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Economic
Review
F E D E R A L R E S E R V E BANK OF ATLANTA
TRAVEL DEFICIT
PLANNING
OCTOBER 1985
Dollar Heightens Imbalance
Impact on Profitability *
M
CHARTERS
C A I
1 LLJ
A Bank by Any Other Name
Shifting Production Cycles
^
President
Robert P. Forrestal
Sr. Vice President and
Director of R e s e a r c h
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V i c e President and
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Macropolicy
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Jeffrey A. Rosensweig
Joseph A Whitt, Jr.
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Regional Economics
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I S S N 0732-1813
4
T h e Dollar and the
U.S. Travel Deficit
A
14
H o w h a s t h e s o a r i n g d o l l a r a f f e c t e d U.S.
travel a n d t h e nation's travel deficit?
B a n k a n d T h r i f t Profitability:
With the b a n k i n g
Does Strategic P l a n n i n g Really Pay?
in c h a n g e , c a n a f o r m a l p l a n n i n g
c e s s b u o y profits?
T h e T h r i f t Charter.
W h y are
A V a l u a b l e Alternative for
u s i n g t h e i r o p t i o n of c o n v e r t i n g t o thrift
C o m m e r c i a l Banks?
institutions? W h a t m i g h t h a p p e n to the
f i n a n c i a l s y s t e m if t h e y d i d ?
environment
awash
pro-
L
26
38
most
commercial
banks
E c o n o m i c Brief
The Cattle Cycle:
A Pattern Gone Awry
i
42
Statistical S u m m a r y
A
FEDERAL R E S E R V E BANK O F ATLANTA 3
Finance, Construction, General,
Employment
not
The Dollar and the
U.S. Travel Deficit
Jeffrey A. Rosensweig
While causing the number of U.S. travelers abroad to soar, the dollar's strength has
sent our travel balance into a nosedive. An economist looks at this worrisome trend.
The e c o n o m i c consequences of the dollar's
strength are commanding heightened attention.
Among these effects, record U.S. trade deficits
have been especially highlighted, but the parallel deterioration of our international travel
balance has been given short shrift. The "travel
balance" is the balance on foreign travel and
passenger fares—our "exports" or receipts from
foreigners in the United States, minus our
"imports" or expenditures abroad for travel
and fares. W e import travel services if w e
spend money abroad or pay passage on foreign
airlines and passenger ships. Just as with goods
trade, our imports of travel services are far
outstripping our stagnant travel exports. In
1983 and again in 1984, deficits on travel
reached record highs.
The adverse impact of the dollar on the travel
balance deserves emphasis for two reasons.
The author is an international
economist on the Research
Departments macropolicy team. The author thanks Christopher
P. Beshouri for providing valuable comments and research
assistance.
4
First many travel-related service industries
(particularly the Southeast's tourist trade) are
suffering from the strong dollar, which refutes
the frequent claim that the dollar's ascent hurts
only manufacturing. Second, travel deficits are
becoming massive enough to add significantly
to our international current account deficits
and thereby to our growing net foreign debt.
Our investigation of the travel deficit yielded
several interesting findings. Since 1981 the
travel deficit has widened dramatically, chiefly
owing to the strengthening dollar. This headlong
growth in the travel deficit has contributed
heavily to the shrinkage of our surplus on
services, which traditionally has helped to offset U.S. merchandise trade deficits. As the
services surplus plunges, present and prospective current account deficits rise.
The travel deficit climbed from under $500
million in 1981 to $8.67 billion in 1984, yet this
serious upset in the U.S. travel balance has not
been analyzed thoroughly. Jane S. Little made
a detailed study of U.S. travel accounts prior to
1980; there is scant other econometric work
O C T O B E R 1985, E C O N O M I C R E V I E W
on the U.S. travel balance. 1 However, some
studies have explored the marked influence of
exchange rates on travel service earnings.2
C h a r t 1 . U.S. Travel Balance and the Service-Weighted
Dollar Index
S Million Per Quarter
Index
O u r Massive Travel Deficit: The Facts
How did the travel deficit worsen by over $8
billion in just three years? Of the non-goods
component's contribution to the decline in the
current account since 1981, travel is responsible
for 30 percent. Last year's deficit of $8.67
billion eclipsed the record $5.58 billion travel
deficit in 1983, and a new record is expected
this year. Flourishing travel service imports are
the mainspring for the travel deficit's growth.
From 1981 to 1984, Americans increased their
spending abroad by 41 percent, from under
$16 billion to $22.5 billion dollars, and the
number of Americans visiting overseas (excluding neighboring Mexico and Canada) rose 50
percent, to over 12 million travelers.3 During
the same period, foreigners decreased their
spending in the United States and on its carriers
from $15.5 billion to under S14 billion. Clearly,
our travel services imports have thrived while
our exports have languished.
Chart 1 suggests a principal reason for the
gaping travel deficit—the strong dollar. The
chart plots the U.S. travel balance against an
effective exchange rate index adjusted for
1974
'75
'76
'77
'78
'79
'80
'81
'82
'83
— — — Travel balance
'84 \
'85 Q1
Travel service-weighted dollar index (lagged one year}
Note: The dollar index is the inverse of the dollar's strength, and is lagged one
year e.g, the value for 1982 first quarter in the figure is the actual 1981
first quarter value.
Source: U.S Department of Commerce. Survey of Current Business;
International Financial Statistics, data tape.
IMF,
inflation. This index was specially constructed
to capture the price of consumption abroad
relative to consuming in the United States.
Since travelers respond to exchange rate or
relative price changes with substantial delay—
they plan trips and book them well in advance—
the relative price index is lagged one year in the
figure. The accompanying box explains the
C O N S T R U C T I N G A DOLLAR I N D E X
W e created a dollar index specifically for this article,
aiming to capture the effect of dollar movements on the
U . S travel balance. Our measure differs from standard
dollar indexes in two major w a y s (For a summary of
standard indexes see David Deephouse, "Using a TradeWeighted Currency Index," Economic Review, Federal
Reserve Bank of Atlanta, vol. 70 (June/ J u l y 1985), pp.
36-41.) First, ours is a real, rather than merely a nominal
exchange rate index Second, w e use a country's share
in U.S. foreign travel (as opposed to goods trade),
imports a s well as exports to weight its currency.
The result is an index useful for our purposes although it
differs from the conventional Federal Reserve Board
index ( s e e figure).
W e constructed our own index because we need a
measure of the dollar a s it affects travel services not
goods trade. The weighting scheme behind any index
should reflect its purpose, and ours involves the U.S.
travel balance. Conventional trade-weighted indexes
are suitable only for studying trade balance determination. W e extend the literature by studying a major
F E D E R A L R E S E R V E B A N K O F ATLANTA
Travel-Weighted Real Dollar Index vs. the Federal Reserve
Board Dollar Index
Federal Reserve Board Dollar Index, quarterly
Travel service-weighted real dollar index
0.8
1973 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85
Source: Federal Reserve Board, and calculations at the Federal Reserve
Bank of Atlanta using IMF and Commerce Department data
5
service balance, and by offering a (travel) serviceweighted dollar index.
A real exchange rate index corrects a nominal index for
differential rates of inflation in the various countries
Relative prices expressed in any common currency, are
crucial to economic competition. If a devaluing country
has rapid inflation, its dollar price relative to competitors'
may rise, and it loses competitiveness despite its devaluation. For instance, assume Mexico has 30 percent
inflation and the United States only 5 percent. If Mexico
devalues 20 percent against the dollar in a year, then
dollar costs still would rise faster there than in the
United S t a t e s despite Mexico's large nominal devaluation. A real exchange rate (re) between the U.S and
Mexico could be defined a s re = e x P a
Pm
Here P m is the Mexican price level, P a the U.S. price
level, and e is the Mexican peso cost of a dollar. Higher
"re" values correspond to a lower relative price in
Mexico, or a stronger (appreciated) real value of the
dollar. Our travel real exchange rate uses the consumer
price index (CPI) a s the price index relevant for travel,
under an assumption that travelers or tourists purchase
the " C P I basket" when they visit a country. True tourist
consumption baskets probably differ from that used to
weight a domestic CPI, but since tourists consume in a
country, and tourism price indexes are not routinely
calculated, the C P I is the best proxy available.
The second stage in constructing our index was to
aggregate the real exchange rates versus various "travel
trading partners" into one aggregate dollar (or relative
price) index W e chose a geometric average of the real
exchange rates of the U.S. against its 10 major travel
trade partners Weights are bilateral, meaning they use
the total travel spending between the country and the
U.S. a s the numerator, and the sum of all travel trade
between the U.S and the 10 countries in the denominator.
Finally, for extra accuracy we calculate the shares or
weights in 1977, 1980, and 1983, and then use the
average share for each country over the three y e a r s
The terminology used above, and theory of exchange
rate indexes is explained more fully in Deephouse
(1985).
The 10 major U.S. travel partners and their shares in
our real exchange rate index for travel, are shown
below. These 10 account for over 70 percent of total
U.S. foreign travel trade and they are geographically
disparate; therefore, they should serve a s a good proxy
for our total travel trade. Canada and Mexico, our
neighbors are our dominant travel partners, each receiving a weight of nearly one third in the index T h u s
our index will be highly sensitive to movements of the
U.S. dollar against the Mexican peso or Canadian dollar.
This is a desirable quality of our index since our travel
balance is substantially affected by prices in Canada
and Mexico relative to those in the United S t a t e s
6
Country
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Mexico
Canada
United Kingdom
Japan
Germany
France
Australia
Italy
Bahamas
Jamaica
Sum
Weight in dollar index for travel
.3267
.3167
.0871
.0694
.0534
.0418
.0326
.0317
.0256
.0150
1.0000
European currencies receive much smaller weights
in our index than in merchandise trade-weighted ind e x e s especially multilateral weighted ones (the F e d
index). The data for our weights appear in various
annual travel articles in the Survey of Current
Business.
The exchange rate and C P I data come from the International Monetary Fund's International Financial Statistics.
W e also incorporate parallel or black market exchange
rates in Mexico and J a m a i c a when they apply to
tourism.
The figure shown on p. 5 helps us contrast our index
to the dollar index published by the Federal Reserve
Board. Recall that differences are attributable either to
our correcting for inflation differentials or because w e
weight by bilateral travel service s h a r e s whereas the
Board weights by multilateral (world) trade s h a r e s The
practical effect of the multilateral weighting scheme is
an increased emphasis on European currencies (see
Deephouse). Our bilateral travel weights place a much
greater emphasis on Canada and lead us, unlike the
Board, to include Mexico.
A few major periods of
contrast stand out in the figure. Our index rises (the
dollar appreciated) in 1976 when Mexico devalued. The
Board index falls more steeply from 1977 through mid1980 because it places greater weight on the European
currencies which appreciated against the dollar. The
opposite occurs when the dollar rises in late 1980 and
1981. In 1982 our index rises more steeply than does
the Board index, a s only our index weights Mexico,
which had its maxi-devaluations then. From 1983 to the
present our index has flattened because of the heavy
weights we accord Mexico and C a n a d a Canada has
depreciated far less than the European currencies
which pull the Board index up in this recent period, and
Mexico had a large inflation that appreciated its real
exchange rate after 1982. Our index is less volatile than
that of the Board in 1985, as our substantial weight on
Canada dampens the spike that European currencies
caused in the Federal Reserve Board index
O C T O B E R 1985, E C O N O M I C REVItvV
theory and construction of this new dollar
index, and contrasts it with existing indexes of
the dollars average exchange value.
The close fit in Chart 1 illustrates that as the
dollar has advanced in the 1980s, making
foreign prices cheap relative to ours, it has
been instrumental in the rising travel deficit
W e will amplify this point by estimating the
determinants of the travel balance and then
subdividing its decline into several factors: a
piece caused by strong dollar, a piece caused
by faster recovery in C N P here than abroad,
and other factors. W e find that the dollars
strength predominates over the other factors,
suggesting that various service industries, not
just goods manufacturers, are vulnerable to
foreign competition and the vagaries of the
dollar.
H o w Does the Travel Deficit Fit In?
In international balance of payments accounts
the travel balance is part of the service balance.
This service balance adds to the merchandise
trade balance for what w e know as the "balance
on goods and services." Adding net transfer
receipts to the latter yields the current account 4
Despite the popular emphasis on the merchandise trade balance, the current account is the
most economically crucial balance because it
equals the change in our net foreign asset
position (ignoring changing values of existing
net assets). As our balance on all continuing
operations, the current account is equivalent
to our net foreign investment. A surplus means
that w e invest abroad, whereas deficits imply
that w e borrow abroad to square our international payments. A recent consequence of our
borrowing to finance huge current account
deficits is that the United States has become a
net debtor nation, a dubious distinction. The
travel deficits have contributed to our present
net debtor status, albeit as a junior partner to
the trade deficits.
Importance of the Travel Deficit
The mushrooming U.S. deficit on travel
(including fares) demands more attention for
two major reasons. First, travel deficits imply
harm to our travel-related service industries,
because they indicate that these industries are
losing out to foreign competitors and are being
FEDERAL R E S E R V E BANK O F ATLANTA 7
affected adversely by the strong dollar. Second,
as discussed above, the travel deficits worsen
our status as an increasingly indebted nation,
as they help pull our international current
account down. Let us examine the travel deficits'
impact on our economy.
Effect on Travel-Related Industries. Vasttravel
deficits point to substantial lost business for our
travel-related service industries. The surge in
American travel abroad means fewer U.S. vacationers patronizing out hotels, rental cars, airlines,
restaurants, and tourist attractions. These same
industries, and their allied service workers, also
suffer from the loss of potential foreign visitors
who are priced out of our markets by the dollar's
steep exchange rate.
Certainly, the strong dollar has damaged
these travel-related industries, and yet the
financial press abounds with commentary distinguishing "booming service sectors" from
"goods-producing sectors suffering from the
strong dollar." Rather than goods versus service
industries, the economically meaningful distinction is tradable sectors, which are open to
foreign competition, versus non-tradable sectors,
which are not. Sectors can be non-tradable
(also called " h o m e " or "sheltered" sectors)
because of obstacles such as prohibitive transportation costs, tariffs, or quotas. Of course,
these obstacles can apply to some goods and
not to various services—for instance, electronic
banking. Whereas the strong dollar does not
directly affect non-tradable services (for example, haircuts), it can handicap tradable service
sectors. Thus, it is erroneous to say all services
are burgeoning. Tradable services such as economic consulting and travel-related industries
may suffer more from a strong dollar than do
certain goods-producing sectors such as defense
industries and cement producers.
Employment shares are shifting toward services from manufacturing, but this shift represents secular trends and productivity, and probably not an effect of the strong dollar. Indeed, in
the period of dollar strengthening since 1980,
our gross national product has not veered
toward services as opposed to goods production.
O n the contrary, in constant dollar terms goods
output was 46.5 percent of G N P in the first
quarter of 1985 versus only 45.3 percent in
1980.5 Pressure has been applied to all industries
subject to intense foreign competition, and
travel services fit this bill.
