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Inthis issue: A Primer on Productivity The Economic Slowdown Hits Tennessee Banking Notes: Loans to Manufacturers District Business Conditions A P r im e r o n P r o d u c t iv it y by Brian D. Dittenhafer O n e basic ec o n o m ic problem of society, and a prim ary cause of inflation, is that w e try to do m ore than resources w ill allow . W e w ant to put a stop to poverty, reduce pollution, increase housing, m aintain m ilitary defense, and becom e self-sufficient in energy. W e start lofty program s to accom p lish these objectives but d o not alw ays realize the claim s these m ake on the resources of the econom y. M a n y people do not recognize that the resources available are not lim itless but accum ulate only gradually. W h e n society's dem an ds on resources grow faster than the resources available, the b id d in g results in higher prices for goods, or inflation. How ever, if the vo lu m e of g o o d s and services available grow s m ore rapidly, w e can raise ou r dem an ds upon the e c o n o m y m ore rapidly. The prim ary source o f grow th in resources d u ring the past twenty years has been grow th in productivity. This article explains w hat productivity is all about, and ho w its grow th is related to that o f the resources in the econom y. W h a t is Productivity? To econom ists, productivity refers to the relationship of ou tpu t to the labor, materials, and m achines (factor inputs) that are used to m ake the g o o d s and services w e consum e. The ratio of output to factor inputs is a m easure o f total factor productivity, or the efficiency with w hich factor inputs are com bined. If w e were able to m easure exactly ho w m uch each factor, such as labor, added to total output, w e co u ld calculate the contribution each factor m akes to increasing total output. Econom ists refer to the ratio o f total ou tpu t to a single input as partial factor productivity. Exact m easurem ent o f partial factor productivity for the entire e c o n o m y is im possible, but several econom ists have estim ated the contribution w hich each factor (and other influences) has m ade to increasing output. For example, over the years, the am o un t o f capital eq uip m ent per w orker has increased and this has been a significant source Monthly Review , V o l. LIX, N o . 10. Free su b s c rip tio n and a d d itio n a l co p ie s a va ila ble u p o n req uest to the Research D e p a rtm e n t, Federal R eserve Bank o f A tla n ta, A tla n ta, G e o rg ia 30303. 150 O C T O B E R 1974, M O N T H L Y R EV IEW of productivity grow th. A t the sam e time, the quality o f that capital eq uip m ent has im proved, and as old m achines were rem oved, m ore efficient ones took their place. Thus, m ore m achines as w ell as m ore efficient ones contributed to productivity grow th and helped society produce m ore go o d s and services. A c c o rd in g to one estimate,1 better utilization of men, materials, and m achines has caused productiv ity to increase at an average annual rate o f 2.3 percent d u ring the postw ar period. Estimates such as this are m ade after detailed and tim e-con su m in g study in an attem pt to m easure the precise contribution o f each separate production factor. To obtain m ore current productivity estimates, a sim pler process is used. W e sim p ly count the num ber o f m an-hours w orked and use the total as a substitute, or proxy, for other m easures of factor inputs into the econom y. Current estimates o f total o utput are also m ade on a routine basis, so it is relatively easy to estimate labor productivity by fo rm in g the ratio o f real output to num ber of m an-hours worked. There are technical problem s in m easuring both the labor input proxy and the total output proxy (see box); but, in general, output per m an-h ou r provides a reasonable estimate o f go o d s produ ced per hour o f labor w orked.2 CH A RTS I & II P r o d u c t iv it y g ro w th ra te s c h a n g e q u ic k ly , a c c o m p a n y in g c h a n g e s in o u tp u t, U .S . P rivate Econom y I I '68 I I '70 I '72 I ’74 . . . c a u s in g a s tro n g c y c lic a l p a tte rn in p ro d u c - W h y D o e s Labor Productivity C h an ge ? The productivity grow th rate changes from year to year and even from quarter to quarter. Influences on productivity grow th can be classified as either short term (having quick im pact on output and productivity) or lo n g term (when m ore fundam ental forces are at work). Short- and long-term forces are at w ork sim ultaneously, but the sudden changes in productivity grow th rates graphically portrayed in Chart I provide evidence that short-term influences are pow erful and can easily overw helm long-term forces. Short-Term Influences Labor productivity usually declines du ring a business slo w d o w n and increases du ring business expansions (see Chart II). In a business slo w d o w n , em ploym ent usually declines, but not as m uch as production. S o m e w orkers lose their jobs; but m any skilled individuals, w h o w o u ld be difficult or expensive to replace if they were laid off, are retained even w hen they are not needed for current production. O u tp u t declines m ore than m an-hours w orked, causing output per m an-ho u r to decline. Partially offsetting 1John W. Kendrick, Postwar Productivity Trends in the United States, 1948-1969, National Bureau of Economic Research, New York, 1973, p. 39. throughout the rest of this article, unless otherwise stated, the term "productivity" refers to output per man-hour as measured by the U.S. Department of Labor, Bureau of Labor Statistics. FE D E R A L R ES ER V E BAN K O F A T LA N T A Q u a r t e r s b e fo re a n d a f te r t r o u g h in gene ral b u s i n e s s a c t iv it y ‘ C h a n g e fro m p r e v io u s q u a r t e r a t a n n u a l rate. this decline is the general tendency of em ployers to release less efficient w orkers first and to rehire them last. Therefore, w hen em ploym ent declines, the general quality o f the w ork force increases. Further offsetting the productivity decline du ring a business dow nturn is the shortening of the average w orkweek. W o r k in g fewer hours, em ployees are generally less fatigued and w ork faster, increasing output per m an-hour. D u rin g a business expansion, output grow s m ore rapidly than em ploym ent, and m an-hours w orked are spread over m any m ore units of output. Therefore, as output increases, average productivity 151 SO M E M EASU REM EN T PROBLEMS O n a practical level, the m easurem ent of output per m an-h ou r is m ore com plicated than sim ply divid in g the total o f real output by the num ber of m an-hours worked. O n ly tw o o f the m any problem s o f m easuring productivity change are m entioned, but they serve to illustrate the nature o f others w hich exist in m easurem ent o f productivity. The U. S. Departm ent o f Labor, Bureau of Labor Statistics (BLS), collects and com piles the output.per m an-h ou r data for the national econom y. In these measures, ou tpu t per m an -h o u r is the ratio of the real value o f g o o d s and services produced to m anhours o f all persons em ployed, inclu ding proprietors and unpaid fam ily workers. The BLS uses m an-hours paid rather than m an-hours w orked as the measure o f labor input. The differences between the tw o concepts is sm all, but pro b ab ly w id e n in g because o f the trend tow ard m ore paid vacations, sick leave, and holidays. A n oth er problem is encountered in calculating also increases. A c tin g to offset these productivity gains, to som e extent, is the hiring o f new workers w h o are relatively inefficient du ring the training period before they becom e fully integrated into the w ork force. Lengthening the w ork w eek also increases w orker fatigue, reducing productive capacity. Long-Term Influences W h ile short-term changes in total productivity over a year or tw o are generally caused by ups and do w n s in ou tpu t and em ploym ent, the factors affecting long-term productivity are m ore basic and o ccur m ore slowly. In a general sense, these factors are the am o un t of eq uip m ent that can be used efficiently (capital), the quality o f that equipm ent (technology), the quality of the labor force using that equipm ent (education and training), and the efficiency w ith w hich production factors are c o m bined (resource allocation). Researchers generally agree that, du ring the postw ar period, m ore capital has contributed between 20 and 30 percent to grow th in total productivity and that im