N D S P E N D IN G C r o p s ................................ L i v e s t o c k ............................. In s ta lm e n t C red it at B a n k s * (M il Ne w L o a n s ......................... Rep aym ents ...................... . Feb. . Feb. . Feb. . M ar. 1 34 1 30 143 130 133 1 28 136 133 132 106 12 9 112 141 139 1 29 3 77 3 47 3 65 344 321 32 4 328 31 6 112 112 112 110 106 107 106 103 106 107 1 06 r 104 108 1 08 104 108 10 2 10 2 11 0 106 108 105 104 103 122 . M ar. . M ar. Ston e , C lay, a n d G la s s E q u ip m e n t Fin., ins., a n d real est. S e r v i c e s .................. U n e m p lo y m e n t Rate (P e rc e n t of W o rk Fori In s u r e d U n e m p lo y m e n t Avg. W e e kly H rs. in M fg. (H rs.) . All O t h e r ...................... Ele ctric P o w e r P r o d u c t io n * C otto n C o n s u m p t io n * * . . Petrol. Prod, in C o a sta l La. M a n u f a c t u r in g P ro d u c tio n P r in t in g a n d P u b lis h in g . . C h e m i c a l s ......................... D u ra b le G o o d s ...................... L u m b e r a n d W o o d .............. F u rn itu re a n d F ix t u r e s . . . Stone , C la y a n d G la s s . . . P r im a r y M e t a l s .................. F a b ric a te d M e t a l s .............. N o n e le c tric a l M a c h in e ry . . E le ctrica l M a c h in e r y . . . . T ra n sp o rta tio n E q u ip m e n t . . . . . t. . . . . . . . es . . . M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. M ar. 109 113 105 It)4 99 106 1 04 110 1 59 105 114 113 111 113 1 19 116 103 120 92 114 105 105 99r 107r 105 113 159r 106 114 113 113 114 118r 116 10 2r 119 92 110 10 2 112 1 15 106 105 113 108 1 08 10 1 10 1 107 106 107 105 115 168 109 112 160 104 114 114 113 113 118 116 99 119 93 111 111 110 112 115 1 14 10 2 114 89 M ar. 5.0 4.8 4.6 4.0 . M ar. . M ar. M ar. . M ar. M ar. Feb. Feb. **M a r. Feb. Feb. Feb. Feb. Feb. Feb. Feb. Feb. . Feb. Feb. . Feb. . Feb. . Feb. 2.9 40.5 2 17 1 58 2 76 167 93 296 2 47 2.9 40.0 131 143 2.9 40.7 126 123 130 165 90 30 3 24 5 2.3 40.4 134 134 133 165 91 273 2 40 2 05 161 228 252 2 03 170 258 281 1 72 187 176 . Feb. . Feb. 2 12 173 2 36 2 63 1 99 165 260 288 170 176 171 20 7 24 7 349 6 10 369 120 162 93 311 246r 212r 1 70 r 239 264r 2 10 1 66 r 263r 286 1 67 r 180 171r 2 04 2 46 3 63 r 615r 354 169 236 2 65 19 9 165 2 67 286 168 182 172 198 2 46 3 71 6 27 3 46 38 2 320 373 308 369 305 345 2 87 27 3 223 31 8 26 4 215 303 258 2 12 228 187 279 200 20 1 2 46 3 53 5 70 353 301 ALABAM A M e m b e r B a n k L o a n s ......................... Mar. M e m b e r B a n k D e p o s i t s .................. M ar. B a n k D e b i t s * * .................................M ar. F L O R ID A M a n u f a c tu rin g P a y ro lls .................. M ar. F a rm C a s h R e c e i p t s ......................... Feb. EM PLO YM ENT N o n fa rm E m p lo y m e n t t .................. M ar. M a n u f a c tu rin g ............................. M ar. N o n m a n u f a c t u r i n g ......................... M ar. C o n s t r u c t i o n ............................. M ar. F a rm E m p l o y m e n t ............................. M ar. U n e m p lo y m e n t Rate (P e rc e n t of W o rk F o r c e J t .............. M ar. Avg. W e e k ly H rs. in M fg. (H rs.) . . . M ar. 112 F IN A N C E A N D B A N K IN G M e m b e r B a n k L o a n s ......................... M ar. M e m b e r B a n k D e p o s i t s ......................M ar. B a n k D e b i t s * * .................................... M ar. G E O R G IA IN C O M E M a n u f a c tu r in g P a y r o l l s .................. M ar. F a rm C a s h R e