W h a t is the effect of the more than $8 billion
increase in the travel deficit since 1981? Had
this change not occurred, w e could have created
many more jobs in travel-related industries
such as hotels, tours, and souvenir retailing. If
an estimated $80,000 in travel spending supports
one job on average, then the decline in the
travel balance since 1981 has cost us over
100,000 jobs. The Southeast's travel-related service industries would have claimed many of these
potential jobs lost to the strong dollar. The
impact of exchange rate changes on travelrelated service jobs is quite strong in the Sixth
Federal Reserve District Because of large devaluations in Mexico and Jamaica, among other
nations, sun-seekers have turned from Florida
beaches to foreign locations. Also, the precipitous fall of European currencies against the
dollar has hurt Florida, N e w Orleans, and other
southeastern destinations that had penetrated
the European tourist market significantly by
1981.
Effect on External Deficits and D e b t Aside
from the lost business it entails, the widening
U.S. travel deficit also desetves attention because
of its impact on our current account Until very
recently, the current account balance was more
favorable than the trade balance, since the U.S.
was running substantial surpluses on the nonmerchandise current account, often called the
"invisibles" balance. These surpluses on invisibles
resulted from a large positive net investment
income component, which dominated our negative net transfer receipts and small deficits on
travel.
The problem today is that the U.S. net invisible
earnings provide a steadily shrinking offset to
the growing deficits on visible (goods) trade.6
The dwindling non-merchandise gap between
the goods trade balance and the current account
is portrayed in Chart 2. Note that goods trade
has been in deficit every year since 1975, and
that services (invisibles) have helped pay for
these merchandise deficits—until now. Observers frequently explain the shrinking (or reversing) invisibles gap by pointing to the rapid
decline in our net investment income. The
reason for this decline is that our large current
account deficits imply increasing net foreign
debt. This new debt must be serviced—we will
ignore principal repayments when w e say seivicing— and these outlays reduce our surplus on
investment income. Deficits lead to debt, the
8
Chart 2. The Closing "Invisibles Gap" Between the
Trade and Current Accounts
Billion
0
-50
-100
— I ou
1
1974 7 5
76
77
78
79
'80
'81
'82
'83 '84
Current account
'85
first
Trade balance (F.O.B.)
Source: U.S Department of Commerce, Survey ol Current
IMF, International Financial Statistics, data tape.
Business;
servicing of which contributes to future deficits,
hence future debt.
The dynamics for government (fiscal) deficits
and debt are the same as for the external
accounts, and the two are related. The strong
dollar is the major link between the deficits,
but underlying the dollar's value is our borrowing abroad (the counterpart is current account
deficits) and foreign lenders' willingness to
help finance massive fiscal deficits. If the deficits
cumulate into debt rapidly, w e could enter
dual vicious circles of deficits, the dollar, and
debt. Chart 3, a schematic drawing of the
linkages that form the dual circles, depicts the
travel deficit as the second major non-merchandise force ballooning the current account deficit
In this role the travel deficit contributes to the
net foreign debt, the servicing of which pulls
our net investment income down. This decline
is the primary force eroding our non-merchandise balance.
Our simplified view of the intertwined deficit
and debt circles is one that the majority of
economists, given a set of assumptions, would
accept The solid-lined arrows are chains of
influence that are true by accounting definition;
the broken-lined arrows represent causal influences that most economists believe usually
hold. Expanded fiscal deficits raise government debt and interest rates higher.than they
otherwise would be, and both of these effects
O C T O B E R 1985, E C O N O M I C R E V I t v V
Chart 3. The Dual Vicious Circles of U.S. Deficits the Dollar, and Debt
After a large fiscal deficit increase all items in the boxes increase.
^
means that, by accounting definition, an increase occurs
means hypothesized increase; a standard economic relation is assumed
feed back through larger interest expenditures
to increase future deficits.
Higher interest rates attract capital inflows
from abroad, driving the dollar up. (Continued
capital inflows support the strong dollar even
after it causes current account deficits.) Following the inevitable lags, the trade deficit and the
travel deficit rise with the dollar. Conventional
empirical evidence suggests that a permanent
1 percent dollar rise increases the trade deficit
by over $2 billion, and w e estimate that it also
increases the travel deficit by $275 million (see
Appendix). 7 These boosts to the trade and
travel deficits combine to increase the current
account deficit. 8 Current account deficits
cumulate into net foreign debt, which implies
servicing flows abroad that feed into the current
account deficit and constitute the second vicious circle. For example, if w e assume a 10
percent interest rate, the added foreign debt
created by a $10 billion travel deficit means $1
billion extra in servicing payments in every
future year. Including a projection of greater
than $9 billion for 1985, travel deficits the past
three years total over $23 billion.
F E D E R A L R E S E R V E B A N K O F ATLANTA
Components of the Current
Account's Decline
The U.S. international current account turned
from a surplus of over $6 billion in 1981 to a
deficit exceeding $100 billion in 1984. W h i c h
components of the current account can be
blamed for this deterioration? Table 1 answers
this question by singling out the (goods) trade
balance as the main culprit. The trade balance
accounts for $80 billion out of the nearly $108
billion deterioration, or almost three fourths of
it non-goods or "invisibles" accounts comprise
25.6 percent of the total decline. This "gap"
between the current account deficit and the
trade deficit has shrunk from a surplus over $34
billion to one under $7 billion in 1984 and is
turning negative, as Chart 2 projected.
Table 1 illustrates that the two main players
in this shrinking of the invisibles "gap" are the
$15 billion fall in net investment income and
the widening travel deficit. The growth of this
deficit since 1981 accounts for 7.6 percent of
the deterioration in the current account, and
about 30 percent of the decline in the invisibles
9
Table 1 . The Deteriorating Current Account: A Decomposition
($ billion)
Current Account
Goods trade balance
Non-goods current account
Net investment income
from abroad
Other*
NTR
Travel
O.S.&M.
1981
1982
1983
1984
'84-'81
As a Percent
of the Change in
the Current Account
6.29
-28.0
34.29
34.05
-8.05
-36.44
28.39
29.49
-40.79
-62.01
21.22
25.4
-101.53
-108.28
6.75
19.1
-107.8
-80.28
-27.54
-14.95
100
74.4
25.6
13.9
0.24
-6.83
-0.48
7.55
-1.10
-8.13
-2.08
9.11
-4.18
-8.85
-5.55
10.22
-12.35 -12.59
-11.41
-4.58
-8.67
-8.19
7.73
0.18
11.7
4.2
7.6
-0.2
•Includes the "invisibles" or non-merchandise current account minus net investment income. It comprises NTR (net transfer receipts),
Travel (the balance on foreign travel and passenger fares), and O.S.&M. (other services and military transfers).
Source: All data from table 3.10, Federal Reserve Bulletin, vol. 71 (Sept 1 985). except for travel data which come from the Survey ol Current
various issues
current account. Investment income downturns form 54.3 percent of the shortfall in
invisibles, and increased net transfer payments
abroad comprise the remaining one sixth.
In summary, the current account balance
deteriorated by over $100 billion in just three
years following 1981. Record trade deficits
were the main causal factor, followed by the
decline in investment income as the U.S. serviced the borrowing implied by widening deficits.
W e have identified a third major drag on the
current account, the travel and fare deficits,
which are approaching $9 billion a year.
Explaining the Rising Travel Deficit
In order to estimate the influence of crucial
economic forces responsible for the decline in
the travel balance, w e constructed a simple
model. This travel balance model takes three
variables into account. First, if U.S. income (as
measured by G N P ) rises, w e will want to
consume more luxuries, including foreign travel.
Thus, fast growth in this country adversely
affects our travel balance. Second, the opposite
occurs if the major foreign sources of visitors to
the United States experience a rapid climb in
GNP. ( W e constructed an index to measure
effective foreign G N P . For details of the index
and of the econometric work underlying this
section, see Appendix).
10
Business.
The final crucial influence on the travel
balance is the price of consuming abroad
relative to consuming in the United States. A
vigorous dollar lowers this relative price, hurting
our travel export earnings as foreigners are
priced out of the United States, and increasing
our imports of travel services as w e rush abroad
for our vacations. In sum, the U.S. travel deficit
would widen if a rising dollar increases the
relative price of our output, or if income ( GNP)
and hence demand for foreign travel grows
faster in this country than in our major markets.
Note the similarity of our model for the travel
balance to many models of merchandise trade
balance determination. For tradable products,
be they goods or services, relative incomes and
prices should largely determine the balances.
The results of our econometric exercise support the strong dollars dominant role in explaining the worsening of the travel balance since
1981. W e estimate that a permanent 10 percent
strengthening or appreciation of our travelweighted real dollar index erodes the travel
balance by about $2.75 billion annually. This
sensitivity of the travel balance to the dollar is
an interesting finding. It is well known that
foreign travel, as a luxury, is income elastic; that
is, it increases more than proportionally with an
increase in income. Our empirical work also
uniformly found travel to be highly price elastic
A variant of the dollar index adjusted to account
O C T O B E R 1985, E C O N O M I C R E V I t v V
for lagged effects (a moving average of past and
current values; see Appendix) appreciated just
over 25 percent from 1981 to 1984. Therefore,
w e estimate that the rise of the dollar contributed almost $7 billion to the decline of the
travel balance since 1981. The enhanced dollar
thus accounts for about 85 percent of the
$8.19 billion travel balance deterioration.
The effect on the travel balance of the relatively fast U.S. recovery since 1981 is clearly
subsidiary to the dolla/s impact. W e estimate,
somewhat imprecisely, that an additional 1
percent of U.S. G N P harms our travel balance
by about $144 million. Hence, between 1981
and 1984 close to $500 million, or 6 percent of
the decline in the travel balance, was attributable to the 3.4 percentage points by which U.S.
G N P growth exceeded that of our weighted
average index of G N P growth in eight major
foreign countries. Consequently, the strong
dollar, not faster U.S. recovery, deserves most
of the blame for our deteriorating travel balance.
The remaining 9 percent of the travel balance
decline since 1981 is attributable to other
factors not explicitly in our model. These include
foreign exchange crises and resultant exchange
controls, especially in Mexico (a key source of
visitors to the United States), as well as changing
tastes for travel, special package tour features
and promotions, and measurement errors. W e
have merely tried to capture the major economic
variables influencing the travel balance, and
feel confident that w e have identified the
crucial role of the dollar in the recent record
travel deficits. Even our simple model, with
only three explanatory variables, was able to
explain over 92 percent of the variation in the
travel deficit for our sample of 44 quarterly
observations spanning the years 1974-84.
Our econometric results were sensible, as all
three variables received coefficients with the
anticipated signs or direction of influence. W e
found that rising foreign income reduces our
travel deficit, whereas an increase in the dollar
or U.S. income produces the opposite outcome.
The estimated coefficient for the effect of U.S.
income is somewhat imprecise statistically, but
the overall results justify using the model to
project the 1985 travel balance.
Projected Travel Deficit
For 1985, w e project a record travel deficit of
about $9.2 billion. Given the imprecise nature
FEDERAL RESERVE B A N K O F ATLANTA
both of economic forecasting and of travel
data, a deficit in the range of $8.8 to $9.6 billion
would not be surprising. In any case, w e are
likely to experience a third consecutive record
annual deficit. Our projection was formed by
fitting our model on quarterly data for 196484; then, using published data and publicly
available market forecasts for the exogenous
variables (the dollar index and G N P here and
abroad) for the rest of 1985, w e extrapolated
from the past relationships.
Our model is strictly economic. Political or
other non-economic factors can always upset
economic forecasts, particularly of intensely
personal matters such as foreign travel. For
instance, the spate of airline disasters in the
summer of 1985 may induce some tourists to
stay at home. The resulting general shrinkage
of foreign travel would reduce the U.S. travel
deficit, because the strong dollar has meant
more Americans go abroad than foreigners visit
here.
Ignoring special factors, the prognosis for the
U.S. travel deficit is barely more sanguine for
1986. W e have found that travel responds to
exchange rates with lags as long as six quarters,
and so the dollar's peak in 1985 still will have a
residual depressing effect on our travel balance
next year. Furthermore, the course of the dollar
in the near term is unpredictable. Finally, the
travel balance will benefit from faster growth
abroad than in this country, but w e have estimated that these effects are weak compared
with the overwhelming role of the strong dollar.
The United States has been an engine for world
growth recently, so it is unlikely that foreign
growth will outstrip ours enough to improve
the travel balance appreciably.
Conclusion
The strong dollar has proven a boon to
foreign industries servicing U.S. travelers, who
are venturing abroad in record numbers. It has
been less kind, however, to service industries
in the United States that cater to tourists. Faced
with intense foreign competition, these industries often are priced out of the market, as our
unprecedented travel deficits of over $8 billion
demonstrate. The travel deficits, and especially
the trade deficits, have led to record current
account deficits that have rendered us net foreign
debtors.
11
T h e current a c c o u n t deficits h a v e c u m u l a t e d
into n e t d e b t t h e seivicing of w h i c h has e r o d e d
our n e t i n v e s t m e n t i n c o m e . This erosion of
i n c o m e f r o m c a p i t a l s e r v i c e s has c o m b i n e d
w i t h t h e d e t e r i o r a t i n g travel b a l a n c e w e h a v e
d e s c r i b e d t o n e g a t e o u r traditional surplus o n
t h e n o n - m e r c h a n d i s e current a c c o u n t W e h a v e
lost this c o n v e n i e n t o f f s e t t o m e r c h a n d i s e
t r a d e deficits, a n d t h e n e t i n v e s t m e n t i n c o m e
a n d d e b t l e v e l s c a n o n l y get w o r s e unless o u r
c u r r e n t a c c o u n t is r e s t o r e d t o b a l a n c e .
H o w c a n w e h o p e to b a l a n c e t h e c u r r e n t
a c c o u n t ? T h e literature is r e p l e t e w i t h s t u d i e s
s h o w i n g t h e strong dollar's i m p a c t o n t h e U.S.
t r a d e b a l a n c e . O u r r e s e a r c h c o n t r i b u t e s estim a t e s of t h e sensitivity of t h e travel b a l a n c e t o
t h e dollar. A 10 p e r c e n t fall in t h e v a l u e of our
real dollar i n d e x e v e n t u a l l y w i l l i m p r o v e t h e
t r a v e l b a l a n c e b y c l o s e t o $3 billion. T h e
c u r r e n t a c c o u n t b a l a n c e will r e s p o n d p e r h a p s
t e n t i m e s as vigorously. E v e n so, t h e dollar m u s t
d e c l i n e substantially if w e a r e t o n a r r o w significantly o u r c u r r e n t a c c o u n t deficits, n o w climbing t o w a r d $ 1 5 0 billion.
A dollar d e c l i n e of t h e m a g n i t u d e r e q u i r e d to
c o r r e c t t h e travel a n d c u r r e n t a c c o u n t imbalances surely w o u l d b e m o r e likely in t h e p r e s e n c e
of a policy to shrink t h e fiscal deficit considerably.