provem ents in the quality of the labor force, largely the result of education and training, have accounted for another large chunk. Estimates of the contributions of better education and training to total productivity grow th range from 10 to 30 percent. Estimates differ because it is difficult to separate and m easure the effects o f a larger quantity o f a factor input as o p p o se d to a higher quality o f that input. For example, it is 152 output. The m easure of output used is the real G ro ss National Product (G N P) originatin g in the private econom y. Econom ists identify useful output by observing w hat pe op le are w illin g to buy. A ccord in gly, real G N P is the final market value o f g o o d s and services produ ced in the eco n o m y expressed in dollars of constant purchasin g power. The m arket criterion introduces a fundam ental bias ihto productivity calculations, because market price does not m easure nonm arket benefits w hich contribute to society's w ell-being. A vivid exam ple is available in pollution -co ntro l equip m e nt expenditures. These d o not result in greater output o f m arketable g o o d s and, therefore, d o not im prove productivity. In fact, since they pro b ab ly low er capital available for directly productive m achines, pollution -control expenditures pro b ab ly low er the long-run output and productivity grow th rates. But few w ou ld deny that sp e n d in g for po llution control contributes to real incom e by im p ro vin g the quality of life. difficult to isolate the effects of quantity and quality w hen a gro w in g firm installs one new m achine for tw o of lesser quality. Estimates also vary with the num ber o f sources o f e c o n o m ic grow th analyzed by the researcher. For example, the greatest c o n tribution to total productivity is generally credited to technology, the result o f new discoveries and new techniques for increasing output. How ever, te ch n o logy's contribution is usually not m easured directly but is estim ated as the unexplained grow th in production after all other factors are taken into account. M o s t researchers agree that both im provem ents in labor force quality and tech nolo gical advances are dividen ds on society's investm ent in education. Increases in research and deve lopm en t expenditures result in inventions of new techniques and m ore efficient w ays of p ro d u c tion. (Chart III show s h o w one prom in ent researcher has determ ined the m ajor sources o f long-term total productivity gains.) Still another factor responsible for productivity grow th has been the reduction in hours w orked in low efficiency sectors and the increase in hours w orked in high efficiency sectors. In the U. S. econom y, this effect has been m ost noticeable in the shift o f labor out o f farm ing. The actual am ount o f output per m an -h o u r is low er in agriculture than it is outside farm ing, althou gh the grow th rate in productivity has been faster on the farm. M a k in g the Pie Bigger Is productivity grow th the only thing w hich O C T O B E R 1974, M O N T H L Y R E V IE W increases the total am oun t o f go o d s and services available in the e co n o m y? The answ er is " n o " ; there are several other factors at w ork generating grow th in total output and thus increasing the ou tpu t pie. For example, variations in the length of the w o rk w eek and changes in the proportion o f people of w ork in g age w h o are em plo yed can alter total o utput w ith out affecting output per m an-hour. How ever, increases in productivity have been the largest factor contributing to grow th in total output o f g o o d s and services. In fact, productivity grow th is a prim e determ inant o f the eco n o m y's potential output. C H A R T III D e te rm in a n ts of P r o d u c t iv it y G ro w th , 1929-1969 W h a t is "P o te n tia l" O u tp u t? Potential output is the total o f go o d s and services w hich c o u ld be produ ced if labor and other resources o f the e c o n o m y were "fu lly utilized." By fully utilized, w e mean the am o un t o f capacity utilization that one co u ld expect to accom p any reasonable price stability. T o ju dge future grow th in potential output, the President's C o u n c il of Econ om ic A dvisors m ade a calculation based on past grow th in hours w orked and in output per m an-hour. The C o u n cil currently estimates potential output to be gro w in g at 4 percent annually.3 This is derived from c o m b in in g the estim ated labor force grow th rate o f 1.8 percent per year with a 0.3percent decline in average annual w ork hours and a 2.5-percent increase in output per m an-h ou r (1.8 — 0.3 + 2.5 = 4.0). Productivity grow th is extremely important, then, in increasing potential output and the incom e pie. O b viou sly, this is a rather crude calculation, and the results m ust be used with caution. How ever, estim ating grow th in potential output in this w ay gives a rough idea of h o w fast total output is gro w in g and serves as a gu ide to policy. For example, w e w ou ld expect that if co m b in e d governm ent and private dem an ds on the e c o n o m y were gro w in g at a rate above 4 percent for a sustained period, there w ou ld be upw ard pressures on prices. That is the kind of price increase econom ists call dem an d-pu ll inflation, because it results from society's attem pt to use m ore resources than are actually available. 3"The United States Economy in 1985," Monthly Labor Review, Bureau of Labor Statistics, December 1973. Since 1962 when the original estimates were made, the rate of growth in output potential has changed, but the system of estimating it has not. From 1962 through 1965, output potential was estimated by the Council to be growing at a rate of 3.75 percent per year. From the fourth quarter of 1965 to the fourth quarter of 1969, it was estimated to be growing at a rate of 4 percent per year; and from 1969 through 1973, the estimate was a 4.3-percent annual rate of growth. F E D E R A L R ESER V E BANK O F A TLA N TA S o u r c e : E d w a r d D e n is o n , A c c o u n t in g fo r U .S . E c o n o m i c G ro w th , 1 9 2 7 -1 9 6 9 , 197 4, B r o o k i n g s In s t it u t io n , T a b le 8-3. H o w are Labor Productivity and Pay Related? W orkers kn o w w hat they get paid per hour or year, and their em ployers m ust value labor input in m uch the sam e manner. In a com petitive econom y, no one is hired unless the am oun t earned from the sale of his output exceeds the w age paid to him.4 The m oney obtained by selling the individual's output ultim ately determ ines his wage. Thus, there sh ou ld be a direct link between output per m anhour and w ages and salaries. W h y D o e s Real In co m e G ro w ? W orkers have shared in the benefits of the nation's steadily increasing productivity. Chart IV show s that real incom e (that is, com pensation adjusted for rising prices) has gon e up alm ost steadily and that com pensation closely parallels the grow th o f output per m an-hour. This lo n g history of nearly parallel grow th in productivity and com pensation is no accident. Productivity increases allow m ore go o d s to be produced, m aking possible gains in real incom e. This increase can occu r directly through 4The use of capital goods is also based on a time concept, and no capital good will be employed unless its expected rate of return exceeds its cost per unit of time. Of course, in marginal productivity theory, any factor input will be employed until the cost of employing it and the revenue derived from employing it are equal. 153 CH A RTS IV & V w age increases or indirectly through governm ental program s. W a g e and salary increases larger than p ro d u c tivity gains have resulted in higher prices (see Chart V). N otice h ow closely prices, m easured by the G N P price deflator, fo llo w the trend of unit labor costs. This relationship is not surprising because unit labor costs are calculated by d ivid in g average hourly com pensation by output per m an-hour. U nit labor costs increase w henever com pensation rises faster than productivity. Labor costs are the largest portion o f production costs. Therefore, w hen unit labor costs rise and all else remains unchanged, the price o f w hatever is produ ced also rises. This puts upw ard pressure on the general price level, and the inevitable result is cost-push inflation.5 For em ployees w h o have received pay increases, the im pact o f higher prices is cushioned by the rise in r,There are other sources of cost-push in flatio n , but wages are the source of increases in costs most people think of first. In fact, cost-push inflation can be caused by an increase in the price of any factor used in production. 