c e i p t s ......................... Feb. 120 .................. M ar. N o n fa rm E m p lo y m e n t t M a n u f a c tu rin g ............................. M ar. N o n m a n u f a c t u r i n g ......................... M ar. C o n s t r u c t i o n ............................. M ar. Fa rm E m p l o y m e n t ............................. M ar. U n e m p lo y m e n t Rate (P e rc e n t of W o rk F o r c e J t ...............M ar. Avg. W e e k ly H rs. in M fg. (H rs.) . . . M ar. 111 112 112 111 103 115 105 91 104 115 105 94 103 1 16 87 108 1 13 1 07 91 4.0 40.4 4.0 39.8 4.0 40.3 3.3 40.3 3 71 270 37 4 3 63 25 7 365 3 62 25 7 349 348 233 340 125 124 127 r 11 8 1 27 99 11 9 10 4 103 105 110 F IN A N C E A N D B A N K IN G M e m b e r B a n k L o a n s ......................... M ar. M e m b e r B a n k D e p o s i t s ......................M ar. B a n k D e b i t s * * .................................... M ar. L O U IS IA N A IN C O M E M a n u f a c tu r in g P a y r o l l s .................. M ar. Fa rm C a s h R e c e i p t s ......................Feb. 121 EM PLOYM ENT N o n fa rm E m p l o y m e n t t ......................M ar. M a n u f a c tu r in g ............................. M ar. N o n m a n u f a c t u rin g ......................M ar. C o n s t r u c t i o n ............................. M ar. Fa rm E m p l o y m e n t ............................. Mar. U n e m p lo y m e n t R a te M ar. (P e rce n t o f W o rk F o r c e J t ............... Avg. W e e k ly H rs. in M fg. (H rs.) . . . M ar. 106 106 10 1 10 1 10 2 106 91 82 6.5 107 92 83 6 .2 r 107 93 85 6.4 41.6 4 2.8r 42.4 40.6 317 21 8 306 209 303 2 03 280 1 79 195 139 17 0 13 4 19 2 135 103 125 1 38 110 110 110 110 110 110 111 10 8 1 09 10 8 103 105 86 79 5.9 F IN A N C E A N D B A N K IN G M e m b e r B a n k L o a n s * ......................M ar. M e m b e r B a n k D e p o s i t s * .................. M ar. B a n k D e b i t s * / * * .................................M ar. M IS S IS S IP P I IN C O M E IN C O M E M a n u f a c t u r in g P a y r o l l s .................. M ar. F a rm C a s h R e c e i p t s ......................... Feb. 135 155 1 32 r 162 1 32 121 129 151 EM PLOYM ENT N o n fa rm E m p l o y m e n t t ......................M ar. M a n u f a c tu r in g ............................. M ar. N o n m a n u f a c t u rin g ......................M ar. C o n s t r u c t i o n ............................. M ar. Fa rm E m p l o y m e n t ............................. M ar. 1 06 107 1 06 1 04 84 107 108 106 106 107 1 08 106 101 106 108 104 101 85 F IN A N C E A N D B A N K IN G EM PLO YM ENT F I N A N C E A N D B A N K IN G Loans* 94 One Year Ago IN C O M E E M P L O Y M E N T A N D P R O D U C T IO N T ra n sp o rta tio n One M o n th Ago L a te st M o n t h 197 1 M a n u f a c tu r in g P a y r o l l s .................. M ar. Fa rm C a s h R e c e i p t s ......................... Feb. EM PLOYM ENT 86 88 . M ar. . M ar. 107 107 10 9 110 111 99 11 6 98 100 M O N T H LY R EVIEW L a te st M o n th 1971 U n e m p lo y m e n t Rate (P e rc e n t of W o rk F o r c e J t .............. M ar. Avg. W e e k ly H rs. in M fg. (H rs.) . . . M ar. F IN A N C E A N D Tw o M on th s Ago O ne M onth A go O ne Yea r A go One Two L atest M o n th 1971 Year Ago EM PLOYM ENT 5.6 40.4 5.0 39.2 4.7 40.0 4.7 40.0 N o n fa rm E m p l o y m e n t t .................. . M ar. M a n u f a c tu rin g ......................... . Mar. N o n m a n u f a c t u r i n g ...................... . M ar. C o n s t r u c t i o n ......................... . M ar. F a rm E m p l o y m e n t ......................... . M ar. U n e m p lo y m e n t Rate (P e rc e n t of W o rk Fo rceJt . . . . . M ar. Avg. W e e k ly H o u rs in M f g (H rs.) . ., M ar. B A N K IN G M e m b e r B a n k L o a n s * ...................... M ar. M e m b e r B a n k D e p o s i t s * .................. M ar. B a n k D e b i t s * / * * ................................ M ar. One M o n th M o n t h s Ago A go 4 64 313 3 20 4 87 3 22 338 468 3 07 300 4 22 2 75 291 112 112 112 106 115 114 90 107 115 r 117 r 91 108 115 91 84 4.9 40.1 4.8 38.8r 4.5 40.5 4.0 39.8 373 248 3 36 364 24 0 28 7 35 4 2 33 294 332 208 294 12 2 109 108 110 100 TEN N ESSEE F IN A N C E A N D B A N K IN G M a n u f a c tu r in g P a y r o lls .................. Mar. Fa rm C a s h R e c e i p t s ......................... Feb. 129 r 133 128 134 111 * F o r S ix t h D istric t are a only; o the r totals fo r entire six state s M e m b e r B a n k L o a n s * .................. M e m b e r B a n k D e p o s i t s * .............. B a n k D e b i t s * / * * ............................. 127 116 10 2 * * D a ily a vera ge b a s is tP re lim in a ry d ata . M ar. . M ar. M ar. N.A. N ot a va ila b le r-Revised Note: In d e x e s fo r c o n stru c tio n c on trac ts, cotton c o n su m p t io n , em p lo ym e n t, fa rm c a sh receipts, a n d pay rolls: 196 7 = 100. All o ther indexes: 1 9 5 7 -5 9 = 1 0 0 . S o u rc e s : M a n u f a c t u r in g p ro d u ctio n e stim a te d b y t h is B a n k ; non farm , m fg. a n d n o n m fg . emp., m fg. p a y ro lls a n d hou rs, a n d unem p., U.S. Dept, of L a b o r a n d c o o p e ra tin g state a g e n c ie s; cotton c o n su m p t io n , U.S. B u re a u of C e n s u s; c o n stru c tio n c ontracts, F. W. D o d g e Div., M cG ra w -H ill In fo rm a tio n S y s t e m s Co.; petrol, prod., U.S. B u re a u of M in e s; in d u stria l u se of elec. pow er, Fed. Pow e r C om m .; fa rm c a sh re c e ip ts a n d fa rm emp., U .S.D.A. O th er in d e x e s b a se d on data c ollected b y t h is B a n k . All in d e x e s c a lc u la te d b y t h is B an k . D e b i t s t o D e m a n d D e p o s i t A c c o u n t s I n s u r e d C o m m e r c i a l B a n k s in t h e S i x t h D i s t r i c t (In T h o u s a n d s o f D o lla r s ) P e rce n t Change P e rce n t Change Mar. 1971 Feb. 1971 Mar. 1 97 0 Year to Mar. date 1971 3 m os. from 197 1 Feb . Mar. fro m 1 97 1 197 0 1 97 0 S T A N D A R D M E T R O P O L IT A N S T A T IS T I C A L A R E A S B irm in g h a m . . . . G a d s d e n .............. H u n t sv ille . . . . M o b i l e .................. M o n t g o m e ry . . T u s c a lo o sa . . . . + 12 2,251,786 77,350 250 ,460 720 ,385 4 6 1 ,718 147,194 1,909,179 70,1 98 209 ,677 624,001 384 ,434 133,439 2,011,147 68,7 30 2 1 9 ,690 728 ,233 382 ,874 127,080 + 18 + 10 + 19 + 15 + 20 + 10 + 13 + 15 - 1 + 21 + 16 Ft. L a u d e r d a le H o lly w o o d . . . . 1,422,381 J a c k s o n v ille . . . . 2,320,477 M i a m i .................. 4,927,575 992,751 O rla n d o .............. 34 0 ,224 P e n s a c o la . . . . 27 8 ,122 T a lla h a s se e . . . T a m p a — St. Pete. . 2,641,738 W. P a lm B e a c h . . 8 2 7 ,834 1,178,364 1,989,672 3 ,880,782 826 ,795 296 ,128 248 ,634 2,299,018 742 ,784 1,144,686 2,068,690 3,713,421 822,413 251 ,426 202,321 2,071,073 6 8 5 ,654 + 21 + 17 + 27 + 24 + 12 + 33 A lb a n y .............. Atla nta .............. . A u g u s t a .............. C o lu m b u s . . . . M a c o n .............. Savannah . . . . 139,130 9,120,050 35 3 ,509 335 ,467 3 78,339 400 ,967 119,176 7,806,929 325,761 2 7 7 ,674 326 ,077 354 ,958 126,231 7,964,260 3 1 6 ,129 278 ,850 327 ,206 3 4 9 ,278 +21 +20 + 16 + 13 + 16 + 15 + + + + + + . . 