R e d u c e d government spending may be the
o n l y w a y t o b r a k e t h e m o m e n t u m of t h e d u a l
v i c i o u s circles of deficits, t h e dollar, a n d d e b t
E C O N O M E T R I C RESULTS,
A T E C H N I C A L APPENDIX
Our model of travel balance determination was
tested and estimated using econometric analysis In
the main text we postulated that three economic
variables affect the travel balance: U.S. real GNP,
foreign real GNP, and the real effective dollar index
for travel. The construction of the dollar index has
been explained in a separate box. Here we will explain
the index of foreign real G N P before turning to the
econometric results
Foreign real GNP, or income, is important to the
travel balance because increased income should
lead foreigners to import more U.S. travel services
Therefore, we should include the biggest importers of
U.S. travel services in our index, and weight them by
their shares of the total imports of U.S. travel services
they collectively account for. W e include eight of the
ten countries that composed the dollar index, leaving
Jamaica and the Bahamas out of the foreign G N P
index because they export but do not import substantial travel services As in the dollar index Canada and
Mexico again dominate, in that order, but J a p a n is
also noteworthy. A quarterly G N P series for Mexico
was interpolated from that country's published annual
G N P series as well as its quarterly industrial production
series
The model was estimated over the period 1974, first
quarter, to 1984, fourth quarter, and with quarterly
data this yielded 44 observations The period was
12
chosen because it fits within the floating exchange
rate era Preliminary tests suggested that lagged
values of the exchange rate index, up to six quarters
back, have an impact on the travel deficit Wishing to
estimate the effect on the travel balance of a permanent
1 percent change in the dollar index, we created a
smoothed moving average version of the dollar index,
to incorporate lagged effects The new variable is an
average of the current value of the index and its six
preceding quarterly values The full lag structure was
not estimated because we are interested in the permanent and not the near term (or the timing), effects of
dollar movements Only contemporaneous real G N P
values were used because relying on moving averages
would have increased collinearity between the foreign
and U S . series Logs of all explanatory variables were
used in order to capture the effect on the travel deficit
of a 1 percent change in any variable, and a constant
term was included in regressions
The econometric testing resulted in the final regression reported below. W e used a Cochrane-Orcutt
(AR1) procedure to correct for first order autocorrelation in the error terms Therefore, we report the
estimate of first order autocorrelation, rho, in lieu of
the Durbin-Watson statistic, which would be inappropriate after an AR1 correction. Units are millions of
U.S. dollars at an annual rate in the travel balance per
1 percent change in the variables
O C T O B E R 1985, E C O N O M I C R E V I E W
Constant
U.S.
GNP
Foreign
GNP
Dollar
Index
rho
-2004.0
-143.80
211.44
-274.42
.74
(3.51)
(1.16)
(2.04)
(5.67)
(6.46)
or direction of effect and all are statistically significant
except for the one on U.S. real GNP. The low t-statistic
on U.S. G N P may be ascribable to the unavoidable
collinearity between U.S. and foreign GNP. The collinearity can be avoided by using only the differential
in income growth rates here and abroad, but this
implicitly assumes that the coefficients (propensities
to spend on foreign travel) on income are identical,
and we do not make this strong assumption. The AR1
correction was needed, as rho received a .74 estimated
value. The overall fit is clearly adequate, as shown by
the .913 value of the corrected R 2 measure.
R 2 = .921 R 2 = .913 T-statistics are in parentheses
Increasing foreign real G N P helps the travel balance,
whereas advances in U.S. real G N P or the indexed
real value of the dollar hurt the travel balance. All the
estimated coefficients have the hypothesized signs
NOTES
' J a n e S Little, "International Travel in the U.S. Balance of Payments," New
England Economic Review (May/June 1980), pp. 42-55. Ironically, at the
time she conducted her study the dollar was weak and she could begin:
"The notorious U.S. travel deficit is narrowing."
2
See, for instance, Jacques Artus, "An Econometric Analysis of International Travel," IMF Slalt Papers (1972), pp 579-614; and Jeffrey A
Rosensweig, "Elasticities of Substitution in Caribbean Tourism," Federal
Reserve Bank of Atlanta Working Paper #85-1 (September 1985).
3 The data on foreign travel and passenger fares come from the Commerce
Department's Bureau of Economic Analysis The numbers are revised
frequently and, because they are based on surveys of travelers, are
subject to measurement error. Therefore, despite their consistent source
the data must be interpreted with some caution. S e e the Commerce
Department's Survey of Current Business for annual surveys of international travel and fares as well as for quarterly international accounts
4 Net transfer receipts (NTR) are the balance of receipts minus payments
abroad of aid, including government grants, other transfer payments,
pensions paid to retirees living abroad, and remittances
5 Robert Solomon points out that despite many reports indicating that the
manufacturing sector "is languishing while services and construction
continue to flourish... the aggregate data on the composition of U.S.
output indicates very little, if any, weakening of manufacturing relative to
F E D E R A L R E S E R V E B A N K O F ATLANTA
total output... goods output as a proportion of G N P has been remarkably
stable overthe years In the first quarter of 1985, it was near the upper end
of its normal range." Robert Solomon," Effects of the Strong Dollar," paper
presented at the Federal Reserve Bank of Kansas City conference at
Jackson Hole, Wyoming, August 1985.
6 See, for instance, M.S. Mendelsohn in American Banker, July 29, 1985, p.
17.
7 "A 10 percent sustained depreciation would benefit the trade deficit by
about $20 billion within two years" Morgan Guaranty Trust Company,
World Financial Markets, August 1985, p 3. Eventually, as opposed to
within two years a 1 percent dollar rise would increase the trade deficit by
well over $2 billion.
"Stephen Marris reports "the widely used rule of thumb that a 1 percent
decline in the dollar.. .leads to a $3 billion improvement in the current
account balance." S. N. Marris "The Decline and Fall of the Dollar Some
Policy Issues" Brookings Papers on Economic Activity 1 (1985), pp 23744. Henry Wallich states a more conservative estimate: "A rule of thumb
says thatalO percent drop in the dollar improves thecurrent account, with
a lag by $20-30 billion." H. C. Wallich, "International and Domestic Aspects
of Monetary Policy" (speech to the Money Marketeers of New York
University after receiving their Distinguished Achievement Award). May
28, 1985, p. 6.
13
Bank and Thrift Profitability:
Does Strategic Planning Really Pay?
David D. Whitehead and Benton E. Gup
Commercial banks and savings institutions that have used strategic planning
in recent years have shown no increase in profitability, according to this
study, which analyzes possible reasons
Over the past decade, the competitive environment for financial institutions in the United
States has changed dramatically. This period
experienced uncommonly high inflation and
interest rates, both rapid economic growth and
severe recession, and domestic and international
financial shocks brought on by global recession
and declining energy prices. From the legislative
side, the Monetary Control Act of 1980 and the
Garn-St Germain Depository Institutions Act of
1982 set in motion a wave of
deregulation that has virtually
eliminated Regulation Q, or the
Whitehead, a research officer, heads
the Bank's financial institutions
and
payments
research
team. Gup is
professor of finance and holds the
chair of banking at the University of
Alabama.
14
interest ceiling on deposits, and brought thrifts
into more direct competition with banks by
expanding their lending and borrowing powers.
At the state level, many legislatures have moved
to permit reciprocal interstate banking, again
intensifying competitive pressures on financial
institutions. Moreover, banks and thrifts have
found themselves competing head-to-head with
nonbank financial services suppliers such as
Sears, American Express, and Merrill Lynch, as
these firms augmented their
roles in the financial services
industry.
The pace of many of these
changes in the competitive environment was neither orderly
nor expected by many of the
market participants. Thus the
intensity of deregulation and
the 1979 change in monetary
O C T O B E R 1985, E C O N O M I C REVItvV
policy allowing interest rates to be established
by the market caused unanticipated shocks to
the competitive environment.
Against this shifting backdrop of economic
threats and opportunities, managers of some
financial institutions recognized the need to
understand and adapt to the new milieu — t h e
need to plan. " Planning permits organizations
to react quickly in a dynamic environment, to
explore more alternatives and to develop new
techniques," as one observer described it." Planning is a key to survival, profits, improved decisionmaking, and avoiding mistakes." 1 Studies show
that only six of the 50 largest banks engaged in
strategic planning in 1968, but by 1983 about 75
percent of these largest institutions did so.2
The rapidly changing environment in which
financial institutions now operate has encouraged
planning, but to what extent has planning resulted
in success? Overall, our study did not find that
planning significantly increases a bank's profitability. Furthermore, the various levels of planning
sophistication appeared to have little bearing on
a bank's s u c c e s s in reaching its planning
goal. W h e r e increasing market shares was a goal,
their effect was minimal. This article examines
the relationship of planning to profitability and
market shares. The nature of our information,
though, prohibits definite conclusions about the
quality of the planning itself and limits us to the
general nature of strategic planning at banks and
savings and loan associations.
Planning Defined
"Managing" and "planning" denote different
functions. Managing refers to carrying out the
traditional objectives of operating an organization,
whereas planning includes those activities that
lead to a change in corporate goals or strategies.3
In the 1960s, "long-range planning" referred to
the process through which firms set their longterm goals and objectives; over time, "strategic
planning" evolved. Today, it is generally understood that strategic planning comprises the following: (1) establishing the corporate mission
and objectives, (2) assessing competitive threats
and opportunities, and (3) developing an operational plan for action, executing that plan, and
reviewing the results4 Unlike long-range planning,
strategic planning recognizes the necessity for
FEDERAL RESERVE BANK O F ATLANTA
constant revision of these elements as competitive and market environments develop.
Previous Studies
Relatively few studies have attempted to determine the impact of strategic planning on the
profitability of firms in general and banks in
particular. O n e major problem is the lack of a
consistent and meaningful definition of what
constitutes strategic planning. All firms engage in
planning, but they differ greatly in the degree to
which they implement these plans, revise as the
environment changes, and use planning tools.
For example, a firm may have a written plan but
pay only lip service to it, or it may follow a plan
blindly without adjusting for environmental
changes. Thus, the fact that a firm "plans" may
tell us little about its actual behavior, the quality
of the plans, or the firm's competitive advantages.
To overcome this impediment, some investigators have attempted to classify firms by their
sophistication in planning. Stanley W . Thune and
Robert J. House (1970), examining36 firms in six
industries, evaluated sales, stock price, return on
equity, and return on capital for both planners
and nonplanners. They concluded that planners
outperformed the nonplanners. However, their
study has been criticized because of the small
number of firms involved.
Having examined 386 firms, Robert M. Fulmer
and Leslie W . Rue (1974) concluded there was
no meaningful difference between planners
and nonplanners with respect to sales, earnings,
and return on equity. Robley D. Wood, Jr. and
R. Lawrence LaForge (1979) evaluated 32 banks
that planned. They found that the average changes
in net income and return on equity were higher
for the planners than for the nonplanners; however, they concluded that some of their data
revealed no difference between the return on
assets for planners and nonplanners. Their study,
like Thune and House's, suffers from a small
sample size.
Ronald J. Kudla (1980) tested two hypotheses:
firms that planned have abnormal stock returns
and their betas differed from nonplanners'. H e
found no support for the first hypothesis, but did
discover a transitory reduction in the betas for
firms that planned.
Richard W . Sapp and Robert Seiler (1981)
examined 302 commercial banks. Of that sample,
203 were considered nonplanners, 60 were
15
Table 1. Existence of Formal Planning Process at Respondent Institutions
(by asset size)
Formal Planning Process
Asset
Size
$0-50 million
50-100
100-500
500-1 billion
1 billion
and over
Total
Banks
Savings
and Loans
Multibank
Holding
Companies
One-Bank
Holding Companies
Total
26
33
29
32
15
6
38
2
0
0
4
7
2
4
8
8
43
43
79
49
19
2
54
27
102
139
63
65
49
316
No Formal Planning Process
Multibank
Holding
Companies
One-Bank
Holding Companies
Banks
Savings
and Loans
$0-50 million
50-100
100-500
500-1 billion
1 billion
and over
22
22
21
11
25
10
16
0
0
0
0
0
0
1
0
0
47
33
37
2
0
3
0
5
Total
78
51
3
1
133
Asset
Size
Total
11
Note: Unless otherwise noted all tables use the 316 respondents that reported a formal planning process.
Source: Federal Reserve Bank of Atlanta
regarded as beginning planners, 27 as intermediate, and 5 as sophisticated planners. It
was unclear from their definitions if they were
recording strategic planning, long-range budgeting
or asset/liability management systems. Their investigation found significant positive relationships between planning and deposit growth,
loan yields, and capital to risk assets, but the
relationship between planning and return on
equity was weak at best. Given the small number
of intermediate or sophisticated planners in their
study, their findings are of questionable value.
S. Benjamin Prasad (1984) looked at the results
of 35 medium- to large-size banks and, using his
own scoring procedure, determined that 18 had
become sophisticated planners over the 19761980 period. H e also shows that the returns on
equity for four of the banks studied improved
16
over the five-year period. However, it is unclear
whether the four banks were "sophisticated
planners," or if the improvement in profitability
was due to other factors, such as geographic
advantage. In short, this study added little to our
knowledge of the relationship between profitability and planning.
To state that strategic planning increases profitability is quite different from saying that it is
associated or correlated with higher profits. The
first statement implies causation, whereas the
second does not Unfortunately, statistical analysis
generally does not assert causation—only close
association or correlation among events. O n e
may argue that causation runs in either direction;
that is, strategic planning causes higher profits, or
lower profits encourage strategic planning. Statistical tests of these relationships, therefore,
O C T O B E R 1985, E C O N O M I C
REVIEW
generally do not suggest a unique interpretation.
They empirically determine a statistically significant association between the two events, but do
not prove that one causes the other. Accordingly,
the reader should be cautioned to view the
findings in previous work and the results of our
statistical analysis in light of this limitation.
Study Design
The data w e used in this study are based on a
1983 mail survey of banking organizations and
savings and loan associations located throughout
the United States.5 The Federal Reserve Bank of
Atlanta conducted that survey to determine the
extent to which banking organizations (including
S&Ls) engaged in strategic planning, as evidenced
by a formal (written) plan. The banking organizations were divided into banks, one-bank holding
companies, multibank holding companies, and
savings and loan associations. The survey was
designed as a stratified random sample to reflect
organizations of all asset sizes and wide geographic distribution. Each of the 50 states is
represented, with no state contributing more
than 10 percent of the total responses. The
results of this survey, published in the Federal
Reserve Bank of Atlanta's December 1983 Economic Review, are highlighted here as background
for the analysis to follow.
Financial institutions engage in the process of
strategic planning to widely varying degrees.
Some organizations only profess to do so, while
others take planning seriously. In our attempt to
segregate sophisticated planners from the others,
w e made a number of alternative assumptions
concerning the behavior of planners. For example,
w e defined sophisticated planners as organizations that had formal written objectives. W e
then assumed that the more sophisticated planners
had planning departments that used econometric
models and regression analysis to make projections or analyze alternative courses of action.
Moreover, w e considered how often the plans
were revised, to whom the planners reported,
and other factors. W e examined these factors
individually and collectively to ascertain which
organizations were sophisticated planners.
Number of Organizations. Table 1 shows that
316 banking organizations and savings and loan
associations indicated they had a formal planning
process, and 133 indicated otherwise. The data
F E D E R A L R E S E R V E B A N K O F ATLANTA
Table 2. Respondents' Length of Time
in Planning Process*
(by asset size)
Asset
Size
Less than 1-3
3-5 5-10 Over 10
1 Year
Years Years Years Years
$0-50 million
50-100
100-500
500-1 billion
1 billion and over
9
7
20
10
11
9
9
22
15
32
7
10
16
14
27
3
5
5
7
21
1
2
3
1
7
Total
57
87
74
41
14
Percent of
Respondents
21
32
27
15
5
•The number of responses to this question (273) is less than the total
respondents doing formal planning (316) because not all respondents
answered this question. This also applies to other tables.
Source: Federal Reserve Bank of Atlanta
revealed that the use of formal planning was
related to organization size: 95 percent of institutions with assets of $1 billion or more planned
while only 48 percent of those with assets of $50
million or less planned.