154 pay; they m ay even gain in real incom e. How ever, for those w h o did not gain an increase, the rise in prices causes a decline in real incom e because their m oney buys fewer go o d s and services. Real incom e of em ployees and society in general can increase even if their actual pay does not. There are periods w hen unit labor costs fall because productivity rises faster than com pensation. W h e n this happens, em ployers have the opportu nity to charge low er prices for their products or to raise profits. Thus, in a perfectly com petitive econom y, productivity gains w o u ld be w ide ly shared a m o n g m any different segm ents of society. Productivity gains w o u ld low er costs, and com petition w o u ld force go o d s to be sold at a price e q u alin g the cost of production. In reality, however, not all w ages and prices are set in a com petitive market. M a n y w orkers and em ployers have a degree o f m o n o p o ly pow er in their markets, and the gains from productivity are not usually distributed by low ering prices. Instead, w orkers usually try to increase their w ages to the full extent o f productivity gains. If they get the better of the bargain, the result usually sh ow s up in higher costs, w hich em ployers— if they have en ough market pow er— can recover by raising prices. If w orkers get the w orst o f the bargain, productivity gains sh ow up m ostly in profits. How ever, all m em bers o f society cou ld benefit if labor and m anagem ent acted as they w o u ld in a perfectly com petitive e c o n o m y and used pro du ctiv ity gains to low er prices rather than raise w ages or profits. If all em ployers and w orkers did this, prices w o u ld fall and, barring other changes, everyone w o u ld be able to buy m ore with the sam e am oun t of money. Then even persons on fixed pensions cou ld obtain direct benefits from the education and research to w hich they had contributed d u ring their w orkin g years. D istribu tin g productivity gains in this m anner seem s m ore equitable than the current situation, where grou ps with the greatest e co n o m ic and political strength m ake ec o n o m ic gains relative to the rest of the population. C o n c lu sio n Increased efficiency in the use of resources is the ultimate source of increased output per person and the m ajor source of grow th in the econom y. The m ost im portant resource in ou r e c o n o m y is labor, and increases in the quality of labor have been an im portant source o f increased output per m an-h ou r w orked. But w hatever the source of grow th in the future, the o nly path to increased real incom e and higher living standards for everyone is clearly through increased productivity. A m ore productive eco n o m y allow s society to divide a larger pie rather than have different sectors attem pting to gain larger slices o f the sam e pie and see the su p po se d gains vanish in inflation. ■ O C T O B E R 1974, M O N T H L Y R E V IE W T h e E c o n o m ic S lo w d o w n H it s T e n n e s s e e by John M. Godfrey A previous analysis o f Tennessee's eco n o m y by this Bank predicted that overall business activity had developed sufficient m om entu m to carry the state forw ard for further strong gains. After review ing the record tw o years later, that expectation proved accurate. But now, since a slo w d o w n has developed, Tennessee's underlying econ om ic strength again com es under question. Basic to the forecast n o w are the answers to several questions. Just ho w strong were the past gains? Is the current w eakness w idespread or confined to a few sectors? U nquestionably, Tennessee's econom y, like the U. S. econom y, slow ed du ring 1974. T h ro ugho u t 1971, 1972, and 1973, the state's eco n o m y sh ow ed substantial advances in incom es and jobs. But the grow th in personal incom e, as m easured in current dollars, slow ed m arkedly du ring the first half of 1974. A n d w hen adjusted for price changes, real incom es are considerably low er than a year ago. The num ber o f persons w ith out jobs has risen. Factory pay envelopes are thinner as the w orkw eek has shortened in m any industries. A shrinking real incom e has m ade the consum er reduce his purchases o f m any large or postp onable items. The initial cause of the current slo w d o w n w as a com bination of special factors that had a m ajor and im m ediate im pact on business activity. The energy and materials shortages that accounted for m uch o f the earlier slo w d o w n sh ou ld have had a positive im pact as they were overcom e. If, therefore, this were the only source of w eakness in the state's econom y, business activity sh ou ld have q uickly returned to its previous level. But the rebound has not appeared. T akin g a C lo se r Look Exam ining the evidence in greater detail helps delineate the basic reasons for the slo w do w n. O n e point becom es increasingly obvio us: So m e slo w in g in the e c o n o m ic grow th rate co u ld reasonably be expected fo llo w in g the strong advances o f the 1971-73 upsw ing. O verall expansion as rapid as this could not be sustained. A s a result, by 1973 Tennessee's eco n o m y w as operating with little unused capacity. Basically, then, som e o f the state's slow er grow th results from a short sup ply of plant capacity, raw materials, sem i-finished goods, and skilled labor, rather than from a w idespread lack o f aggregate dem and. Therefore, som e of 1973's slo w d o w n w as not a sign o f w eakness but rather a result of the previous surge. The change in personal incom e is an example. After advan cin g at an increasingly faster pace du ring 1971 and 1972, last year's personal incom e increased only at about 90 percent of the previous year's rate. How ever, w ages and salaries from farm ing, m ining, and durable go o d s m anufacturing m oved up quite strongly. A t the sam e time, property incom e accruing to farm ow ners and to others for rent, interest, and corporate dividen d paym ents rose at a strong pace. These gains have raised incom e levels in the state and sh ou ld provide a base of support to counter som e o f the current weakness. FE D E R A L R ES E R V E BAN K O F A TLA N TA 155 CHART I In c o m e g ro w th s lo w s in 1 9 7 3 . % Chg. —10 — 5 •70 ’71 ’72 ’73 This year the pattern o f personal incom e is evidently changing. In co m e w as w eaker in som e w age and salary areas du ring early 1974. How ever, farmers continue to benefit from generally higher crop prices. How ever, there are m any reasons to believe that overall personal incom e is once again on an upw ard path. W ages, in particular, are headed up. Early in the spring, the higher m inim um w age w ent into effect. Since then m uch larger w age packages have been a m ajor goal in labor negotia tions. The end o f w age-price controls freed m any firms to grant postponed w age hikes and, in som e cases, to pay "c a tc h -u p " raises. A s m ore w ages are adjusted autom atically via co st-o f-livin g clauses, interim pay increases w ill also take place. Finally, the end of the A rab oil em bargo reversed the decline in several hard-hit industrial areas and eased shortages of petroleum -based raw materials. These factors are help in g restore the purchasing pow er of earnings. Em ploym ent C o n d itio n s W eaker After sh o w in g steady im provem ent for three years, Tennessee's labor markets took a decided turn for the w orse in early 1974. The m ajor u nem p loym en t increase cam e d u ring the first three m onths of this year, w hen energy-related layoffs totaled an estimated 7,000 persons. M o st o f the im pact on m anufacturing w as concentrated in chem icals, plastics, and other petroleum -related industries. Also, m any businesses dependent upon the tourist and travel trade had to retrench. Since then the num ber of w orkers laid off each m onth has de clined, and the total num ber o f unem p loyed has stabilized at around 65,000 persons. The u n e m p lo y ment rate, however, has continued to m ove up as new entrants into the labor force are unable to find work. A n d until en ough new jobs open up, the u nem p loym en t rate w ill continue to rise even if new layoffs decline further. 