1,008,605 192,213 . 190,527 . . . 3,316,248 785 ,479 157,118 174,326 2,648,226 726 ,763r + 28 167,046 +22 163,691 + 9 + 25 2,636,230 +39 + 15 + 16 +26 + 16 + 6 + 7 + 13 181,997 1,013,476 156,877 903 ,865 168,205 830 ,940 + 16 + 12 + 8 + 22 + + C h a tta n o o g a . . . . 1,087,792 689 ,276 K n o x v ille . . . . 2,377,620 K n o x v ille . . . . 810 ,017 558,832 1,813,249 889 ,246 574 ,375 2,015,922 + 34 + 23 + 31 +22 +20 + 18 + 16 + 13 + 7 + 12 + 15 + 12 + 11 + 19 + 3 + 7 + 14 + 0 + + + 19 B ato n R o u g e Lafayette . L a k e C h a r le s New O rle a n s . . . . . . . . B ilo x i-G u lfp o rt . . Jackson .............. +20 +21 + + + + 15 +35 +37 +28 11 +21 + 17 + 17 + 9 + 10 + 15 + 12 15 12 + 7 + 8 + 2 + 2 + 14 + 11 + 12 + 4 + 18 + 13 +30 +26 + 14 + 14 10 8 10 12 14 14 3 8 O THER C E N T E R S A n n i s t o n .............. D o th a n .............. S e l m a .................. 83,407 1 08,268 5 3,2 18 74,7 08 94,1 62 47,5 26 75,1 78 91,165 51,629 B artow .............. B rad e n to n . . . . B re va rd C o u n ty . . D ay to n a B e a c h . . Ft. M y e r s N. Ft. M y e r s . . 40,5 15 118,838 2 2 7 ,269 113,149 34,085 105,700 199,811 102,922 36,7 09 103,538 238,261 99,443 + + + + 10 + 10 + 15 - 5 + 14 173,197 142,786 135,261 + 21 +28 'Includes only banks in the Sixth District portion of the state FED ERAL RESERVE BAN K O F ATLAN TA 19 12 14 4 8 5 6 tPartially estimated Year to date 3 m os. 1971 M ar. from 197 0 1 97 0 M ar. 1971 from M ar. 1970 Feb. 197 1 M ar. 197 1 Feb. 1971 G a in e s v ille . . . L a k e la n d . . . . . M o n ro e C o u n ty . O c a l a .............. St. A u g u s t in e . . . . St. P e te rsb u rg S a ra so ta . . . . T a m p a .............. . . W in te r H aven 148,146 210 ,345 52,542 1 17,432 26,8 43 672,181 217,115 1,331,616 111,870 134,254 180,602 45,6 67 102,325 21,0 18 561,377 173,757 1,198,031 103,425 112 ,840 160 ,760 45,961 9 8,1 78 24,3 70 456,551 196,572 1,117,475 96,0 29 + 16 +15 + 15 +28 + 19 +25 + 11 + 8 A thens . . . . B ru n s w ic k . . . D a l t o n .............. Elberton . . . . G a in e sv ille . . . . . G r i f f i n .............. L a G ra n g e . . . . . New nan . . . . R o m e .............. V a ld o sta . . . . 172,067 69,0 49 134,182 16,766 95,573 52,581 27,738 31,999 104,543 74,5 02 145,231 53,363 120,042 13,185 88,366 46,677 23,530 26,957 83,203 63,655 100,808 54.062 117,860 18,804 89,282 44,4 20 26,651 29,9 78 93.118 64,268 + 18 +30 + 12 + 27 + 8 + 13 + 18 + 19 + 26 + 17 +71 +28 + 14 A b b e v ille . A le xa n d ria B u n k ie . H am m ond N ew Iberia P la q u e m in e T h ib o d a u x 14,895 175,093 8,399 5 4,1 49 47,707 13,381 3 1,9 66 12,502 161,583 7,406 47,811 39,914 12,644 27,051 13,012 1 61,565 7,632 4 5,6 18 41,829 12,787 27,233 + 19 + 8 + 13 + 13 + 14 + 8 . . . . . . . . . . . . . . . . . . . . . . + 10 +20 + 6 + 18 +31 +31 +14 +20 + 10 +46 + 10 + 19 +16 -11 + 7 + 18 + 4 + 7 + 12 + 16 + 10 + 19 + 14 + 5 + 17 +66 +21 +13 + 12 + 6 + 1 +33 - 4 + 8 + 10 +52 + 10 + 15 -14 + 1 + 14 + 7 + 1 + 5 + 6 + 2 + 6 + 5 + 12 + 11 - 5 + 13 H a ttie s b u rg . . . . L a u r e l .............. M e rid ia n . . . . N a tc h e z . . . . P a s c a g o u la — M o s s P o in t . . . . V ic k s b u r g . . . Y a zo o C ity . . . 102,205 59,8 68 88,780 43,7 09 7 9,4 09 50,151 74,2 72 41,061 6 1,4 06 50,1 64 78,577 44,9 16 +29 + 19 +20 + 6 + 19 + 13 - 3 +53 + 7 + 3 - 3 101,621 55,898 3 4,0 76 90,434 52,847 29,775 93,427 51,321 25,047 + 12 + 6 + 14 + 9 + 9 +36 + 11 + 10 +32 B risto l . . . . . J o h n so n C ity . . . . K in g sp o rt . . . 