Length of Time. Table 2 relates the length of
time in the planning process forthe respondents
by asset size. Only 14 organizations stated that
they had been involved in planning for more
than 10 years. Fifty-three percent indicated an
involvement of three years or less. This response
implies that the rapidly changing competitive
environment may have fostered the use of strategic planning.
Other Factors. The survey also determined
who in the organizations was responsible for the
planning process, how often the plans were
revised, and various techniques (for example,
portfolio analysis and econometric models) that
the planners used.
Degree of Commitment. The detailed information derived from the survey gave us a number
of ways to measure the degree to which organizations engaged in strategic planning. Because
w e posed questions that identified the organizational level where planning was undertaken,
the title of the individual to whom the planning
group reports, reasons for planning, focuses of
the planning effort, types of tools used, and how
long the organization has been engaged in planning, w e were able to define planning at high and
17
Table 3. Profitability and Deposit Growth of Planner and Nonplanner Banks
Cases
Mean
Deposit Growth
Planners
Nonplanners
231
71
35.16
11.06
1.26
.21
ROA
Planners
Nonplanners
231
71
.87
1.18
-3.80
.00
ROE
Planners
Nonplanners
231
71
7.47
8.72
-3.91
.00
Separate Variance Estimate
t
Probability*
'Significant level = 1.00 — Probability
Source: Federal Reserve Bank of Atlanta
low levels of sophistication. Of course, ambiguity
of the term planning necessitated such definition.
Attempting to differentiate among firms that
pay lip service to the planning process and those
that are in fact committed to it, w e established
various criteria for the level of planning sophistication and designated all institutions that responded positively to the survey as planners or
nonplanners. This step allowed us to remove
some of the ambiguity from the term planning.
Having defined what w e believed to be a
satisfactory array of planning criteria, w e proceeded to performance measurements. Firms
may differ in the objectives they formulate in
their planning process. Although the profit objective is perhaps the most prevalent, increased
market share also is a reasonable end. In order to
gain market share, a firm probably will have to
sacrifice some profits. Recognizing this fact, w e
relied on three performance yardsticks: return
on assets and return on equity were used to
measure profitability while absolute growth in
deposits measured deposit growth.
In the present study, w e use regression analysis
and analysis of variance to assess the impact
planning has on the profit and growth measures.
Regression analysis isolates the performance
impact of given variables across all banking
organizations, that is, planners and nonplanners,
banks and savings and loan associations. The
analysis of variance statistically tests the significance of the difference in performance between
two identified groups (planners and nonplanners,
18
banks and S&Ls). Given our data base, w e also
were able to control for length of time in the
planning process, geographic location of the
institution, its deposit size, and certain other
characteristics identified through the survey. Our
primary objective was to identify any statistically
significant linkage between planning, however
defined, and a firm's profitability or deposit
growth.
The original survey also enabled us to identify
firms that claimed they undertook no formal
planning procedures. Therefore, w e could test—
with interesting results—for a significant difference in profits and growth for all firms that
professed to plan relative to those that maintained
they did not.
The Results
The basic purpose of our analysis, to test for a
relationship between planning and profitability
or planning and deposit growth, allowed us to
structure a simple first test. Our aim here was to
draw a distinction between two groups of firms—
those that have a formal written plan and those
that do not. W e conducted a regression analysis
using only a planning dummy and our three
performance measures. For all three, the planning
dummy variable proved statistically insignificant
at the 90 percent level of significance. Even
when the size of the firm was added as an
independent variable, the planning dummy variable
still proved statistically insignificant.
O C T O B E R 1985, E C O N O M I C R E V I t v V
Table 4. Profitability and Deposit Growth of Planner and Nonplanner Banks
(by deposit size)
0 - $ 5 0 Million in Deposits
Cases
Mean
26
16
12.09
26
26
16
10.18
Deposit Growth
Planners
Nonplanners
ROA
Planners
Nonplanners
16
ROE
Planners
Nonplanners
Separate Variance Estimate
t
Probability*
0.20
0.84
1.22
-0.48
0.64
9.07
-1.28
0.21
11.16
1.31
$ 5 0 - $ 1 0 0 Million in Deposits
Cases
Mean
Deposit Growth
Planners
Nonplanners
36
15.64
ROA
Planners
Nonplanners
36
1.00
1.17
-0.86
0.39
ROE
Planners
Nonplanners
36
8.37
8.93
-1.40
0.17
20
20
20
Separate Variance Estimate
t
Probability*
1.58
0.12
10.26
$ 1 0 0 - $ 5 0 0 Million in Deposits
Cases
Mean
Deposit Growth
Planners
Nonplanners
37
23
19.91
11.39
1.10
0.28
ROA
Planners
Nonplanners
37
23
0.86
1.16
-2.17
0.03
ROE
Planners
Nonplanners
37
23
7.56
-1.18
0.25
Separate Variance Estimate
t
Probability*
8.12
$ 5 0 0 Million - $1 Billion in Deposits
Cases
Probability*
11.25
-0.09
0.93
42
12
0.66
-2.17
0.04
42
12
7.03
7.56
-0.53
0.62
42
12
ROA
Planners
Nonplanners
ROE
Planners
Nonplanners
"Significant level = 1.00 - Probability
Source: Federal Reserve Bank of Atlanta
Separate Variance Estimate
t
Deposit Growth
Planners
Nonplanners
F E D E R A L R E S E R V E B A N K O F ATLANTA 19
Mean
11.61
1.07
Table 5. Relationship of Size and Sophistication of Planning Process to Profitability
Savings and Loans
Banks
Performance
Variable
Regression
Coefficient
Significance
Regression
Coefficient
Significance
Deposit
Growth
PL Dum
Size
12.04
0.96
0.940
0.220
13.740
16.460
0.250
0.760
ROA
PL Dum
Size
-0.27
-0.02
0.995
0.360
-0.230
-0.080
0.987
0.993
ROE
PL Dum
Size
-0.47
-0.64
0.660
0.990
-0.510
-0.630
0.930
0.999
Source: Federal Reserve Bank of Atlanta
Given these findings, w e decided to separate
the banks from the S& Ls and test the relationship
between planners and nonplanners and the
performance variables. Again, the criterion for
planning was a formal written plan. An analysis of
variance w e performed for the full sample of
banks, divided into those that planned and those
that did not, revealed a statistically significant
difference between the two groups. The banks
defined as planners showed lower returns on
assets (ROAs) and returns on equity (ROEs) than
did the nonplanners and the difference was
statistically significant. Planners tended to have
higher, but not significantly higher, growth in
deposits than did the nonplanners (see Table 3).
This unexpectedly negative relationship between planning and profitability called for further
analysis. Because size may be related to decentralized decision making, which some suggest
results in better performance, w e divided the
banks into four deposit size groups ($50 million
or less, $50-$100 million, $100-$500 million,
and $500 million-$1 billion). W e had too few
observations to evaluate nonplanners above $1
billion in deposits (see Table 4).
The third category of banks, those in the $100$500 million category, show no significant difference in deposit growth or ROE, but planners
showed significantly lower ROA than nonplanners.
The same finding applied to banks in the fourth
size category, $500 million - $1 billion. The
finding of this negative relationship for the two
size categories of banks is consistent with the
results obtained when the analysis is performed
on all banks. O n e possible explanation for this
negative relationship is that banks in these size categories that plan may have more financial leverage
20
(relatively less equity capital) than nonplanners.
The relationship between ROE, ROA, and a
financial leverage ratio (LR) is explained by the
following equation.
ROE
=
ROA
X
LR
Net income
=
Net income
x
Total assets
or
Total equity
Total assets
Total equity
If the ROE for both planners and nonplanners
is similar and the ROA is lower, the difference
between the two groups must be accounted for
by financial leverage.
Along this same line, large commercial banks
have relatively less equity capital than small
commercial banks. Possibly some of this "size
effect" also is showing up in these categories
which cover banks that range from $100 million
to $500 million, and $500 million to $1 billion.
Any touchstone used to distinguish planners
from nonplanners m a y b e questionable owingto
the imprecision of the term "planning." To ensure
that the negative relationship between planning
and R O A did not simply result from our using a
formal written plan to separate the two groups,
w e redefined the planning and nonplanning
groups based on several criteria As a first attempt
to distinguish among degrees of planning, w e
categorized planners as high and low. High
planners included all organizations that revised
their plans quarterly or continuously and in
which a planner or executive planning committee
was responsible for strategic planning.
Controlling for size of the organization, w e ran
regressions forthe high and low planning groups.
O C T O B E R 1985, E C O N O M I C R E V I t v V
Table 6. Performance of Organizations by Major Planning Emphasis
Product and Service Development
Cases
Mean
Deposit Growth
Planners that emphasized
Those that did not
138
52.29
13.27
1.23
0.22
ROA
Planners that emphasized
Those that did not
138
0.68
0.85
-2.07
0.04
ROE
Planners that emphasized
Those that did not
138
6.43
6.96
-1.44
0.15
Market Extension
122
122
122
Cases
Mean
53
28.36
13.27
53
0.60
0.85
53
6.13
6.96
Deposit Growth
Planners that emphasized
Those that did not
122
ROA
Planners that emphasized
Those that did not
122
ROE
Planners that emphasized
Those that did not
122
Corporate Development
Separate Variance Estimate
t
Probability*
Separate Variance Estimate
t
Probability*
1.89
0.06
-1.66
0.10
-1.95
0.05
Cases
Mean
158
49.89
13.27
1.31
0.19
158
122
0.65
0.85
-2.24
0.03
158
122
6.51
6.96
-1.27
0.21
Cases
Mean
Deposit Growth
Planners that emphasized
Those that did not
146
51.55
13.27
ROA
Planners that emphasized
Those that did not
146
Deposit Growth
Planners that emphasized
Those that did not
ROA
Planners that emphasized
Those that did not
ROE
Planners that emphasized
Those that did not
Social, Economic, and
Political Considerations
ROE
Planners that emphasized
Those that did not
•Significant level = 1.00 - Probability
Source: Federal Reserve Bank of Atlanta
F E D E R A L R E S E R V E B A N K O F ATLANTA 21
122
122
122
0.68
146
6.66
6.96
122
0.85
Separate Variance Estimate
t
Probability*
Separate Variance Estimate
t
Probability*
1.27
0.21
-1.87
0.06
-0.81
0.42
Table 7. Comparative Performance of Planner Organizations
(by planning objective)
Separate
Variance Estimate
t
Probability*
Cases
Mean
Deposit Growth
Planners that focused on ROA or R O E
Those that did not
228
122
38.27
13.27
1.29
0.20
ROA
Planners that focused on ROA or R O E
Those that did not
228
122
0.70
0.85
-1.85
0.06
ROE
Planners that focused on ROA or R O E
Those that did not
228
122
6.96
6.96
0.03
0.97
Competitive ROA and R O E
Separate
Variance Estimate
_t_
Probability*
Cases
Mean
Deposit Growth
Planners that focused on market share
Those that did not
153
122
18.59
13.27
1.82
0.07
ROA
Planners that focused on market share
Those that did not
153
122
0.63
0.85
-2.04
0.04
ROE
Planners that focused on market share
Those that did not
153
122
6.26
6.96
-1.97
0.05
Growth in Market Share
Separate
Variance Estimate
_t_
Probability*
Cases
Mean
Deposit Growth
Planners that focused on competitive advantage
Those that did not
89
122
18.71
13.27
1.62
0.11
ROA
Planners that focused on competitive advantage
Those that did not
89
122
0.79
0.85
-0.43
0.67
ROE
Planners that focused on competitive advantage
Those that did not
89
122
6.40
6.96
-1.43
0.15
Achieving Competitive Advantage
Separate
Variance Estimate
t_
Probability*
Cases
Mean
Deposit Growth
Planners that emphasized technology
Those that did not
72
122
80.46
13.27
1.10
0.27
ROA
Planners that emphasized technology
Those that did not
72
122
0.69
0.85
-1.52
0.13
ROE
Planners that emphasized technology
Those that did not
72
122
6.75
6.96
-0.51
0.61
Use Technology Internally
22 O C T O B E R 1985, E C O N O M I C REVItvV
Table 7. (conf d.)
Providing New Technology
to Customers
Cases
Mean
Separate
Variance Estimate
Probability*
Deposit Growth
Planners that emphasized technology
Those that did not
122
66
21.90
13.27
ROA
Planners that emphasized technology
Those that did not
66
122
0.79
0.85
-0.33
0.74
ROE
Planners that emphasized technology
Those that did not
122
66
6.26
-1.78
0.08
6.96
2.06
0.04
•Significant level = 1.00 - Probability
Source: Federal Reserve Bank of Atlanta.
Table 5 shows the results for both banks and
S&Ls. The banks showed a negative and statistically significant relationship between planning
and profits (measured as R O A o r ROE). The S&Ls
exhibited the same negative and significant relationship between planning and ROA but the
relationship between planning and ROE was
insignificant. In addition, the S&Ls showed a
positive and statistically significant relationship
between planning and deposit growth. These
results generally confirmed our previous finding.
W h e n the analysis of variance incorporated these
distinctions for high and low planners, it showed
the same negative relationship between high
planning and profitability. A statistically significant difference existed between the two groups
of planners with respect to both deposit growth
and ROE, and the relationship between planning
and ROA was negative with respect to the high
planning category. High planners continued to
show a positive and statistically significant relationship with deposit growth. Thus, this new definition
of high and low planners essentially confirms our
earlier results.
Planning differs among organizations according
to the results that each considers important.
Some firms structure their planning efforts toward
product and service development, others pursue
market extension or corporate development,
and still others desire to monitor changes in their
business environment (social, economic, and
F E D E R A L R E S E R V E B A N K O F ATLANTA
political). W h i l e all of these planningapproaches
are useful, w e wanted to see if a difference in
performance was associated with each. Therefore, w e redefined our sophisticated planners as
all those organizations that revised their plans
quarterly or continuously and placed heavy emphasis on (1) product and service development,
(2) market extension, (3) corporate development, or (4) social, economic, and political considerations. All other organizations fell into the
less sophisticated planning group.
Once again, we performed analyses of variance
using our three performance measures as the
dependent variable (Table 6). Those sophisticated
planners that emphasized product or service
development displayed no statistically significant
differences in deposit growth or ROE, but their
R O A was significantly lower than that of their less
sophisticated counterparts. For those sophisticated
planners that emphasized market extension, the
results showed significantly lower R O A and R O E
and significantly higher deposit growth. This is a
logical relationship, as a firm trades off higher
profits against greater deposit growth through
market extensions. Sophisticated planners that
emphasized corporate development exhibited
significantly lower ROAs than their less sophisticated counterparts, which again is consistent
with our earlier finding. Finally, that group of
sophisticated planners that emphasized monitoring
their social, economic, and political environment
23
also showed no statistically significant difference
regarding deposit growth or ROE. But with respect to ROA, the sophisticated group showed
statistically significant and lower ROAs. Thus,
even when w e redefined sophisticated planning,
the result was unchanged: where a statistically
significant difference occurred it consistently
showed more sophisticated planning associated
with low R O A performance.