156 N o n m an u factu rin g job gains n o w reflect the state's basic source o f em p lo ym en t strength, with nearly all the w eakness concentrated in m anu fac turing. W h o le sa le and retail trade e m ploym ent continues to advance. W h ile m any service in dustries have added m any new em ployees, those businesses closely associated w ith the travel trade are still not up to full strength. Constru ction em p loym ent is h o ld in g up reasonably well. Recent announcem ents o f cutbacks in m anufac tu rin g lines exem plify som e o f the problem s facing Tennessee businessm en. O n e m ajor appliance m anufacturer is laying off em ployees because of faltering sales. A n oth er produ cer o f consum er g o o d s has halted operations in the state in order to use the raw material, w hich is in short supply, for other industrial products. In som e cases sales are very w eak and in others sales are very strong, but in both cases operations are curtailed. The Tri-Cities area posted an exceptionally strong advance in new em ploym ent. Largely responsible is a new plant that m anufactures electrical-m echanical assem blies. N e w plant ex pansions by several existing firm s have also helped enlarge e m plo ym ent opportunities. A n d closer analysis suggests that m any o f these new m an u facturing jobs were filled by persons previously e m ployed in trade, finance, insurance, real estate, and services. Em ploym ent in Ch attan ooga, however, has been trending do w n since last year, with significant drops in services and fabricated metals products. It is not surprising that here and in M e m p h is, where new construction is weak, e m plo ym ent in the b u ild in g trade is off. O verall job gains are strongest in Nashville, and the strength is centered in exactly the sam e sectors in w hich C h attan o oga is weakest. T h rou gho u t the state, as in m any other parts of the Southeast, textile and apparel jobs have declined as consum ers cut back on purchases of clothin g and h o useho ld furnishings. A lth o u gh m ost o f these textile-related jo b losses occurred outside m ajor m etropolitan areas, K noxville and N ashville m ills also cut back on em p lo ym en t to adjust output to sales. The dip in average w eekly earnings mirrors em ploym ent changes early in the year. A m ajor fac tor w as a shorter w orkw eek, since m any em ployees had been w o rkin g several hours a w eek at tim e and a half. A s a result, this sm all reduction in over time had a considerably greater im pact on takeh om e pay than suggested by the dip in hours alone. The decline in new h o u sin g caused part of the drop in hourly w ork at furniture plants; and the energy shortage dealt rubber and plastic go o d s m anufacturers a blow , resulting in a production cutback. But coun terin g the earlier fall in the w o rk w eek has been an over 10-percent rise in hourly O C T O B E R 1974, M O N T H L Y R E V IE W earnings d u ring the last year. D u rin g the sum m er m onths, several im portant industries began operat ing longer hours. Exam ining Local Activity Since it is the rare ill w in d that blow s no good, the energy shortage also had a positive im pact on som e lines of business activity. In the Tri-Cities area, a contract has been let for a natural gas liquefaction plant and additional gas storage facilities, to help ensure am ple fuel supplies. Similarly, a Nashville fabricator b o o ke d additional orders for tow boats and oil-tank barges to transport fuel oil. A n d in the m ore distant future, a m ajor oil co m p an y hopes to establish a $250-m illion facility to recover and recycle spent nuclear fuel from the O a k Ridge atom ic facilities. O f current im portance, Tennessee's coal p ro d u c tion is advan cin g strongly. Through late sum m er, ton nage is up 30 percent over the sam e period last year. The price o f coal has risen sharply in the last several years as electric-generating utilities have tried to secure adequate fuel supplies. Even tho u gh additional m ines are o p e n in g and coal o utput is on the upsw ing, problem s still threaten. M in e operators face a labor strike if contract negotiations are not successful. A s serious as the direct im pact o f a strike m ight be on output, jobs, and incom es in the m in in g areas, the m ost serious consequences w ill be felt outside the m ine fields. Nearly all o f the state's coal is used by electric-generating plants, and any re duction in electric pow er supplies w ill have su b stantial im pact on the w h ole econom y. Environ mental considerations also remain a question mark. Tennessee's co a l-m in in g future w ill depend on the increase in surface mines, w hich have co m e under heavy attack from environm ental groups. A n oth e r sector o f the state's e c o n o m y is bene fiting from the increased dem an d for basic raw materials. Tennessee has lo n g led the nation in zinc m in in g and solidified its position in 1969 after the discovery o f a m ajor zinc deposit. N o w there is a proposal to construct a $150-m illion zincprocessing plant in Clarksville, an operation with a potential o f 500 jobs. M o re jobs w ill be created in transporting the ore to Clarksville and sh ip p in g the refined metal to users. A d d itio n al industrial de velop m ent is also likely to follow , as supportive industries are established to use the acid by-product generated in the ore-refining process. The gasoline shortage last w inter had a m ajor im pact on tourism in the state. M oto rists to and through Tennessee declined nearly 30 percent du r ing the w orst o f the fuel crisis; airlines also reduced the num ber o f their flights. M a n y people sw itched to other form s o f surface transportation rather than face the uncertainties o f a u tom obile travel. Reduced and altered travel plans resulted in a cut back in needed lodgin g, food, recreation, and transportation-related services. FE D ER A L R ES E R V E BANK O F A TLA N TA W ith the return of additional and m ore certain gasoline supplies, the sum m er tourist trade reached a m ore norm al volum e. Such attractions as the G rand O le O p ry are reporting strong advance ticket sales after m o vin g into the new O p ryla n d facilities. But in other w ays the tourist industry may be faced with fundam ental changes in vacation travel and lo d g in g plans. For example, m any fam ilies travel in recreation vehicles, using both private and pu blic cam pgrounds. This m eans that less m oney is spent for conventional lo d g in g in m otels and for fo o d in restaurants. The C o n su m e r C h an ge s S p e n d in g Plans A num ber o f factors have changed the pattern of consum er purchases. The rapid rise in retail prices has forced h ouseholds to reallocate purchases, with less m oney for discretionary purchases. For example, h ouseh old expenditures for fo o d have risen nearly 13 percent because of higher prices. A s a result, sp en d in g for durable go o d s and postponable items has show n large reductions. A u to sales plum m eted late last year, but the decline stabilized du ring the winter; they were running at about 80 percent of last year's pace through m idsum m er. Purchases o f househ old appliances appear to be running at about last year's pace, after adjustm ents for price increases. Based upon selected departm ent store sales, business seems to be strongest in C hattan o o ga and Knoxville. C o n su m e r credit extensions by banks serve to further confirm this pattern of consum er spending. Instalm ent bank credit for au tom obile C H A R T II More recently, employment growth slackens and unemployment rises. 157 and retail g o o d s rose at a m uch slow er pace du ring the latter half of 1973 and first half of 1974. Payments m ade on bank credit cards, however, picked up. Farm ing: G o o d But N o t Better Tennessee farmers m ay be hard pressed to match 1973's record perform ance, w hen net incom e surged nearly 60 percent to $460 m illion. Last year, the value of crop receipts rose to a record $580 m illion, up 35 percent over 1972 and a w h o p p in g 52 percent over 1971. These gains were the result of higher farm receipts and greatly expanded output. Receipts from soybeans, Tennessee's m ajor crop, were up sharply in 1973. D e m a n d for soybeans has increased d u ring the last few years and Tennessee farmers have increased plantings; heavy spring rains in 1973 ham pered the planting and grow th o f m any other crops, diverting land to soybean production. Even though bad w eather reduced last year's cotton crop nearly one-fifth, sharply higher prices caused a m ore than 20-percent gain in receipts. T o bacco w as also a casualty o f p o o r gro w in g c o n d i tions. The values o f other m ajor crops such as corn, hay, and sm all grains were generally higher. In c o n trast, w inter w heat production w as off as m uch as 40 percent in 1973. Livestock receipts added a large plus to Ten nessee's farm incom e in 1973, but higher prices accounted for nearly all o f the gain. In co m e from cattle advanced over 20 percent and com prised nearly tw o-thirds of total livestock receipts. There w as considerable inventory b u ild in g of beef cattle. 