115,236 111,819 237 ,286 89,382 9 5,7 62 162,316 109,625 106,563 207 ,156 +29 + 17 +46 + 5 + 5 + 15 + + + + 19 + 19 + 11 + 16 4,837,452 5,106,140 + 17 14,788,716r 13,945,656 + 23 11,520,795 11,626,230 4,67 6,123r + 16 4,780,655 1,937,602 + 16 1,854,082 5,368,096 + 13 4,881,525 + 10 +24 + 15 + 25 + + + + + + D istrict Total . . . A la b a m a t . . F lo rid a t . . . . G e o rg ia t . . . . L o u is ia n a t * . M ississ ip p it* . T e n n e s s e e !* . ^Estimated 50,805,972 5,601,813 17,331,361 13,373,983 . . . 5,858,531 . . . 2,240,752 . . . 6,399,532 . 42,7 46,745 r 42,5 76.327 r +21 + 19 6 8 6 5 13 9 12 10 11 r-Revised 95 D i s t r i c t B u s i n e s s C o n d i t i o n s Nonfarm Employment Construction Contracts M o v in g A ve ra ge Average Weekly Hours *Seas. adj. figure; not an index Latest plotting-. March— except mfg. production and farm receipts, February The Southeastern economic picture shows increases in consumer spending, suggesting tion contract awards rebounded strongly. production in many areas. And the general a pattern of gains and losses. Latest available data indicate that consumers may be in a better spending mood. Construc Although farmers enjoyed higher prices, drought restricted atmosphere in the labor market continued weak. Department store sales during the Easter season were generally better than expected. This sales improvement may be a sign that a thaw in con sumer spending is under way. In March, consumer instalment credit outstanding at commercial banks increased sizably, with most loan sectors posting large gains. Unit auto sales continued to increase, with March sales well above the year-ago level. Continued softness characterized the labor market in March. The unemployment rate rose to 5.0 percent of the civilian work force, and nonfarm employment declined after a two-month advance. Employment losses occurred in durable and non durable goods manufacturing and in construction and trade. A month-long national strike against three major can manufacturers was responsible for sharp employment declines in fabricated metals. Led by a very strong increase in the nonresidential and "all other" sectors, construction contracts rose sharply in March. A very large electric utility system in Alabama and several large Florida projects were chiefly responsible for the strong gains in the nonresidential sector. Residential contract volume also increased vigorously and helped to offset the previous two months of declines. Agricultural prices advanced further in March but remained below last year's level. Prices of citrus and vegetable crops were up sharply, but prices of eggs, hogs, and rice declined. Preliminary data indicate that prices of most livestock items slid downward in April. Dry weather, particularly in Florida, restricted agricultural production in most parts of the region. Although banks continued to experience large deposit inflows throughout most of April, the growth of time and savings deposits slowed de cidedly. Additions to interest-bearing deposit ac counts trailed considerably behind the strong advances of the previous three months. Following the lead of major banks in other areas, many of the larger District banks raised their prime lending rate to 5V2 percent in mid-April. These same banks also reported a pickup in business loans to textile and apparel manufacturers and to wholesale and retail businesses. NOTE: Data on which statements are based have been adjusted whenever possible to eliminate seasonal influences. 96 MONTHLY REVIEW May 1971
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