W e redefined the planningeffortonce more to
ensure accuracy of our results. Recognizing that
firms may have different objectives, w e categorized
planners into five additional groups, clustering
those that revised their plans quarterly or continuously and placed major emphasis on (1)
providing a competitive R O A or ROE, (2) growth
in market share, (3) achieving competitive advantages, (4) cost reductions through use of new
technology for internal functions, and (5) competition and cost advantages through application
of new technology for customers' use. An analysis
of variance was run using each of these five
categories of planners against those institutions
that planned but did not emphasize that particular planning objective (Table 7). Again, the
relevant dependent variables were market growth,
ROA, or ROE.
The group of planners whose objective was a
competitive R O A or R O E showed no significant
difference in market growth or ROE. They did,
however, show a statistically significant and lower
R O A than the group of planners that did not
emphasize ROA or R O E Apparently, these planners
failed to meet their objectives. By contrast,
planners that emphasized growth in market
share seem to have been successful, for the
results showed a statistically significant and higher
deposit growth. The costs of this achievement
are painfully obvious—statistically significant and
lower R O A and R O E than that group of planners
that did not share their objective. This finding is
consistent with the proposition that some organizations are willing to surrender a degree of
profitability to gain market share.
No statistically significant difference was found
for those planners who focused on new technology for internal use and those with different
targets. For the group whose objective was to
achieve an advantage over their competitors,
performance results are no different from those
of planners that did not attempt this. Our finding
is especially reasonable in the financial services
industry, where new products can be copied
quickly and at low cost. Planners that concentrated
on providing new technology for customers' use
24
are shown to have a statistically significant and
higher growth in market share and statistically
significant and lower R O E than counterparts that
did not pursue this objective. Such a situation
seems consistent with an emphasis on market
growth; that is, by promoting use of new technology a firm may make it easier for a segment of
the population to obtain banking services. To a
large extent planners who focused on technology
for customer use and those who sought to
increase market share may be measuring the
same thing. The latter group apparently completed their objective relative to other planners.
Next, w e categorized organizations into more
or less sophisticated groupings dependent upon
their use of given types of planning tools. Our
assumption was that those organizations that
were serious about planning would use the most
sophisticated tools and would show higher performance as a result. W e structured a regression
equation that used independent variables to
indicate whether firms use simulation techniques,
PIMS, external data bases, econometric analysis,
or regression analysis in their planning efforts.
The equation was run separately using each of
the three performance measures as dependent
variables. None of these variables proved to be
significant (at the 90 percent level of significance)
in explaining ROA differences among the planners,
and only the use of external data bases was
statistically significant and positively related to
ROE. In terms of explaining deposit growth, w e
found thatonlythe use of simulation techniques
and external data bases proved statistically significant and the simulation variable was negatively
associated with deposit growth. Geographic location and institution size were included as
independent variables and appeared not to be
statistically significantly associated with the variation in the performance measures. Therefore,
over the observation period only the use of
external data bases proved to be positively
associated with performance. The more sophisticated tools either were not statistically significantly associated with performance or were
negatively associated with performance measures
(the case of simulations). Thus, the degree of
sophistication or commitment to the planning
process as measured by the use of refined
planningtools was insignificantly associated with
performance.
As a final effort, w e tested the hypothesis that
planning pays off but only after a period of time.
To do so, w e looked at the relationship between
length of time an organization has been involved
O C T O B E R 1985, E C O N O M I C REVItvV
in planning and the firm's ending year profits
(1983). Our regression equation used location
(state), deposit size, and length of time engaged
in planning as independent variables. W e were
unable, however, to identify a statistically significant relationship between profits ( R O A and
ROE) and length of time the organization was
engaged in planning. Organization size and location proved insignificant in explaining deposit
growth or ROA, and only size proved to be
significantly (though negatively) related to ROE.
This weak but still significant negative relationship runs counter to intuition and is less than
satisfying. But overall w e found no evidence to
support the proposition that length of time
engaged in planning is positively associated with
the organization's profit performance or deposit
growth.
the degree of sophistication in the planning
effort, and by focusing on various objectives of
the planning effort. Even so, our results yield no
consistent statistical evidence that strategic planning increases the profitability of the organizations studied. They produce limited evidence
that sophisticated planners may have greater
deposit growth than unsophisticated planners
and nonplanners; however, this deposit growth
did not seem to enhance their profitability. In
fact, the evidence shows a negative relationship
between planning and profitability.
The discovery that planning is not associated
with increased profitability is not surprising. Firms
that show strong profits probably feel less pressure
to engage in sophisticated planning than those
with weak profits. Hence, our findings may be
interpreted to mean that low profitability encourages more planning. And in light of our
finding that length of time in the planning process
has little bearing on profitability, if planning pays
off it takes a long time to do so—apparently
longer than our observation period. Another
explanation for the negative association between
planning and profits is that new products or
services developed and offered by one organization are quickly adapted by competitors, thereby
reducing differences in profitability.
The fact that strategic planning showed no
positive relationship to profitability should not
be considered a condemnation of planning per
se. The questions w e have raised about the
quality of planning and competitive advantage
must be answered. Equally important, w e must
analyze the effect of planning on stockholder
wealth. Only then will w e have the answers w e
began to seek here.
Conclusion
Our purpose in this study was to determine if
strategic planning made a measurable contribution to the profitability of banking organizations
and savings and loan associations. W e examined
316 banking organizations that planned and 133
that did not categorizing the data by size, type of
organization, and degree of sophistication in the
planning process.
I n spite of the large volume of data we analyzed,
the study does have several shortcomings. First,
the respondents may define strategic planning in
different ways. Second, w e do not know anything
about the "quality" or use of the plans. W e
attempted to adjust for these flaws by using
several definitions for planners, by differentiating
NOTES
' S e e Benton E. Gup (1980).
D. Robley Wood, Jr. (1980), Giroux and Rose (1 984), and Gup and
Whitehead (1983).
3 Robert Mainer (1973).
2See
" S e e Gup (1980), George Steiner (1979), and Thompson and Strickland
(1983).
5 S e e Gup and Whitehead (1983) for details
BIBLIOGRAPHY
Giroux, Gary and Peter Rose. "An Update of Bank Planning Systems
Results of a Nationwide Survey of Large Banks," Journal of Bank
Research, vol. 15 (Autumn 1984), pp. 136-147.
Gup Benton E Guide to Strategic Planning. New York: McGraw-Hill, 1980.
Gup, Benton E and David Whitehead "Shifting the Game Plan: Strategic
Planning in Financial Institutions," Economic Review, Federal Reserve
Bank of Atlanta vol. 68 (December 1983), pp. 22-33.
Kudla Ronald J. "The Effects of Strategic Planning on Common Stock
Returns," Academy of Management Journal, vol. 23 (March 1980), pp 1
and 5-20.
Mainer, Robert. "The Impact of Strategic Planning on Executive Behavior,"
in Essentials of Corporate Planning, Subhash Jain and Surenda
Singhvi, ed& Oxford, Ohio: Planning Executive Institute, 1973.
Prasad, S. Benjamin. "The Paradox of Planning in Banks," The Bankers
Magazine, vol 167 (May/June 1984), pp 77-81.
Sapp, Richard W and Robert Seiler. "The Relationship Between LongRange Planning and Financial Performance of U.S. Commercial
F E D E R A L R E S E R V E B A N K O F ATLANTA
Banks," Managerial Planning, vol. 30 (September/October 1981),
pp. 32-36.
Steiner, George. Strategic Planning: What Every Manager Must Know. New
York: The Free Press, 1979.
Thompson, Arthur, Jr., and A J Strickland, III. Strategy Formulation and
Implementation:
Tasks of the General Manager, revised ed- Plano,
Texas: Business Publications. Ine, 1983.
Thune, Stanley W. and Robert J. House. "Where Long Range Planning Pays
Off," Business Horizons (August 1970), pp. 13 and 81-87.
Wood. D. Robley, Jr. "Long Range Planning in Large United States Banks,"
Long Range Planning, vol. 13 (June 1980), pp 91-98.
Wood, D. Robley, Jr., and R. Lawrence LaForge. "The Impact of Comprehensive Planning on Financial Performance," Academy ol Management Journal, vol. 22 (September 1979), pp 22-23 and 516-526.
Yulmer, Robert M. and Leslie W. Rue. "The Practice and Profitability of Long
Range Planning," Managerial Planning, vol. 22 (May/June 1974), pp. 1 7 and 22.
25
Since the Garn-St Germain
have taken advantage of
The Garn-St Germain Deposito
of 1982 sought to help financia
with troubled institutions, to incre,
for financial services, and to revit
industry. Among its provisions, the act gave
institutions new powers similar to those of commercial banks. It also enabled a commercial
bank to convert to a savings institution or to a
federal savings bank. In the latter case, the
institution could maintain the word "bank" in its
title yet not be subject to the restrictions imposed
by the Bank Holding Company Act—an important
advantage. Passage of Garn-St Germain f,
bank charter conversions, even th
states already permitted such tra
prior to 1982. 1
To date, only two commercial banks nave
completed conversion from a bank to a savings
institution, but recent developments could increase this activity. First, the Federal H o m e Loan
Bank Board (FHLBB) recently adopted a ruling,
change that makes it easier for commercial
banks to obtain federal thrift charters. W i t h this
The author is a research analyst on the Research Department's financial structures and payments research team.
26
incr<
ry institutions may engage in
and assumption (P&A) conversions
associations, an option w e will
discuss later. The ruling was designed to alleviate
some of the financial pressures
fund of the Federal Savings
Corporation by providi
alternative to costb
an acquirer for a failing thrift
The FSLIC can attempt to make troubled
thrifts attractive acquisition targets for banks that
wish to convert to thrift charters. Such banks
must hold a relatively high level of mortgage
in their portfolios if they are to meet the
: H L B B ' s qualified thrift lender standards. 2 By
purchasing operating thrifts, converting banks
can achieve the requisite levels while at the
same time unburdening the FSLIC's insurance
fund. By clarifying the previous law, the FH LBB's
move also will facilitate decisions on pending
charter transactions and hasten resolution of the
thrift industry's problems. A second new development that may foster bank conversions is
the growing popularity of seminars on the advantages of becoming a thrift and the steps
involved in doing so.3
O C T O B E R 1985, E C O N O M I C REVItvV
Chart 1. Thrift Industry Members
Thrift Institutions
Savings and Loan
Associations
Savings
Banks
Credit
Unions
Mutually
Owned
Stock
Ownership
Mutually
Owned
Stock
Ownership
Federal
Chartered
State
Chartered
Federal
Chartered
State
Chartered
Mutually
Owned
Federal
Chartered
State
Chartered
"Mutual savings banks are the only intermediaries cross-regulated by federal authorities serving commercial banks and savings associations
Source: Federal Reserve Bank of Atlanta.
Weighing the pros and cons of thrift charters for
commercial banks also highlights competition
among regulators. According to William J. Brown,
" o n e of the historic objectives of dual banking
has been to provide alternative supervisory frameworks under which commercial banks may choose
to operate, thereby safeguarding against the
extension of harsh, oppressive, and discriminatory supervision to institutions without recourse
to alternative arrangements." 4 The possibility of
a commercial bank's converting to a federal
savings institution places the FHLBB in direct
competition for banks with bank regulatory
agencies. Regardless of whether one views this
situation as a "competition in laxity" in bank
supervision, empowering banks to adopt thrift
charters eventually may force changes in bank
regulation.
The Garn-St Germain legislation permitted
conversions to help assure financial stability, but
in large numbers such activity would have a far
wider, and perhaps unintentional, impact on the
banking and thrift industries. For example, bankto-thrift conversions would shift the balance of
F E D E R A L R E S E R V E B A N K O F ATLANTA
regulatory power, change required capital in
depository institutions, and alter the mix of
allowable activities for depository institutions.
W e will discuss the pluses and minuses of
bank-to-thrift conversions for both state and
federal chartered institutions, examine current
levels of conversion, and comment on the likelihood of a future wave of bank-tothrift conversions. In the process, w e will review thrifts'
asset and liability powers and discuss what
converting from a commercial bank to a savings
institution entails. 5 Despite the obvious advantages of conversion—ability to o w n and
operate interstate automated teller machines
(ATMs), relaxed capital requirements, tax benefits—few have occurred and no substantial
increase in activity is in sight. However, changes
in public and regulatory policy can alter this
trend.
In our discussion, w e will use the term "thrift"
interchangeably with "savings institution." Thrifts
usually include savings and loan associations,
which largely channel their deposits to the home
mortgage market; both stock-owned and mutual
27
savings banks, which originally were founded to
encourage thriftiness and provide a source of
funds for workers with modest incomes; and
credit unions. This article emphasizes stockowned savings and loan associations and savings
banks since commercial banks also are stockowned. Prior to deregulation savings banks differed
from savings and loan associations, or S&Ls, in
that they possessed broader service and investment authority. For example, savings banks contributed valuably to the country's growth through
their investments in municipal, state, and federal
government bonds and in America's early transportation networks. Today, however, distinctions
between savings banks and S&Ls are less important. Both may be either mutual, meaning
they are owned by their depositors, or stockowned, by stockholders (see Chart 1).
Setting the Stage for Conversions
In the 1930s, the savings and loan industry was
revived to promote the housing industry. Over
the next half-century, regulations virtually limited a
savings institution's asset portfolio to h o m e
mortgages and U.S. government securities, while
its liabilities consisted mainly of savings deposits.
The Depository Institutions Deregulation and
Monetary Control Act of 1980 ( DI DMCA) loosened
these restrictions considerably by allowing federal
savings institutions to invest up to 20 percent of
their assets in consumer loans, commercial paper,
and corporate debt securities.6 It authorized
mutual savings banks to make commercial, corporate, and business loans up to 5 percent of
their assets. DI D M C A also established the Depository Institutions Deregulation Committee to
supervise the phase-out of interest rate ceilings
over a six-year transition period.
Enactment of the Garn-St Germain Depository
Institutions Act of 1982 further expanded thrifts'
powers. O n the asset side, Garn-St Germain allowed
thrifts to diversify their loan portfolios by extending commercial and similar loans. Unlike a commercial bank's unlimited commercial lending
authority, however, a thrift's commercial loans
could not exceed 10 percent of its assets. Although this restriction places thrifts at a comparative disadvantage, the limit can be circumvented since it applies only to a volume of loans
outstanding at one time. Theoretically, a thrift
could generate a virtually unlimited volume of
loans if it sells off the excess to a third party, such
as a nonfinancial subsidiary.7 In addition, the
28
entire loan portfolio, as a percentage of assets,
could consist of 40 percent loans secured by
non-residential real property, 30 percent consumer loans including inventory and floor-plan
financing for dealers in consumer goods, and 10
percent personal property leasing activities. Thus,
altogether thrifts can invest up to 90 percent of
their assets in loans similar to commercial and
industrial loans, which renders the Garn-St Germain limitations less binding than they at first
appear.
The Garn-St Germain Act also enhanced the
liability side of thrifts' balance sheets by permitting savings institutions to accept all types of
demand, savings, and time deposits, including
negotiable order of withdrawal ( N O W ) accounts.
Unlike commercial banks, which can offer a
demand deposit checking account to any individual or corporation, thrifts can provide such
services only to persons or organizations with
whom they have a loan relationship, or in order
to facilitate payments to a business entity from a
nonbusiness customer. 8 As a result of D I D M C A
and the Garn-St Germain Act, thrifts can offer an
array of services ranging from commercial loans
to accepting demand deposit accounts. 9
Pros and Cons of Thrift Charters
Currently, the thrift charter provides significant
advantages over a commercial bank charter in
some crucial areas—incentives that a commercial
bank would consider when debating a charter
conversion.