158 Receipts from the sale o f hogs totaled $142 m il lion last year, up nearly tw o-thirds from 1972. In contrast to beef cattle, the p o u n d ag e o f hogs that w ent to m arket rose nearly 10 percent as Tennessee farmers took advantage o f record pork prices. Farm ers increased output by fe eding their h ogs to attain heavier w eights and by reducing inventories. In response to expanded agricultural output, farm e m p lo ym en t rose du rin g 1973 for the first tim e in recent years. Both the use o f fam ily m em bers and hired w orkers were up. A lth o u gh Tennessee's farm sector continues strong, on balance it is apparently not the source of large gains this year. State farmers planted about 8 percent m ore land this year, and crops w ill likely be the strongest part of the sector. Prices m ay c o n tinue to rise and bigger crops m ay result in c o n siderably higher gross sales; but at the sam e time, higher prices on everything from tractors to fertilizer and fuel are pro b ab ly cutting into net incom e. A c c o rd in g to estimates, 1974's cotton and to bacco acreage is up a bou t 20 percent. Farmers have planted about 10 percent m ore corn and reduced soybean plantings slightly b e lo w last year's record level. The w inter w heat harvest, m ore than d o u b le 1973's p o o r harvest, w as the largest in years. But, as w as true last year, w eather had an im portant influence on crop developm ents. U nu su ally wet spring w eather delayed the planting of som e crops and necessitated replanting others. C on tin u ed bad w eather diverted som e cotton land to soybean production. For those crops already in the ground, dam p, clo u d y w eather du rin g the early gro w in g season ham pered d eve lopm en t directly and in directly resulted in further losses because of plant disease and insects. A nd, as if the w eather were not already en ough o f an uncertainty, farmers w ere c o n fronted with unusually hot and dry w eather du ring the late sum m er m onths. Livestock receipts are also under pressure this year. Falling prices have thus far reduced receipts and, together with high feed and related costs, net farm incom e m ay be even low er w hen the books are closed. C onstru ction: A Base o f Su p p o rt N e w construction is one sector that is p ro vid in g a base o f ec o n o m ic support. Total construction (in d ollar terms) is running ahead of last year's strong pace, but som e im portant shifts in the sector have occurred. For the state as a w hole, residential h o m e b u ild in g has contracted som e 23 percent, as m easured in dollar v o lu m e du rin g the first several m onths o f this year. The drop in h o u sin g starts has been even m ore severe— som e 6,000, or over one-fourth of the starts d u ring the sam e period last year. Tennessee's h o u sin g decline, however, is less severe than in other southeastern states and in the country as a whole. The m ajor part of the decline has occurred in the state's m etropolitan areas— Chattanooga, O C T O B E R 1974, M O N T H L Y R E V IE W Knoxville, and M e m p h is. N ashville has bucked the state trend with a respectable gain in new dw ellin g units. A substantial part of the drop in residential c o n struction is explained by w hat has happened to the m ajor sources o f funds for hom e rhortgages— the savings and loan associations and com m ercial banks. D u rin g the first half of 1973, w hen deposit inflow s w ere strong, S& L's extended additional m ortgage loan com m itm ents and m ade new m ortgage loans. By mid-1973, rising interest rates on co m p e tin g fi nancial instruments attracted consum er savings, and S& L's cut back on loan com m itm ents. To offset deposit losses, m any S& L's stepped up their b o rro w ings from the Federal H o m e Loan Banks. A s a result, the pace o f new h o m e b u ild in g began to fall. T h ro ugho u t early 1974, deposit flow s stabilized and im proved relative to the last half of 1973. W ith positive savings gains, the S& L's have been able to extend new loan com m itm ents to prospective hom e owners. How ever, the savings flo w and m ortgage situation w orsened as the year progressed. M u c h the sam e pattern o f deposit flow s and m ortgage loan adjustm ents occurred at the state's com m ercial banks. C o n su m e r tim e and savings deposit grow th tapered off in the last half o f 1973, and banks cut back on the vo lu m e o f new m ortgage loans, especially for m ultifam ily residences. D u rin g the first half o f this year, m em ber banks in the Sixth District portion of the state have increased their lending for m ultifam ily h ou sin g and nonresidential property. Nonresidential building, such as factories, offices, schools, and hospitals, is taking up som e of the slack left by the weaker h o u sin g sector. In specific localities, this type of construction can have a m ajor impact. For example, d o w n to w n Knoxville is n o w getting a "fa c e liftin g" m uch like that N a sh ville began several years ago. Initial plans outlined for one project call for new office and parking fa cilities. Later, m ore office and parking space w ill be added and a large hotel w ill be constructed. In the lo n g run, im pro ving the appearance of older bu ild in gs and constructing new office com plexes can revitalize the d o w n to w n area of a city and increase retail and service trade. The strength in new construction, however, is centered in m any n o n b u ild in g types o f construc tion. Im portant new contracts have been let in re cent m onths for m ajor sewer and water projects in western Tennessee and for a dam and river w ork in the eastern part o f the state. In all, construction activity in Tennessee is still fairly strong but decidedly changed. In c r e a s e d P re s s u re o n T e n n e s s e e B a n k s D u rin g m ost of 1974, Tennessee banks faced the sam e pressures as those in other states from strong credit dem an ds and record interest rates. But Tennessee banks also had to contend with the re strictions im po sed by the state's 10-percent usury FE D E R A L R ES ER V E BAN K O F A TLA N TA law. A s a result, w hen market interest rates rose above the usury ceiling, Tennessee banks were pre vented from charging a com petitive interest rate on loans w hile paying the com petitive interest rates on borrow ed funds. These unfavorable conditions caused m any o f the larger ban king organizations to report low er earnings. Despite generally tight credit conditions, bankers continued to extend credit. A t m em ber banks in the District portion o f the state, total loans advanced nearly 13 percent in the first six m onths of 1974 in contrast to less than an 8-percent gain in the latter half of 1973. Loans to business firms advanced at over a 15-percent rate du ring the first.six m onths o f the year. A t som e of the larger banks, the strongest dem ands cam e from construction and w holesale and retail trade firms and from textile and apparel m an u facturers. Vario us types of service firms also bo r rowed more, w hile food, liquor, and tobacco firms paid d o w n bank loans. Seasonal dem ands for farm credit also advanced at a strong pace, w hile loans to n on ban k financial institutions picked up c o n siderable strength after M arch. Since midyear, h o w ever, m any banks caught in the interest rate squeeze have begun to scrutinize closely requests for credit and are turning d o w n applications for nonessential and speculative loans. A t a time w hen banks were under pressure to m ake loans available to their customers, total d e posits rem ained virtually unchanged. In the first six m onths of 1974, actual dem and deposits fell over 10 percent after a nearly 20-percent gain in the previous six months. W h ile time and savings deposit grow th w as stronger in 1974, m uch of the apparent strength merely reflects the aggressive purchase o f m oney market C D 's by som e o f the larger banks. In order to meet the loan requests at a time w hen deposit inflow s were weak, m any o f the large Tennessee banks sharply increased their purchase of Federal funds (the excess reserves of other banks). A t the sam e time, they generally lightened their portfolios of securities. Sales of U. S. G overnm ent securities accelerated du ring the year, but purchases o f tax-exempt m unicipal obligation s picked up. Through these actions, Tennessee banks have gen erally tried to meet the state's necessary needs for credit, although these efforts have been at the expense of decidedly low er earnings. The Fu tu re In sum m ary, this review of Tennessee's eco n o m y show s that a slo w d o w n has occurred. W h ile the slo w d o w n w as initially the result of the energy shortage, the eco n o m y did not rebound with the return of m ore norm al petroleum supplies. The w eaknesses noted so far have not spread th roughout the w h ole range of business activity, and som e areas can still be considered as strong. Eco n om ic activity is not apt to sh ow significant strength until business condition s throu gh ou t the rest o f the country pick up, since national condition s exert a m ajor influence on the state. ■ 159 B A N K IN G S T A T IS T IC S B illio n $ D E P O S IT S * * C R E D IT * - 40 - 36 - 24 - 20 - 8 U.S. Gov’t. Securities - 4 Savings 6 I I I I I I I I I I I I I II I I I I I I I I I I I 11 I I II I I II I I II I II I I I I II I I I I I II I I J J DJ J 1973 1974 DJ J J DJ J DJ 1974 J 1975 ‘Figures are for the last Wednesday of each month “ Daily average figures LATEST MONTH PLOTTED: SEPTEMBER S IX T H J 1973 1975 DISTRICT BANKING NDTES L o a n s to M a n u fa c tu re rs S E V E N S E L E C T E D M A N U F A C T U R IN G I N D U S T R IE S R A N K E D B Y B A N K L O A N A N D IN V E N T O R Y C H A N G E S (JU L Y 1973 TO JU L Y 1974) R a n kin g by P ercen tage C hang es Industry 6th Dist. S ta te s With H eaviest C oncentration 6th Dist. % of National Loan T o ta ls1 Lo an s From 6th Dist. B anks1 Lo an s From B an ks N ation a lly 1 N ational In ven to rie s2 R a n kin g by $ C hang es Lo an s From 6th Dist. B anks1 Lo an s From B a n ks N ation a lly 1 N ational Inven to rie s2 Prim . M etals Ala. 2% 6 of 7 7 of 7 6 of 7 6 of 7 7 of 7 5 of 7 M achinery Ala., Fla., Gd.f La., Ten n. 2% 2 2 2 2 1 1 T ra n s. Equip. Ga., Fla. 4% 3 1 5 3 2 2 Food, Liquor, To bacco Fla., Ga. 4% 4 6 7 4 5 6 T e x tile s, Apparel, Leath er Ga. 5% 1 5 4 1 3 4 Pet. Refin in g La. 4% 5 3 1 5 6 7 C h e m ic a ls, R ubber Tenn. 3% 7 4 3 7 4 3 1 B ased on reports from a Fed eral Reserve sam p le of large m e m b e r ban ks around the nation, 23 of w h ich are in the Sixth Fed eral R e serve D istrict. 2 B ased on “ Inventory S to c k ” data, U. S. Departm ent of C o m m e rce . Inventory-growth fig u res for th e "T e x tile s, Apparel, and Le a th e r” in du stry w ere extrapolated from qu arterly data. 160 O C T O B E R 1974, M O N T H L Y R E V IE W If w e happened to focus on a particular bank loan to a particular business in an effort to determ ine h o w that loan cam e to be made, w e w o u ld probably com e up w ith a lon g list o f reasons. A lth o u gh som e o f the circum stances— like personal relationships— w o u ld be peculiar to the loan under consideration, m any o f the factors w ou ld be m ore general in the sense that they also influence other bankers and businessm en in the region and around the nation. Shifting from a particular loan to aggregated loan figures, the m ore general influences tend to re inforce each other, whereas the peculiar factors tend to cancel each other and dim inish in effect. So m e o f these m ore general influences, m oreover, sh ou ld be characteristic o f various industries. W e w o u ld expect the circum stances in d u cin g one prim ary metals corporation to borrow to resemble those influencing another prim ary metals firm, m ore so than those affecting a textile corporation. This helps us take a stab at an intriguing question abou t Southeastern ban king behavior: To w hat extent d o the factors indu cing various corporations to borrow from Southeastern banks resem ble those in du cin g corporations in the sam e industries to b or row from banks across the country? The answer, apparently, is " N o t very m u ch ." Bo rrow ing patterns at Southeastern banks seem out o f step with national patterns. F o llo w in g the sam e logic, w e m ay go a step further and a sk ,"T o w hat extent are the inventories carried by these corporations across the nation reflected as an influence on b o rro w in g from So u th eastern b a n k s?" The answ er here apparently is, "Even less." Inventory finance is a traditionally im portant business use o f bank loans. Lacking in form ation on the inventories either o f Southeastern corporations or of those w hich borrow from So u th eastern banks, w e arrive at this answ er by directly co m p arin g national inventories with Southeastern bank loans. (National inventories d o seem to corre sp o n d fairly closely to national loan activity, h o w ever.) These results em erge from o u r com parison of loans m ade by 23 large Southeastern m em ber banks to corporations in seven selected industries,1 on the one hand, with inform ation on national loan and inventory activity in these industries, on the other. The resulting interindustry ranks, reflecting both percentage changes and dollar changes between m id-1973 and mid-1974, are tabulated on the o p posite page. W e have sum m arized the rankings of the seven industries for com parison by calculating so-called rank correlation coefficients, w hich are show n in the second table: A coefficient close to zero im plies very little correspondence between the RAN K C O R R ELA TIO N C O E F F IC IE N T S R an ks in T erm s of % C hanges R a n ks in T e rm s of $ C hang es Sixth District loans versus national loans .32 .68 Sixth District loans versus national inventories .04 .36 National loans versus national inventories .57 .86 tw o characteristics w hose ranks are being c o m pared; a coefficient close to one im plies a close correspondence. (For example, the coefficient o f .04 suggests there is very little relationship between the percentage-change rankings of bo rrow in g from Southeastern banks and national inventories; the coefficient o f .86, on the other hand, suggests a strong relationship between the dollar-change rank ings of national b orro w in g from banks and national inventories.) Several other interesting im plications have em erg ed from the sam e analysis. First, Southeastern banks account for a disproportionately sm all share o f na tional bank len ding to each o f these m anufacturing industries. A lth o u gh the Sixth District area accounts for between 8 and 10 percent o f the nation's p o p u lation, personal incom e and m anufacturing output, District banks account for only 2 to 5 percent o f the loans m ade to these industries.2 Secondly, in terms of percentage grow th, loans by Sixth District banks to these industries expanded less than did national loans to the sam e industries,8 even though the grow th o f m anufacturing p ro d u c tion and em ploym ent in the Southeast exceeded that o f the nation from mid-1973 to mid-1974. The im plication o f these tw o results reinforces the often-stated dictum that the Southeast is and has been an im porter o f funds in the form o f bank loans, in that banks outside the region have apparently been su p plyin g part o f its industries' needs for bank funds. 2The particular data used here account for a small part of the low proportion, but not all of it. The large member banks used here, all member banks, and all com m ercial banks in the Sixth D istrict, respectively, account for 5, 6 and 7 percent of the corresponding national loan totals. ‘The single exception was the textiles, apparel, and leather industry. S e le c te d on the basis of av ailab ility of com parable loan and in ventory data. FE D ER A L R ESER V E BANK O F ATLA N TA W IL L IA M N . C O X , III 161 S i x t h D i s t r i c t S t a t i s t i c s Seasonally Adjusted (All data are indexes, unless indicated otherwise.) Late st M o n th 197 4 One M onth Ago Tw o M on th s Ago O ne Year A go SIXTHDISTRICT U n e m p lo y m e n t R a te 2 (P e rc e n t of W o rk Fo rce ) . . Avg. W e e kly H rs. in M fg. (H rs.) IN C O M E A N D S P E N D IN G M a n u f a c tu r in g P a y r o l l s .................. F a rm C a s h R e c e i p t s ......................... C r o p s ........................................... L iv e s t o c k .................................... In s ta lm e n t C re d it at B a n k s * / ' (M il. $) L a te st M o n t h 1974 Aug. Ju ly Ju ly J u ly 180 196 26 0 178 178 174 2 32 159 Aug. . Aug. 6 56 546 676r 667r 180 215 28 9 200 724 668 165 2 17 2 67 198 One M onth Ago . A ug. . Aug. 4.3 40.6 4.2 40.4 . A u g. . A ug. 254 206 2 67 . Aug. J u ly 190 197 202 . A