Branching. The McFadden Act, enacted in
1927, prohibits nationally chartered banks from
branching across state lines. The Douglas Amendment to the Bank Holding Company Act allows
holding companies to acquire institutions on an
interstate basis if the target state passes legislation
permitting out-of-state holding companies to
acquire banks within its boundaries.10 In contrast
no federal laws prohibit interstate branching of
savings institutions. The FHLBB may authorize
federally chartered thrifts to branch anywhere,
intrastate or interstate, regardless of the headquarters states' restrictions on commercial banks
or state chartered thrift institutions.
As a matter of self-imposed policy, the F H L B B
has permitted federally chartered thrifts to
establish branches across state lines only through
an acquisition of a financially troubled thrift.
However, if a thrift desires to operate interstate
but is restricted by policy or the cost of expansion,
O C T O B E R 1985, E C O N O M I C REVItvV
it can pursue the alternative of owning or operating
ATMs and point-of-sale (POS) terminals across
state lines.11 The statute conferring this power
differs from laws affecting banks, as national
banks are prohibited from owning or renting an
A T M across state lines, although they may participate in shared networks. 12 The ability to
expand by establishing ATMs nationwide constitutes a distinct advantage thrifts hold over commercial banks.
Capital Requirements. As a consequence of
industry troubles in recent years, the current
trend in bank regulation is toward raising capital
requirements. The Federal Deposit Insurance
Corporation (FDIC), Federal Reserve Board, and
Office of the Comptrollerof the Currency ( O C C )
have similar capital standards for commercial
banks, requiring that banks maintain primary
capital of at least 5.5 percent of adjusted total
assets.13 In addition, the Federal Reserve Board's
current guidelines for multinational and regional
bank holding companies (BHCs) call for a minimum of 5.5 percent primary capital to total
assets.
The weakened condition of the thrift industry
has rendered it difficult for the FH LBB to raise the
net worth requirements for savings associations
by a significant amount, though it recently moved
to tighten some requirements. 14 The FHLBB
requires that all FSLIC-insured institutions maintain net worth, for regulatory purposes, equal to
at least 3 percent of liabilities. In their first full
fiscal year, newly established (de novo) institutions
must maintain a minimum net worth level of 7
percent of liabilities; the requirement subsequently declines to 5 percent and may be
reducedto3 percentwith properapproval. Thrift
holding companies are not subject to regulatory
net worth requirements.
A great disparity exists between the capital
adequacy requirements for commercial banks
and net worth requirements for thrift institutions.15
M u c h of the difference results from the thrift
industry's financial troubles over the past few
years. During that period the net worth of many
thrifts, especially older ones, deteriorated because their asset portfolios were dominated by
long-term, low interest rate mortgages while
their liabilities were affected by soaring interest
rates.
Even prior to the 1980s, thrifts received somewhat more lenient capital treatment. O n e plausible explanation for this bias is the thrift industr/s
FEDERAL RESERVE BANK O F ATLANTA
historically limited access to the capital markets.
Since a large percentage of savings institutions
are mutually owned, they are unable to raise
capital by selling stock, a popular option with
most companies. 16
A second explanation for thrifts' preferential
capital treatment involves loan risk. Some argue
that higher loan loss levels are associated with
commercial loans than with those secured by
residential real estate.17 If capital requirements
are used to absorb shocks from losses, they
contend, then thrifts' capital or net worth requirements should be less stringent than those for
commercial banks, since thrifts have a greater
portion of their asset portfolio in residential real
estate.
Although capital and net worth requirements
are not directly comparable, w e can state
overall that the regulatory requirements for
FSLIC-insured institutions are more liberal than
those for commercial banks. First, FSLIC-insured
institutions are not required to reduce net
worth by the amount of goodwill. Bank regulators generally require that intangibles, including
goodwill, be subtracted from equity to obtain
primary capital.
Another thrift advantage is the ability to
amortize losses incurred in connection with
the sale of mortgages over the average life of
the mortgages sold. Banks generally are required
to recognize such losses immediately.
A final comparative advantage is that financially troubled thrifts receive special capital
treatment. At least until October 1985—Congress is considering an extension—the Carn-St
Germain Act provides that thrift institutions
beset by significant operating losses may use
"net worth certificates" in meeting their net
worth requirements. Troubled institutions may
issue these certificates, which are purchased
by the FSLIC and F D I C with promissory notes.
The net worth certificates are then counted as
part of the institution's net worth. Once the
institution returns to profitability, it redeems
its net worth certificates.
A capital-deficient bank considering conversion cannot use net worth certificates to
bolster its position. However, once a bank
converts to a thrift, the net worth certificate
program—if extended in present form—would
be an available option should the institution
experience a net worth deficiency.
29
Old Stone Bank of Providence, Rhode Island
illustrates how the differences in capital treatment can affect an institution. In 1983, the
Federal Reserve Board's capital guidelines stood
at 5 percent O l d Stone's capital amounted to
only 3 percent of its assets, which made it an
undercapitalized bank. However, when Old
Stone exchanged its commercial bank charter
for a thrift charter, it immediately met the
FHLBB's requirement of 3 percent. In addition,
since thrifts are not required to reduce net
worth by the amount of goodwill, O l d Stone
Bank suddenly found itself capital-rich with a
ratio of approximately 6 percent 1 8
Taxes. Depend ing on the structure of its
portfolio, a savings institution may qualify for
substantial tax benefits that were designed to
encourage investment in the housing sector.
Section 593 of the Internal Revenue C o d e (12
U.S.C. subsection 593) allows qualifying thrift
institutions to deduct 40 percent of taxable
income as an addition to reserves for bad
debts. For an S&L to receive the full 40 percent
deduction, at least 82 percent of its assets must
be "qualifying assets," which include cash,
taxable government obligations, and real residential property loans.19 A savings bank, because
of its slightly different regulatory history, can
qualify for the full 40 percent deduction with
only 72 percent of its assets meeting the code's
definition of qualifying assets.
This tax advantage vis-a-vis alternative tax
shelters may not be as significant to the thrift
industry as it at first appears. For example, since
1980 savings institutions have had the power
to hold general obligations of state governments.
Although these instruments are classified as
nonqualifying assets, thrifts, like commercial
banks, can use them and other tax-exempt
nonqualifying assets to shelter net income.
This option achieves a result similar to holding
the required percentage in qualifying assets.20
Nonbanking Activities. Two main concerns of
law makers in separating banking and commerce
were financial safety and efficient allocation of
credit. 21 Some observers argue that further
bank expansion into new activities will increase
bank risk and threaten individual bank and
financial system safety. In addition, a business
entity directly linked with a commercial bank
might receive favorable credit treatment from
the bank, leading to reduced competition, artificial restriction of supply with possible price
30
increases, and further misallocation of resources.
In comparison, the thrift industry's traditional
involvement in the housing industry and exclusion from commercial loans led to separate,
more liberal treatment for savings and loan
holding companies.
To maintain a separation between banking
and commerce, section 4(c)(8) of the Bank
Holding Company Act prohibits BHCs from
engaging in activities too closely related to
their primary banking functions. Similarly, multiple thrift holding companies are subject to
regulatory limitations on their activities and
ownership of other businesses. Federally
chartered multiple thrift holding companies
may invest in all types of personal property, for
lease or sale, and through subsidiaries engage
in real estate development and management
securities activities, life and casualty insurance
agency operations, the ownership of other
federally chartered thrift institutions, and other
savings and loan-related functions.22 If a holding
company owns only one thrift (a unitary thrift
holding company) and its federally insured
institution meets the qualified institution standards, the parent company and its non-insured
affiliates may undertake a virtually unlimited
array of activities.23 Examples of unitary thrift
holding companies include Household International, ITT, National Steel, and Sears, Roebuck and Company. Unlike commercial banks,
which must receive approval from the Federal
Reserve on 4(c)(8) activities, unitary thrift holding
companies require no approval process. However, if a unitary thrift holding company cannot
meet the qualifications of a domestic savings
and loan association, the firm and its affiliates
become subject to the restrictions placed on
multiple thrift holding companies.
Regulatory Considerations. Commercial banks
may be regulated by the O C C , FDIC, Federal
Reserve Board, and state banking departments.
In contrast federal thrift institutions generally
have only one federal regulator, the FHLBB,
and they are examined only by the FSLIC,
which the FHLBB governs. (An exception occurs
for thrifts that are insured by the FDIC. 24 ) The
FHLBB therefore possesses considerable regulatory flexibility since it maintains the supervisory, insuring, and lending processes under
common control.
The thrift industry's special treatment does
not always work to its advantage. First, much of
O C T O B E R 1985, E C O N O M I C REVItvV
the industry's unique environment is the result
of congressional legislation, which can be eradicated quickly, especially if additional federal
revenues are needed.
Although thrifts enjoy some powers that are
more liberal than powers for commercial banks,
they must continue their c o m m i t m e n t to
housing finance and remain in compliance
with other thrift regulations. This emphasis
may be treacherous during periods of volatile
interest rates. Floating rate mortgages and financial hedging instruments, such as financial
futures and options, reduce interest rate risk,
but their effectiveness is limited by consumer
acceptance of the former and management's
ability to exploit the latter. Compliance with
other thrift regulations also requires management to juggle with skill such variables as loan
limits, demand deposit restrictions, and tax
considerations.
Final sources of relative disadvantage are the
stability of the thrift industry and the FSLIC
insurance fund, and the problems experienced
recently by privately insured institutions. These
problems, by reflecting poorly on the thrift
industry as a whole, may diminish individual
institutions' attraction for new customers.
Converting f r o m Bank
to Thrift Charters
Regulatory flexibility, favorable tax treatment,
exemption from B H C Act prohibitions, and
more lenient capital requirements may induce
a commercial bank to surrender its charter in
favor of a thrift charter. Although Garn-St Germain does not provide for the direct conversion
of a commercial bank into a federally chartered
thrift, it does authorize the de novo establishment of federal savings banks and the conversion of existing S&Ls to federal savings banks
chartered by the FHLBB. Additionally, the act
permits a savings bank to convert to an S&L.
A commercial bank wishing to convert to a
federally chartered thrift may choose from
three conversion methods: state law charter,
purchase and assumption, and supervisory
acquisition. 25 W h e r e state law permits, a bank
may convert to a state chartered stock thrift,
which in turn can convert to a federal stock
thrift 26 In a purchase and assumption, or P&A,
conversion, a bank forms a de novo federal
FEDERAL R E S E R V E BANK O F ATLANTA
stock thrift that purchases the assets and assumes the liabilities of the commercial bank.
To effect a supervisory acquisition conversion,
the commercial bank could acquire a failing
mutual thrift through a voluntary supervisory
conversion, convert to a stock-owned thrift,
and purchase the assets and assume the liabilities of the commercial bank
The FH LBB earlier this year acted to remove a
regulatory impediment to its approval of P&A
conversions. The board noted that subsection
552.13(c)(1) of the FHLBB regulations prevents
a financial institution located in a state that
does not allow state law charter conversion
from converting to a federal thrift charter. The
regulation specifies that a federal stock association may not purchase the assets and liabilities
of any institution that is not insured by the
FSLIC with the exception of a federal savings
bank covered by F D I C insurance.27 To encourage financially strong institutions to enter the
thrift industry, and thereby to lighten the FSLIC's
financial burden, the FHLBB resolved that even
if the H o m e Owners' Loan Act of 1933 limits
the entities with which a federal association
may merge, the statute need not apply to
reorganizations. (A reorganization denotes a
bulk purchase of assets and assumption of
liabilities where all or substantially all of one
entity's assets are acquired by another.) After
reexamining the issue, the F H L B B concluded
that it possessed the authority to amend subsection 552.13 so that previously restricted
institutions could engage in P&A conversions
with federal thrifts. The FHLBB has limited bulk
P&A transactions to depository institutions,
whether insured by the FDIC, state, or private
insurance funds. The ruling became effective
on April 23 of this year.
The conversion process can be lengthy and
difficult, as is exemplified by the case of O l d
Stone Bank. W i t h supervisory assistance Old
Stone Corporation, the holding company of
Old Stone Bank, acquired Rhode Island Federal
Savings and Loan Association, which then converted to a federal savings bank. As part of the
transaction, the corporation received regulatory
approval for the new federal savings bank to
purchase all of Old Stone Bank's assets and
assume its deposit liabilities. The conversion,
completed in September 1984, required more
than 18 months and involved seven regulatory
agencies: the FHLBB, FSLIC, FDIC, Federal
31
Table 1. Commercial Banks Converting to Savings Institutions Since 1982
F H L B B District
Atlanta
Boston
Chicago
Cincinnati
Dallas
Des Moines**
Indianapolis
New York
Pittsburgh
San Francisco
Seattle
Topeka
Totais
Current
Applications
5
0
0
2
0
1
2
0
0
0
0
3
13
Number of
Approvals
Number of
Disapprovals
Applications
Withdrawn*
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
1
0
2
3
0
•Applications were withdrawn by commercial banks
"Involves two commercial banks
Source: Federal Home Loan district banks
Reserve Board, Securities and Exchange Commission, and two state banking agencies.
Although future conversions may be less convoluted than Old Stone's, they still are likely to be
time-consuming.
Thirteen applications for conversion currently
await F H L B B approval, but to date only two
commercial banks have completed their conversion to thrift institutions (see Table 1). The
first occurred in April 1984 when Southern
Florida Bank, with assets of $31 million, received
final approval to b e c o m e a state chartered
savings and loan association known as Southern
Floridabanc Savings Association. The second
instance was Old Stone Bank. Once Southern
Floridabanc had become a state chartered S&L,
it could have converted to a federal savings
bank under the provisions of Garn-St Germain.
However, Southern Floridabanc chose to retain
its state charter because Florida-chartered
thrifts are permitted to form subsidiary service
corporations that can invest up to 10 percent
of their assets or net worth, whichever is less, in
businesses related to the thrift industry. Federal
chartered thrifts can invest only 3 percent in
service corporations. In most of the pending,
applications, commercial banks are seeking
conversion to state chartered S&Ls primarily
because state agencies tend to grant expanded
powers to the institutions they charter.28
32
Recently, commercial banks have expressed
greater interest in converting to thrift institutions.
Apparently, the strongest incentive for conversion is the thrift industry's continued special
treatment notably relaxed capital requirements
and branching privileges. This enticement
becomes especially compelling when other
regulatory agencies deny transactions that may
be compatible with F H L B B policy. In addition,
the array of services thrift institutions can offer
may strengthen a commercial bank's position,
enabling it to establish its share in a particular
services market.
Obstacles to Conversion
W h y have so few banks converted to a thrift
charter? Clearly, conversion carries some benefits, which could be expected to generate
conversion activity; however, no such boom is
imminent. 29 Since the benefits have been discussed, w e now look at the costs of conversion
to explain the sluggish activity.
The transaction cost of conversion varies,
depending on such factors as institution size,
type of conversion, and legal costs. The cost of
the new charter itself is relatively nominal while
total legal fees are sizable. The opportunity
cost of loss of service to customers seems not
to apply, as both Southern Floridabanc and O l d
O C T O B E R 1985, E C O N O M I C R E V I t v V
Stone Bank accomplished their conversions
without disrupting accounts or impairing major
business units. A bank may incur sizable costs
in time, however, as was the case in the complicated conversion of O l d Stone Bank
The cost of information may help account for
the lack of conversion enthusiasm. Because
the history of charter conversions is brief,
banks considering such a move cannot weigh
and learn from the combined experience of
many other firms. Such banks may be the first
to encounter particular problems in the conversion process, and so acquiring information
to resolve those problems can be costly. Obtaining a federal charter allows the institution
to use the term " b a n k " in its title, which may
not be an inconsequential advantage But some
institutions elect to take state charters, even
where federal and state chartered institutions
have equal power.
The momentum of banking industry deregulation also may contribute to the slow growth
of conversions, since the differences between
commercial banks and thrifts continue to
disappear.30 Banks might judge it too expensive
to alter their current asset structure in order to
conform to thrift regulations if the benefits are
only short-run.
The financial condition of the thrift industry
may be retarding the pace of conversions. This
decade's relatively high nominal interest rates
in the United States have forced many savings
institutions to close or merge with stronger
entities.31 The plight of institutions covered by
private or state insurance, as well as the weakness of the FSLIC, compound the thrift industry's
problems. Private and state insurance funds
are vulnerable to a domino effect should a
leading member institution encounter financial
difficulties. The FHLBB recently noted that the
FSLIC has incurred significant losses during the
last four years, and said further "substantial
losses and expenses" are likely in 19 8 5.32 The
thrift industry's continued financial problems
and consequent marketing concerns may deter
some banks from entering the industry.
The misfortunes experienced by other thrifts,
private insurance funds' troubles, or marketing
considerations have induced some savings institutions to convert to commercial banks with
FDIC insurance. 33 Most of these institutions
were state chartered and privately insured;
their actions were linked directly to the current
F E D E R A L R E S E R V E B A N K O F ATLANTA
T a b l e 2. Federal Savings Institutions Converting to
Commercial Banks Since 1982
F H L B B Districi
Current
Applications
Number of
Conversions
Atlanta
Boston
Chicago
Cincinnati
Dallas
Des Moines
Indianapolis
New York
Pittsburgh
San Francisco
Seattle
Topeka
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
Totals
0
2
0
0
0
0
0
0
0
3
Source: Federal Home Loan district banks
private insurance fund crisis. Table 2 indicates
that few federally chartered institutions have
converted to commercial banks since 1982,
but the persistence of thrift industry ailments
may prompt more savings institutions to convert
Regulations have restrained conversion activity
further. In particular, the FHLBB's previous
prohibition on P&A conversion transactions
(unless the financial institution resided in a
state permitting state law charter conversions)
was a powerful brake. A small- or mediumsized bank in a state that prohibits commercial
bank-to-thrift conversions may have lacked the
funds to convert by acquiring a troubled thrift.
The new FHLBB regulations should remedy
this situation and encourage conversion activity.
New Thrift Charters
Owing to the expanded powers the F H L B B
has accorded to thrifts, new institutions may be
more likely to open as thrifts than as commercial banks. As a result, savings institutions
could become more evident in the financial
environment, especially if conversion activity
accelerates.
Both new thrift institutions (FHLBB members)
and commercial banks have grown in number,
especially since 1982, but banks have increased
33
Table 3. New Member Savings Institutions and Commercial Banks, 1976 - 1984
Year
Total New
Member Savings
Institutions and
Commercial Banks
Savings
Institutions
Percentage
Change
1976
1977
1978
1979
1980
1981
1982
1983
1984
205
235
198
271
314
250
363
432
543
44
78
50
67
109
51
46
71
88
21.46
33.19
25.25
24.72
34.71
20.40
12.67
16.44
16.21
Commercial
Banks*
161
157
148
204
205
199
317
361
455**
Percentage
Change
78.54
66.81
74.75
75.28
65.29
79.60
87.33
83.56
83.79
'Commercial banks are national banks, state member banks, and state nonmember banks
** For comments on subsequent growth, see Paul S Nadler,"Big Boom in New Banks." Bankers Monthly Magazine, vol. 102 (March 1 5,1985), pp. 8-10.
Sources: Savings institution data are from the Federal Home Loan Bank Board. Most commercial bank data are from various issues of FDIC Changes
Among Operating Banks and Branches: 1984 commercial bank data are from "Deregulation Spawns a Wealth of Small Banks," The Wall
Street Journal, May 6, 1985.
more rapidly (see Table 3). 34 Their faster growth
further emphasizes the apparent attractiveness of commercial bank charters even in the
face of some thrift charter advantages.
Conclusion
Conversion to a savings institution, especially a
federal savings bank, appears to be an attractive
alternative for a commercial bank seeking to
diversify or to lessen its regulatory burden.
Conversion is particularly attractive for banks
whose portfolios are more likely to meet the
FHLBB's qualified thrift lender test. Incentives
for banks to convert to savings institutions will
continue as long as the thrift industry receives
special legislative treatment and commercial
banks are restricted from effectively competing
with nonfinancial entities.
Policymakers must consider the possible
unintended effects of the changes they mandate. Should Congress either extend the use of
net worth certificates, assist the FSLIC, or offer
further tax advantages to thrifts, for example, it
may help the thrift industry but affect the rate
of conversion. Policy changes that encourage
more bank-to-thrift conversions, however, can
further aid the thrift industry by allowing stronger
institutions to enter. This opens up the additional possibility that healthy entrants will
34
merge with weaker institutions, benefiting the
FSLIC
W h i l e there are arguments for encouraging
bank-to-thrift conversion, policymakers should
be alert to some potential pitfalls of a wave of
conversions. In particular, policymakers should
recognize the possibility that a wave of conversions might weaken the financial industry.
For example, if all the converting institutions
became subject to current regulatory net worth
requirements for thrift institutions, it probably
would diminish the capital to assets ratio for
depository institutions. In addition to reducing
the capital to assets ratio in depository institutions, a spate of conversions would transform
the balance of regulatory power and increase
the latitude of allowed activities for converting
institutions. This phenomenon might also affect
the soundness of financial institutions and the
efficient allocation of credit Significant changes
in policy that could accelerate the number of
conversions may need to be accompanied by
changes in ban k-to-th rift conversion policy to
avoid an onrush of conversions.
So far, conversion activity is light. Despite
their advantages, few conversions have occurred
and no deluge is in sight Conversion costs, information costs, transaction costs, and the cumbersome process itself probably dam the potential
tide of bank-to-thrift conversions.
O C T O B E R 1985, E C O N O M I C R E V I t v V
NOTES
1 The Federal
Register notes that the following statesare believed to permit
some type of conversion from a commercial bank to a savings institution:
California Connecticut Florida Maine, Missouri, Pennsylvania Utah,
Virginia and Washington. When contacted, the state regulatory agencies
for savings and loans for these states indicated that the possibility of
conversion from a state-chartered bank to a state-chartered S&L has
existed since the states began to charter S & L s S e e Federal Register,
April 24, 1985, p. 16071.
•A qualified thrift lender is any insured institution that has an aggregate of
not more than 25 percent of its assets (including loans made by any
subsidiary) invested in commercial loans, nonresidential real estate
loans, tangible personal property leased for commercial purposes, and
floor-planning or inventory loans; or, has an aggregate of not less than 60
percent of its assets (including subsidiaries' investments) invested in
loans, equity positions, or securities related to domestic residential real
estate, or manufactured housing and property used by an institution in
the conduct of its business. The institution must not fall below such
percentage on an average basis in three out of every four quarters and
two of every three years.
'Forexample, in 1985 Borod& Hugginsconductedaseminarentitled'The
Thrift Charter—Should You Convert Your Commercial Bank to a Thrift
with a Unitary S&L Holding Company?"
'William J. Brown, The Dual Banking System in the United States (New
York: American Bankers Association Department of Economics and
Research, 1968), pp. 64-65.
'State-chartered institutions are regulated by agencies of the state
government Rules of operation are dependent upon the state of
residency. They are subject to federal supervision only if they insure with
the FDIC, or FSLIC, or NCUSIF, or affiliate with the Home Loan Bank
System Federally chartered S&Ls are regulated by the F H L B B and
FSLIC. State and federal chartered institutions possess similar powers,
which allows the institutions the opportunity to select the form that best
fits its structure At times the federal savings bank form is specified
because it allows an institution to use "bank" in its title.
'For a fuller discussion of the new powers granted to savings institutions,
both state and federal chartered see Robert E Goudreau "S&L Use of
New Powers: A Comparative Study of State- and Federal-Chartered
Associations," Economic Review, Federal Reserve Bank of Atlanta vol.69
(October 1984), pp 18-33.
'Some savings institutions appear willing to use this technique. For
example, see comments of Theodore W. Barnes chairman of Old State
Bank in Alan Wade, "A National Financial Services Company," United
States Banker, vol. 96 (March 1985), p 31.
'It has been contended that a customer can maintain the demand deposit
account even after the loan has been paid when the nature of the
customer's business reasonably suggests a need for further loans However,
section 312 of Garn-St Germain is silent on this matter. S e e Thomas P.
Vartanian and John D. Hawke Jr., "It Sounds Like a Banker's Fantasy. But
It Isn't" American Banker, April 13,1983. Also see Title III, Section 312 of
the Garn-St Germain Depository Institutions Act of 1982.
'Although savings institutions can accept demand deposits and make
commercial loans they are not considered commercial banks The Bank
Holding Company Act defines a bank as an institution that both receives
demand deposits and makes commercial loans and so a savings
institution might be classified as a commercial bank for some purposes
However, because section 333 of theGarn-StGermain Actexcludesfrom
the previous act's definition any institution that is either chartered by the
F H L B B or insured by the F S L I C savings institutions retain their distinction
from commercial banks Similarly, they are not treated as full competitors
of commercial banks in most merger and acquisition analyses
'For detailed discussions of interstate banking issues see "New Directions
in Interstate Banking—Special Issue," Economic Review, Federal Reserve
Bank of Atlanta vol. 70 (January 1985) and "Interstate Banking Laws:
Time to Remodel?—Special Issue," Economic Review, Federal Reserve
Bank of Atlanta vol. 70 (March 1985).
'See the F H L B B s policy on remote service units (RSUs) in F H L B B
Annotated Manual of Statutes and Regulations, Paragraph 931, subsection 545.141, 5th edition.
'A national bank is prohibited from owning or renting an ATM across state
lines because such an action would be in violation of the McFadden Act
According to the comptroller's ruling in 1976, an ATM that is neither
owned nor rented by a national bank is not deemed a branch of that
national bank merely because that bank'scustomers may use the ATM in
exchange for the payment by that bank of a transaction fee to the ATMowner. Thus a national bank may participate in a shared electronic
network The Court of Appeals ruling on the Marine Midland case affirmed
the comptroller's position.
'The federal banking regulatory agencies define primary capital as
comprising common and perpetual preferred stock surplus and undivided
profits contingency and other capital reserves mandatory convertible
instruments 100 percent of funds set aside as reserve for possible loan
F E D E R A L R E S E R V E B A N K O F ATLANTA
losses and minority interest in consolidated subsidiaries Subtracted
from the above categories are equity commitment notes and intangible
assets The FDIC and OCC subtract all intangible assets except for
purchased mortgage servicing rights The Federal Reserve subtracts
only the goodwill portion of intangible assets For a description of the
above categories and information regarding new bank capital standards
see R. Alton Gilbert Courtenay C. Stone, and Michael E Trebing, "The
New Bank Capital Adequacy Standards" Review, Federal Reserve Bank
of S t Louis vol. 67 (May 1985). pp 12-20.
•See, for example, " F H L B B Tightens Net Worth Rules Despite Oppositioa"
Savings Institutions, vol. 106 (January 1985), pp 6-8.
5 Net worth is defined as the amount by which a savings institution's assets
exceed its liabilities It acts as a cushion to protect savers against any
losses on loans and other investments and consists of federal insurance
and general reserves paid-in surplus undivided profits subordinated
debentures appraised equity capital, net worth certificates and mutual
capital certificates for a mutual institution or permanent stock for a stock
associatioa
6Although a number of savings associations have converted from mutual
to stock ownership, many thrifts remain mutual institutions For example,
in its 1983 annual report the F H L B B notes that the number of FSLICinsured institutions with stock form of organization increased from 755 at
the end of 1982 to 780 at the end of 1983 as a result of conversions and
new charters; over the same period, the number of FSLIC-insured mutual
institutions declined from 2,594 to 2,403 because of conversions and
mergers S e e F H L B B "Revitalizing America's Savings Institutions" 1983
Federal Home Loan Bank Board Annual Report(Washington, 1 984), p. 40.
' S e e Ira L Tannenbaum, "Memorandum, re: Comparability in Thrift and
Bank Regulation," Golembe Reports, no 2 (March 5, 1984).
""Why Some Banks Think It's Better to Be a Thrift" Business Week,
November 19, 1984, p. 151.
'12 U.SC. 770(a)(19)(c).
5 See
Herbert Baer, "Tax Barriers to Diversification by Savings and Loan
Associations" in Federal Reserve Bank of Chicago, Bank Structure and
Competition, Proceedings of a Conference held at Chicago, Illinois May
1983, Conference Series vol. 19 (May 1983), pp 151-70
1 S e e Charles D. Salley, "1970 Bank Holding Company Amendments What
Is'Closely Related to Banking'? "Monthly Review, Federal Reserve Bank
of Atlanta vol. 56 ( J u n e 1971), p 100.
! A federally chartered S& L or federal savings bank can invest in real estate
via a service corporation without a holding company structure. S e e
F H L B B Annotated Manual ot Statutes and Regulations, paragraphs
1452-14526, fifth edition.
'The F H L B B defines a qualified institution as an insured institution, the
business of which consists principally of acquiring the savings of the
public and investing in loans In addition, at least 60 percent of the
institution's total assets at the close of its taxable year must consist of
certain assets among which are cash, government obligations loans
secured by deposits loans secured by residential real property, property
acquired through liquidation of defaulted eligible loans and property
used by the institution in the conduct of its business The subsection lists
10 categories of assets For a complete listing see, F H L B B Annotated
Manual ot Statutes and Regulations, Paragraph 1452b, subsection
584.2-2, 5th edition.
'Converting state-chartered savings institutions may remain insured by
the FDIC for a transition period.
'See Jeffrey C. Gerrish, "The Thrift Charter Should You Convert Your
Commercial Bank to a Thrift with a Unitary S&L Holding" Company/?"
(Presented to the Sigma Foresight Meeting, Albuquerque, New Mexico
February 24-26, 1985), p. 28.
'In addition to the states mentioned in note 1, the Federal Register reports
that the Idahoand Illinois statutes are silent on the matterand may permit
such conversion. Michigan would allow commercial banks to convert to
state-chartered thrifts if such a conversion is permissible under federal
regulation. S e e Federal Register, April 24, 1985, p 16071
Ibid, p. 16072.
'Investment in a service corporation is one of the most liberal powers that
state agencies grant state-chartered thrifts The three states with the
highest limits on such investment are Florida Texas and California
State-chartered institutions in Florida may invest up to 10 percent of
assets or net worth, whichever is less in Texas the limit is 10 percent and
in California 100 percent The additional investment privilege may enable
a thrift to invest in more risky ventures
'See, for example, Thomas P Vartanian and John D. Hawke Jr., "Conversions May Spur Thrift Industry Rebirth," American Banker. April 14,
1983, and CarterGolembe/'IsThere Really aThrift Industry?" Bottomline
National Council of Savings Institutions, no 2 (February 1985), pp 39-46.