u g. . Aug. . Aug. . Aug. 154.8 129.4 159.7 193.0 102.5 155.3 129.3 160.3 198.6 109.0 . Aug. . Aug. 5.2 39.9 4.8 40.4 . Aug. 31 6 248 336 Tw o M o n th s A go One Year Ago 4.1 41.1 3.9 40.6 249 208 273r 2 53 205 254 224 1 90 192 192 2 45 172 279 153.7 129.5 158.4 98.8 152.4 129.2 156.9 209 .9 106.1 5.1 4 0.4 3.9 40.6 313 248 311 3 15 2 47 312 273 230 306 16 9 195 164 153 170 1 56 176 Aug. A ug. A ug. A ug. A ug. 128.8 110.7 136.2 133.4 84.3 127.6 109.0 136.3 138.5 89.7 128.9 136.7 138.7 83.4 128.1 113.2 135.0 143.6 87.1 A ug. A ug. 4.8 39.7 4.6 39.6 4.5 40.1 3.7 40.3 A ug. A ug. Aug. 270 1 88 344 270 195 330 269 1 96 3 28 241 183 278 A ug. J u ly 159 236 1 58 154 157 162 211 Aug. A ug. Aug. A u g. Aug. 115.4 115.8 103.3 118 .4 87.3 71.3 115.6 103.8 118.1 84.9 66.4 115.1 105.4 117.1 84.6 7 5.9 F IN A N C E A N D B A N K IN G Bank D e b it s * * 21 1 67 7 5 68 E M P L O Y M E N T A N D P R O D U C T IO N A ug. A ug. . Aug. . Aug. . Aug. . Aug. . Aug. P r in t in g a n d P u b lis h in g . Aug. A ug. Aug. Lbr., W o o d Prods., Furn . & Fix. Aug. A ug. Stone , C lay, a n d G la s s . . . Aug. . Aug. Aug. T ra n sp o rta tio n E q u ip m e n t . Aug. . Aug. . Aug. • Aug. . Aug. . Aug. . Aug. . Aug. . A u g. Sta te a n d L o ca l G o v e rn m e n t F a rm E m p l o y m e n t ......................... . Aug. U n e m p lo y m e n t R a te 3 (P e rc e n t o f W o rk F o rce ) . . . . . Aug. In s u re d U n e m p lo y m e n t (P e rc e n t of Cov. E m p . ) .............. . A ug. Avg. W e e kly H rs. in M fg. (H rs.) . . . A ug. . Aug. . A ug. . Aug. . Ju n e C otton C o n s u m p t io n * * . Aug. Pe trole u m P r o d u c t io n * . Feb. . Feb. . Feb. . Feb. . Feb. . Feb. P a p e r ......................... . Feb. P r in t in g a n d P u b lis h in g . Feb. C h e m i c a l s .................. . Feb. . Feb. . Feb. F u rn itu re a n d F ix tu re s . Feb. Stone , C lay, a n d G la s s . Feb. . Feb. . Feb. N o n e le ctrica l M a c h in e ry . Feb. Electrica l M a c h in e r y . . . Feb. T ra n sp o rta tio n E q u ip m e n t 132.5 117.5 114.8 103.7 110.5 112.3 112.9 128.4 111.7 120.8 107.7 127.5 113.8 130.5 155.1 1 1 1 .1 137.8 139.9 124.7 138.6 147.5 148.3 104.5 139.1 81.4 132.4 117.4 114.7 104.0 1 1 1 .2 112 .0 113.6 128.7 111.4 120.3 110.7 128.8 113.3 132.0 156.6 105.7 137.8 142.1 125.9 138.2 147.3 150.4 103.6 138.7 8 7.4 132.4 118.3 115.8 104.3 112.9 113.8 113.5 129.4 110.9 121.4 131.3 118.9 115.4 128.5 113.5 130.4 157.7 111.3 137.4 143.2 126.1 138.2 147.4 150.4 102.9 137.2 81.5 112.3 117.3 112.9 129.4 107.5 123.3 113.7 130.1 113.2 130.1 155.3 116.8 135.6 148.4 124.6 136.4 145.3 145.8 99.6 135.2 83.8 110 .0 4.9 4.9 4.7 4.0 2.3 39.9 198 1 59 2 37 81 99 299.4 241.9 189.9 298.4 294.1 2.3 40.4 1.8 156.4 311.7 368.1 207.2 177.4 231.1 273.6 310.6 472.7 865.8 419.9 2.3 40.2 208 181 2 36 79 99 297.0 243 .4 190.0 304.5 293.0 204.5 156.0 323.5 361.3 205 .9 186.4 229 .9 273 .9 310.6 468 .8 855 .9 392.1 300.0 247.7 191.5 301.7 291.9 226 .9 155.9 320 .9 362.5 206.3 188.7 216.5 272.2 308.0 4 78 .9 835.0 416 .0 . Aug. . Aug. 2 79 2 63 2 76 259 2 76 25 9 2 44 2 29 . Aug. . Aug. . Aug. 2 14 187 3 06 2 16 184 293r 2 15 187 2 88 198 174 252 202.6 202 2 14 190 79 10 1 EM PLOYM ENT 10 1.6 4 0.6 271 293 250 84 114 288.5 238.8 185.5 281 .8 286.8 U n e m p lo y m e n t R a te 2 (P e rc e n t o f W o rk F o rce) . . Avg. W e e k ly H rs. in M fg. (H rs.) F IN A N C E A N D B A N K IN G M a n u f a c tu rin g P a y ro lls .................. Aug. F a rm C a s h R e c e i p t s ......................... J u ly N o n m a n u f a c t u rin g U n e m p lo y m e n t R a te 2 (P e rc e n t of W o rk F o rce) . . Avg. W e e k ly H rs. in M fg. (H rs.) Bank D e b it s*/ * 1 1 1 .6 F IN A N C E A N D B A N K IN G 1 54 EM PLOYM ENT F IN A N C E A N D B A N K IN G Loans* A ll M e m b e r B a n k s .................. L a rg e B a n k s ......................... D e p o s its * 222 EM PLOYM ENT 2 2 2 .1 161.7 305 .9 347.6 199.6 190.6 207.0 231.0 283.3 435.9 778.1 453.2 20 1.8 U n e m p lo y m e n t R a te 2 (P e rc e n t of W o rk Fo rce) . . A vg. W e e k ly H rs. in M fg. (H rs.) 10 1 .2 118.4 87.7 61.3 Aug. A u g. 6.6 6.8 40.0 4 0.4 6.7 40.2 6.4 4 1.7 Aug. A u g. A ug. 252 189 24 8 248 191 244 246 189 2 35 224 171 191 Aug. J u ly 20 2 201 214 186 2 03 192 182 238 A ug. A ug. A ug. A ug. Aug. 129.3 129.2 129.3 124.3 75.9 129.1 130.2 128.6 124.6 79.9 129.4 130.7 128 .9 127.5 74.0 127.3 130.0 126.1 133.0 71.5 F IN A N C E A N D B A N K IN G B a n k D e b it s*/ * M IS S IS S IP P I IN C O M E . Aug. J u ly 182 225 179 207 181 255 165 2 66 EM PLOYM ENT EM PLOYM ENT . Aug. . Aug. N o n m a n u fa c t u r in g 162 120.9 117.6 122.4 120.9 68.9 12 1.0 117.5 12 2 .0 120.3 75.6 120.9 117.3 122.5 124.9 81.8 120 .2 117.0 121.7 131.2 69.9 N O V EM B E R 1974, M O N T H L Y R EV IEW O ne M o n th Ago Late st M o n t h 197 4 U n e m p lo y m e n t R a te 2 (P e rc e n t o f W o rk Fo rce ) . . Avg. W e e k ly H rs. in M fg. (H rs.) Tw o M o n th s A go O ne Yea r A go One M o n th Ago L a te st M o n t h 1974 TV»o M on th s Ago O ne Year Ago EM PLO YM ENT Aug. Aug. 4.2 39.6 4.1 39.7 3.9 39.9 3.7 40.6 M e m b e r B a n k L o a n s * ..................... Aug. M e m b e r B a n k D e p o s i t s * .................. Aug. B a n k D e b i t s * / * * ................................ Aug. 264 21 8 262 258 2 17 259 2 65 2 19 2 56 200 184 182 181 204 181 2 77 170 197 N o n fa rm E m p l o y m e n t .............. M a n u f a c t u r i n g ...................... N o n m a n u f a c t u r i n g .................. C o n s t r u c t i o n ...................... F a rm E m p l o y m e n t ...................... . . Aug. U n e m p lo y m e n t R a te 2 (P e rc e n t o f W o rk Fo rce) . . . Avg. W e e k ly H rs. in M fg . (H rs.) . . . A ug. F IN A N C E A N D B A N K IN G 23 6 196 128.5 118.2 134.3 135.3 95.7 128.2 117.9 134.0 135.7 93.8 128.8 119.2 134.2 132.6 87.2 127.0 120.5 130.8 135.0 9 6.3 3.9 39.9 4.6 40.7 3.5 40.3 3.0 4 0.5 272 203 290 268 204 270 26 5 264 226 182 205 TEN NESSEE F IN A N C E A N D B A N K IN G 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 ..................... Aug. F a rm C a s h R e c e i p t s ......................... July 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 it s * . . . . B a n k D e b i t s * / * * ......................... * * D a il y ave ra g e b a s is * F o r S ix t h D ist ric t area only; o th e r to ta ls fo r en tire s ix sta te s . . A u g. 201 NANot available fP r e lim in a r y d ata Note: Indexes for bank debits, construction contracts, cotton consumption, employment, farm cash receipts, loans, petroleum production, and payrolls: 1967 = 100. All other indexes: 1957-59 = 100. 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 ; n on farm , m fg. a n d n o n m fg. em p., m fg. p a y ro lls a n d h o u 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 sta te a g e n c ie s; cotton c o n su m p t io n , U .S. B u re a u o f C e n s u s; c o n stru c tio n c ontrac ts, F . W. D o d g e Div., M c G 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 o f M in e s; fa rm c a s h re c e ip ts a n d fa rm em p., U.S.D.A. O th er in d e x e s b a s e d o n data c o lle c te d b y t h is B a n k . A ll in d e x e s c a lc u la te d b y t h is B a n k . 'D a t a b e n c h m a rk e d to J u n e 197 1 R e p o rt of C o n d itio n . ^ U n e m p lo y m e n t rate s fo r all D istric t St a t e s exc e p t F lo rid a h a v e been e stim a te d u s in g new t e c h n iq u e s d e ve lo p e d b y th e U. S. Dept, o f Labor. N e w se a so n a l fa c t o rs h a v e been d e ve lo p e d fo r all s ix D istric t State s. T h e se new se a s. adj. rates are n ot c o m p a ra b le w ith p re v io u s ly p u b lish e d u nem p . rates. 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 Insured Commercial Banks in the Sixth District (In Thousands of Dollars) Percent Change P e rc e n t C h a n g e Aug. 197 4 fro m A ug. 1 97 4 J u ly 1974 A ug. 197 3 J u ly 1974 Year to D ate m os. 1 97 4 fro m 1973 8 A ug. 1973 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 IC A L A R E A S 2 B irm in g h a m . . . . G adsden . . . . H u n t sv ille . . . . M o b i l e .............. M o n tg o m e ry . . . T u s c a lo o sa . . . B a rto w -L a ke la n d W in te r H ave n D ay to n a B e a c h . . Ft. L a u d e rd a le H o lly w o o d . . . Ft. M y e r s . . . . G a in e s v ille . . . J a c k s o n v ille . . . M e lb o u rn e T itu sville -C o c o a M ia m i .............. O r l a n d o .............. P e n s a c o la . . . . S a ra so ta . . . . T a lla h a s se e . . . Ta m p a -St. Pete W. P a lm B e a c h 4,78 0,326 110,038 405 ,553 1,276,185 723,791 246 ,162 3,41 9,883 94,7 19 30 4 ,5 2 2 1,114,594 6 4 9 ,516 229,371 - 4 - 7 - 4 - 5 + 12 - 8 +40 +16 +33 + 14 + 11 + 7 -10 + 5 + 11 81 1 ,934 4 6 4 ,607 9 0 1 ,544 508 ,242 7 7 1 ,170 4 1 9 ,204 - 9 . 2,07 8,725 37 2 ,086 2 8 6 ,812 5,140,701 2,176,463 3 8 7 ,394 3 0 1 ,288 4,765,737 1,792,969 31 0 ,0 6 6 25 5 ,1 4 8 4,473,763 + 4 4 5 8 . . 4 2 7 ,928 7,607,661 1,606,996 553 ,363 565,091 930 ,696 3,921,328 1,180,645 4 6 6 ,202 7 ,97 0,664 1,580,924 5 3 7 ,924 539 ,682 89 3 ,096 4,28 2,274 1,315,751 44 1 ,5 7 4 7 ,01 2,022 1,726,967 4 5 8 ,445 4 9 6 ,229 1,039,437 4,095,161 1,229,556 + + + + - 8 5 2 3 5 4 8 193,295 18,417,971 64 8 ,654 485 ,011 855 ,937 670 ,866 2 0 4 ,415 19,194,081 69 5 ,778 528 ,9 6 9 8 73 ,584r 682 ,430 197 ,582 16,565,116 579 ,611 447 ,2 3 2 56 2 ,1 2 6 5 4 0 ,088 - 5 4 7 8 2 2 A le x a n d r ia . . . B a to n R o u g e . . . L afay ette . . . . L a k e C h a r le s . . N e w O rle a n s . . . 2 9 1 ,563 1,890,973 3 3 3 ,414 270 ,508 5,167,248 30 9 ,7 5 4 2,150,175 32 0 ,1 5 4 2 8 9 ,008 5,59 4,704 2 5 2 ,073 1,325,293 2 7 5 ,0 4 6 228 ,681 4,19 7,218 - 6 B ilo x i-G u lfp o rt . . J a c k s o n .............. 277 ,5 4 9 1,860,830 29 3 ,7 6 9 1,775,684 C h a tta n o o g a . . . . K n o x v ille . . . . N a s h v ille . . . . 1,321,984 2,123,910 4,428,973 124,377 . A lb a n y .............. A t l a n t a .............. A u g u s t a .............. C o lu m b u s . . . . M a c o n .............. Savannah . . . . OTHER C EN T ERS A n n is to n . . . . A ug. 1 97 4 D o th a n S e lm a 4,98 7,430r 117,693 42 2 ,0 1 9 1,344,418 643 ,645 268 ,725 -10 + 16 +20 + 12 +15 + - 3 8 7 +21 + 14 -10 - 4 4 - 2 +11 + 12 + 8 +52 +24 +32 +11 +20 +23 +11 +24 +12 + 19 + 12 +26 +13 +35 + 8 +15 + 7 +16 + 15 + 6 + 11 + 8 + 9 +29 +25 +19 +53 + 18 -12 + 16 +43 +20 + 4 - 6 - 8 + 18 +23 +21 2 5 6 ,273 1,408,506 + 6 5 + 8 +32 + 2 +23 1,407,906 2,311,141 4,48 0,568 1,379,980 94 3 ,944 3,481,033 - 6 - 4 +16 8 + 125 + 114 1 +27 +29 130,103 109,770 - 4 +21 + 13 +40 + 19 +19 + 10 Year to D ate Aug. 1974 from +10 +11 - 1 - 1 - 7 - 3 -1 3 - 5 +17 + 5 - 7 +37 - 6 + 0 +17 +42 + 2 +48 + 3 +16 - -1 + + 4 + 7 + 6 +16 +19 +23 +18 - 7 2 1 1 ,788 92,2 36 193,013 60,2 2 4 9 4 0 ,139 2,02 7,773 2 1 3 ,007 9 3,0 5 4 208 ,0 9 6 62,141 1,086,211 2,143,173 180 ,894 87,611 207,291 43,9 47 1,001,026 2,02 3,327 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 ,052 8 9,2 72 185,381 23,8 9 0 175 ,028 88,0 45 43,2 60 53,9 38 151,473 117,583 172,004 111 ,007 194,851 2 4 ,6 1 0 17 2 ,675 86,5 46 42,7 3 4 57,571 1 6 3 ,779 119,955 182,408 110,657 1 9 5 ,560 -20 . . . 16,367 14,7 50 94,4 89 72,9 12 25,977 41,5 11 17,108 15,381 102 ,098 76,4 7 6 2 7,0 52 40,381 15,636 10,290 8 7,1 40 61,0 87 2 6,6 05 42,2 43 + 146 ,079 80,6 61 135,525 62,631 150,875 9 0,7 16 140 ,320 67,1 79 1 3 1 ,620 72,7 4 9 121,143 53,932 - 1 59,113 Ham m ond . . N e w Ib e ria . . P la q u e m in e . . T h ib o d a u x . . . H a ttie s b u rg . L aurel . . . . 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 . . . . 21,888 1974 fro m 1973 2 0 -12 20 3 ,2 9 8 81,9 8 4 143,651 77,261 41,9 0 0 50,3 1 8 147,876 107 ,007 8 mos. J u ly A u g . 1 9 7 4 197 3 2 2 6 ,594 8 4,3 22 B rad e n to n . . M o n ro e C o u n ty . O c a l a .............. St. A u g u st in e St. P e t e rsb u rg . Tam pa . . . . A b b e v ille A ug. 1973 199 ,746 8 1,9 50 . . . . . . . . A thens . B ru n s w ic k D a lto n . E lb erton G a in e s v ille G riffin . L a G ra n g e New nan Rom e . V a ld o s ta J u ly 1974 - 3 2 - 5 - 3 + 1 + 2 + 1 - 6 - 8 - 2 4 4 7 5 4 3 - 7 9 5 9 +22 +14 + 3 + 7 + 2 +10 +10 +15 + 5 +43 + 8 +19 - 2 - 2 +12 +20 + 6 +27 + + 1 8 3 + 11 +11 -11 +11 + 1 3 3 +12 +11 7 +16 +12 - . . 4 4,8 88 172 ,026 9 1,7 38 5 8,2 3 9 186,593 6 9,5 95 38,9 30 - 8 - 6 -2 3 -1 5 +24 +15 + 5 +24 +28 B rist o l . . . . J o h n so n C ity K in g s p o rt . . . 176,840 153 ,980 3 2 0 ,580 158 ,010 185 ,896 3 2 4 ,457 115,391 176 ,756 26 7 ,978 + 12 -1 7 - 1 +53 -1 3 +20 + 8 + 3 +16 >istrict Total A la b a m a . F lo rid a . . G e o rgia . . L o u is ia n a 1 M ississ ip p i' T e n n e sse e ' . . . . . . . . . . . . . . 86,011 . 90,3 80,487 9 4 ,0 42,509 r 76,9 72,920 - 4 +17 +22 1 0,4 08,698 2 8 ,4 30,014 26,7 17,786 . 9,58 9,479 . 3,715,633 . 11,518,877 ll, 3 0 7 , 8 4 5 r 2 9 ,3 61,252 2 7 ,5 15,954 10,262,735 3,782,011 11,812,712 - 8 3 3 7 2 2 +23 + 5 +19 +27 +28 +36 +25r +15 +26 +23 +19 +37 8,49 2,754 27,0 35,026 2 2 ,5 25,134 7,57 2,819 2,901,233 8,44 5,954 'D is t r ic t portion only. :C o n fo rm s to S M S A d e fin it io n s a s of D e c e m b e r 31, 1972. r-R e v ise d F ig u re s for so m e a re a s d iffe r slig h t ly from p re lim in a ry fig u re s p u b lish e d in “ B a n k D e b it s a n d D e p o sit T u rn o v e r” b y B o a rd of G o v e rn o rs of the Fede ral R e s e rv e Sy ste m . FE D E R A L R ES E R V E BANK O F A TLA N TA 163 D i s t r i c t B u s i n e s s _ m i l l .................. I i i i i i i i i i I I I I I i i .............................. C o n d i t i o n s Fann Cash Receipts i i i i i i ii l I I I 1 1972 1973 1974 1972 *Seas. adj. figure; not an index Latest plotting: August, except mfg. production, Feb., and farm cash receipts, July. I l I I l I l I l l I I II I I I II 1973 1974 I I l The District e c o n o m y sh ow s little or no signs o f change from prevailing sluggishness. Labor m arkets were stable in August. C o n su m e r sp e n d in g rem ains lethargic. A further slu m p in the h o u sin g sector brou ght total construction activity dow n. Farm inco m e prospects deteriorated, as a sharp fall in livestock prices m ore than offset the im proved o u tlo o k for crops. Bank len din g expanded m oderately, but grow th in c o n sum er tim e deposits has been feeble. Labor m arket co nditio n s were ab o u t u nchanged in August. The u nem p loym en t rate rem ained steady at 4.9 percent but w ell above the year-ago 4.0-percent rate. N onfarm e m ploym en t sh ow ed little change; indeed job grow th has been flat throu ghou t this year. C onstruction jobs continued to w eaken, h o w ever. Job losses were recorded in a num ber of m anufacturing industries but were offset by a sharp rebound in transportation equipm ent jobs. Factory hours fell off. Sp e n d in g and b o rro w in g indicators reflected the squeeze on consum ers. C o n su m e r repayments of instalm ent debt slow ed in August, w hile new lend ing expanded at a nearly norm al pace. A s a result, consum e r instalm ent debt outstanding rose sharply. A surge in len ding for n onautom otive consum er go o d s m ore than offset a w eak-auto sector. General retail sales, adjusted for inflation, and unit auto sales both im proved but were belo w the sam e m onth last year. The pace o f bank le n d in g has m oderated, except for a spurt over the m id-Septem ber tax date. D e m and deposits advanced through late Septem ber, reversing a tw o -m o nth decline. G row th in consum er time deposits, however, remains weak. To acquire funds for lending, banks have increased security N o te: 164 D ata on w h ic h s t a t e m e n t s a r e b a s e d h a v e b e e n a d ju s t e d sales. A s of the end of Septem ber, m ost of the larger banks were m aintaining a 12-percent prim e rate. D u rin g late sum m er, the average rate paid on b u si ness loans w as 11.6 percent, up from 10.6 in late spring. The value o f residential construction contracts dro p p e d sharply in A u g u st for the fourth m onth of decline and sto o d alm o st 50 percent b e lo w the year-ago level. Since the A u gu st value o f nonresi dential contracts held at the July level, total value of construction contracts w as off for the m onth. Thrift institutions suffered a second straight m onth o f net deposit o u tflo w du rin g A ugust, and perm anent m ortgage rates continued to clim b. A s fall began, the agricultural in co m e picture w as a co m po site o f extremes. M o s t Southeastern crop farmers expected g o o d harvests and sharply higher prices com pared with 1973 levels. Prospects were exceptionally bright for to b acco and peanut p ro d u c ers. Conversely, inco m e prospects in the livestock sector were exceptionally dism al because o f rapidly rising feed costs and lo w prices, particularly for calves. O n balance, inco m e prospects in agriculture have declined from earlier indications because of the severe deterioration in the livestock sector. w h e n e v e r p o s s ib le to e lim in a t e s e a s o n a l in f lu e n c e s . O C T O B E R 1974, M O N T H L Y R E V IE W
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