'Gerrish (1985) and Tannenbaum (1984) seem to suggest this
As an indication, the 1983 Federal Home Loan Bank Board annual report
states that the board approved 138 mergers in 1983, eliminating 159
institutions whereas it had approved a record425 mergers(involving483
35
disappearing institutions) in 1982. Of the mergers approved in 1983, 23
were FSLIC-assisted, down from 44 in 1982; 31 were of a supervisory
nature but without assistance, down from 166 in 1982; and 84 were
voluntary, down from 215 in 1982.
" S e e "Bank Board Sets S&L Assessment" American Banker, February25,
1985, and "Ohio S&L Crisis May Spur Industry," Wall Street Journal, April 8,
1985.
33 Eight privately insured state-chartered savings institutions in Georgia
have decided to convert to state-chartered banks covered by FDIC
insurance. S e e Peter Mantius, "Privately Insured Georgia S&Ls Are
Switching to FDIC," Atlanta Constitution, May 15,1985. In addition, state
savings and loan regulators in Ohio report that since the recent crisis
involving privately insured S&Ls, seven associations have converted to
36
commercial banks For comments on marketing considerations see
"New Law Simplifies and Shortens Process for Converting State Banks to
S&Ls and Thrifts to Banks," American Banker, J u n e 25, 1985.
34 ln some expanding areas Florida and Texas for example, the rate of
growth of new state chartered thrifts during the first six months of 1984
has outpaced that of state chartered commercial banks During that
period the rate of state thrift openings has remained stable while that for
federal charters has risen, but the rate of national bank openings has
dropped This could suggest that where growing real estate and consumer
business exists in addition to the increased denial rate of the OCC, thrift
charters are attractive. S e e Mark Basch, "Rate of State Thrift Openings
Stable, But Commerical Bank Start-Ups Fall," American Banker, August
22, 1985.
O C T O B E R 1985, E C O N O M I C R E V I t v V
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Advice on Successful Techniques
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Perspectives from High-Performance Companies
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them succeed even in the face of economic hard times and foreign competition. Presented
at a conference sponsored by the Federal Reserve Bank of Atlanta, their examples suggest
how America's lagging productivity can be revived through the increased imagination and
innovation of individual corporations and institutions.
Order from: G R E E N W O O D P R E S S , 88 Post Road W e s t P.O. Box 5007, Westport, CT 06881
S e n d me
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Proceedings of conferences sponsored by the Federal Reserve Bank of Atlanta
FEDERAL RESERVE BANK O F ATLANTA
37
The Cattle Cycle:
A Pattern Gone Awry
Charles Lokey, Jr. and Gene Wilson
In recent years cattle production cycles, the
periodic undulations in cattle numbers from
troughs to peaks, have strayed from the pattern
established in the early 1900s. The irregular
effects of this deviation, influencing both prices
received by U.S. producers and the cost of beef
to consumers, seem likely to continue for at least
another two years.
Over the period from 1928 to 1979, five
production cycles were completed in this country.
They averaged ten years in length, with individual
cycles ranging from nine to twelve years (see Table
1). In each of these cycles, cattle inventory
numbers generally trended upward, meaning
that each successive cycle started at a higher
inventory level than the precedingone. Although
cycles have displayed considerable similarity,
the amplitude and length of each cycle have
varied. The length of the upward phase is constrained biologically by the time required to
produce additional calves and raise female stock
to breeding age. The length of the downward or
liquidation phase, on the other hand, is determined by the relative advantages to selling rather
than maintaining stock, namely, the relationship
between production costs and cattle prices.
Historically, cycles have peaked in approximately the middle of each decade; the last four
complete cycles peaked in 1945, 1955, 1965,
and 1975. The most recent cycle, however,
deviates from the past century's persistent general
pattern. Starting from a production trough at
the beginning of 1979, the expansion trend in
cattle numbers should have peaked in 1985 or
1986. Instead, the national beef cattle inventory
apparently reached its summit early in 1982.
Evidently, cattle producers recently have altered
38
Table 1. Cattle arid Calves on Farm
at Peak and Trough
(Million Head)
Cycle
1928-1938
1938-1949
1949-1958
1958-1967
1967-1979
1979-
Trough
Year
Peak
Year
57
65
77
91
109
111
1928
1938
1949
1958
1967
1979
74
86
96
109
132
115
1934
1945
1955
1965
1975
1982
Source: Derived from USDA. Agricultural
Livestock and Poultry Outlook
issues
Statistics, various issues, arid
and Situation Report, various
their decisions in such a way that inventories no
longer follow the typical cycle.
The 1979 production cycle began typically,
with inventory levels of 110.9 million head rising
to 11 5.6 million by the beginning of 1982 (see
Chart 1). W i t h improved forage supplies and
grazing conditions, cattlemen were expected to
expand their herds further in 1983 in orderto use
the greater carrying capacity of pastures and
ranges. However, adecline in cattle pricesanda
run-up in feed costs combined with a weak economy and continued uncertainty about economic recovery made ranchers reluctant to boost
inventories. As a result, the expansion phase of
the cycle halted, cattle numbers declined, and
the liquidation phase began prematurely. After a
very slight decline in 1982, cattle inventories
decreased by one percent, while the number of
heifers (immature females) held for herd expansion dropped four percent In 1984 inventories
declined an additional three percent and total
cattle liquidation reached a high level.
An additional reason for the shortened cattle
cycle appears to be changing consumer tastes.
Per capita consumption of beef fell in the late
seventies, breaking a long upward trend, while
consumption of poultry continued its growth
O C T O B E R 1985, E C O N O M I C R E V I t v V
Chart 2. U.S. Per Capita Consumption of Beef
and Poultry, 1973-1984
Chart 1. Cattle on Farms, January 1, 1977-1985
Million Head
Pounds
1977 '78
'79
'80
'81
'82.
'83
'84
'85
Source: USDA. Livestock and Poultry. Outlook and Situation, various issues
from 1984 and 1985
straight through the early years of this decade
(Chart 2). American consumers' willingness to
replace beef with poultry suggests that cattle
inventories may not need to expand as much as
in past cycles.
Financial difficulties caused by low returns and
high feed costs in the 1983-1984 period, plus
drought in some areas, led to unusually high
levels of beef cow slaughter.1 This suggests that
the U.S. cattle inventory will drop even lower in
1985. O n July 1 the total inventory was 4 percent
less than a year ago and at its lowest point since
1968. Reflecting cattlemen's unwillingness to
retain heifers for breeding, beef replacement
heifers were down 11 percent from year-earlier
levels. As a result of this trend, the percentage of
calves to cows has declined throughout the
eighties and contributed to continuing inventory
liquidation. Prospects for a larger caif crop and
therefore another period of inventory expansion
depend heavily on a rise in the calving rate.
However, poor financial incentives and producers' need to generate additional cash flow
F E D E R A L R E S E R V E B A N K O F ATLANTA
Source: USDA. Agricultural
Statistics
1984
have led them to sell a substantial number of
heifers.2 This low retention rate indicates that
less than 70 percent of the cows slaughtered
during 1985 will be replaced. In fact, the estimated calf crop for 1985 is 3 percent less than
last year's. Because fewer heifers will calve and
enter the cow herd this year, prospects for
rebuilding cattle inventories in the near future
are dimmed further.
In the present cycle, cattle liquidation differs
significantly among regions of the United States.
The largest drop (7 percent) in beef cow numbers
from year-ago levels occurred in the Great Plains
region; inventories fell 5 percent and 3 percent
in the North Central and Southern regions,
respectively. Since the cow herd is a highly liquid
source of capital, operators who need cash for
crop planting expenses apparently continued to
liquidate their herds through the spring. Beef
cow slaughter remained high during the first half
of 1985 in the North Central and Northern Plains
regions where the farm sectors economic distress
has been most severe.
39
Chart 4. Number of Cattle and Calves, 1940-1984
Chart 3. U.S. Beef Cattle Prices
Annual Average, 1979-1985
Million Head
Dollars/cwt
130 -
60
1979
'80
Source: U S D A Agricultural
'81
'82
'83
'84
'85
Prices. 1984 Summary and J u n e 1985 issue.
Returns to beef producers have fallen in each
of the major regions since 1980. From 1980 to
1983, net returns per cow fell in the Great Plains,
North Central, and Western regions. Producers
in the South have lost money on their herds since
1981.3
Cattle are simultaneously a form of investment
and a source of immediate income. For this
reason, w e can view ranchers' expectations about
future prices from two perspectives. As an investment cattle give the producer a source of future
income with asset values rising along with herd
size. But herd expansion may be halted at any
time and the cattle sold to slaughter for immediate
income.
W h e n cattle are regarded in this manner, beef
price changes may influence ranchers in one of two
ways. A rise in the price of beef may cause
ranchers to expect higher prices in the future,
inducing them to increase the size of their
breeding herds to take advantage of these prices.
O n the other hand, an increase may encourage
40
-1940'44
'49
'54
Source: U S D A Agricultural
'59
'64
Statistics,
'69
'74
'79
'84
various years
producers to sell cattle immediately to profit
from the current high price. The market price of
cattle serves to equilibrate the demand for and
the supply of beef and to channel resources into
and out of beef production. Consequently, price
trends usually lead production cycles and tend
to reflect the net effect of demand and supply
forces at work (see Charts 3 and 4).
In the present cycle, these price factors come
into play. From 1975 to 1980, the price per head
increased each year, peaking in 1980 at an
average of $502. Presumably because their price
expectations are heavily influenced by recent
experience, ranchers increased inventories nearly
3 percent by 1981. The stepped-up production
from the expanded herd also permitted slaughter
to increase nearly 4 percent in the same period.
In these years, the expectation of future price
increases swelled inventories through early 1982,
when prices declined to $414 per head. These
price downturns, along with higher costs and
greater cash flow needs, caused the expansion
O C T O B E R 1985, E C O N O M I C R E V I t v V
phase to peak and the liquidation phase to
begin, resulting in increases in market supply of
beef and a short-run market price decline. As
more cattle were slaughtered, beef supplies
grew; however, consumer demand, as measured
by per capita consumption, shrank. Cattle prices
continued to fall and farmers accelerated the
rate of herd liquidation, partly to acquire funds to
meet financial obligations but also because losses
were growing and they feared prices would sink
even further.
In early 1985, high levels of slaughter were
maintained, so inventories contracted further.
W i t h sharp price declines in early summer,
ranchers' price expectations for the future may
remain depressed. By late July, cash prices at
Midwest markets were reported to be the lowest
since 1978. Cattle futures prices continued in a
slump that originated in the fourth quarter of
1984, apparently as a result of enlarged beef
supplies from further herd liquidation combined
with heavier weights of animals marketed from
feed lots. 4 Even if production slackens substantially, it might not increase prices significantly
considering the ample non-beef meat supplies.
The decreasing calf crop and reduced heifer
retention indicate that ranchers expect no immediate upturn.
For consumers, increased herd liquidation since
1982 most likely has produced lower retail prices
than would otherwise have been the case. Retail
beef prices, as measured by the Consumer Price
Index, certainly have fallen consistently the first
half of this year. But the beef-loving consumer
should find the tables turned during the next few
years. W i t h small inventories, when cattlemen
become more optimistic and retain more livestock for breeding purposes, beef prices may rise
substantially. The degree to which substitute
products can satisfy the consumer palate will be
a major factor, as will the level of beef imports, in
determining how much beef prices can increase.
F E D E R A L R E S E R V E B A N K O F ATLANTA
Thetimingof aturnaround is uncertain, butthe
latter part of 1985 might see cattle inventories
reach their nadir. As retail movement picks up
seasonally and production falls from the first half
of the year, prices should begin to strengthen.
W i t h an upward price movement, slaughter rates
eventually will slow, the supply of cattle for
market will shrink even more, and cattlemen will
regain a measure of confidence. Consequently,
they are likely to begin increasingtheir herd size,
thus starting a new cycle. Will the cycle then
revert to a more traditional pattern? That is
largely up to the American consumer.
Lokey is a research intern, Wilson a senior economic
on the Research Department's
regional economics
analyst
team.
NOTES
' U S Department of Agriculture, Economic Research Service, Livestock
and Poultry: Outlook and Situation (February 1983), p. 5
ERS, Agricultural Outlook (September 1985), p. 29.
3 U S D A ERS, Agricultural
Outlook (April 1985), p. 5.
"Animal weights tend to increase when feed lot operators postpone sales
of fat cattle following an unexpected price decline. Their unwillingness to
accept immediate losses often aggravates the over-supply problem and
contributes to additional losses Infrequently, slaughter weights may also
rise when a drop in feed costs makes it profitable to feed heavy animals
past the point of optimum condition.
2USDA
BIBLIOGRAPHY
Ginn, Bruce and George Earle. "Cowmen Share the Profits." Farm Journal
Beef Extra, vol. 1 (March 1985). pp. 16-17
Rucker, Randal R., Oscar R Burt and Jeffrey F. LaFrance. "An Econometric
Model of Cattle Inventories," American Journal of Agricultural Economics, vol. 66 (May 1984), pp 130-43
Schotsch, Linda ed. "Beef Outlook" Farm Journal Beef Extra. voL 1 (March
1985), p. 6.
U.S Department of Agriculture Agricultural Statistics 1984 Washington:
Government Printing Office, 1984
_
. Economic Research Service. Agncty/ftira/Ouf/oo't. GPO, various
issues 1980-1985.
_ .. Economic Research Service. Economic Indicators of the Farm
Sector. Income and Balance Sheet Statistics. GPO. 1983.
Economic Research Service. Livestock and PoultryOutlook and
Situation Report. GPO, various issues 1980-1985.
Statistical Reporting Service Livestock Slaughter 1984 Summary.
GPO, 1985.
41
FINANCE
AU3
1985
Carmercial Bank Deposits
Danand
NOV
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
AUG
1984
JUL
1985
ANN.
%
CH3.
+11
+ 7
+18
+20
+5
+22
+34
+22
Savings & Loans**
Total Deposits
NOV
Savings
Time
13,437
46,655
82,588
7,321
674
6,475
158,,738
35,,892
11,,624
40.,855
74,,127
6!,203
559
5,,507
+5
+21
+16
+11
+20
+27
+19
Total Deposits
1,529,412 1,517,476 1.,388,,132
331,838
305,,958
327,086
107,248
103,140
90,,674
426,497
355,,986
419,675
670.,766
706,491
707,177
65,349
64,267
53,,366
6,457
7,705
5,,762
47,,445
57,695
56,985
H37,957
B F
IVbrtgages Outstanding
IVbrtgage Carmi tments
M
Ccrmiercial Bank Deposits
Demand
NOV
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
37,766
14,062
47,540
82,112
7,461
711
6,569
Ccrrmercial Bank Deposits
Danand
N3W
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
17,950
3,984
1,409
3,716
9,409
1,140
129
947
18.,336
3.,878
1.,312
3,,685
9,,942
1,,124
121
937
16,,507
3,,759
1,,035
3,,297
8,,939
971
99
851
+ 9
+ 6
+36
+13
+5
+ 17
+30
+11
Savings & Loans**
Total Deposits
M3W
Sav i ngs
Time
Carmercial Bank Deposits
Demand
NCK
Savings
Time
Credit Union Deposits
Share Drafts
Savings h. Time
64,091
13,528
5,876
22,026
24,169
3,360
354
2,857
63,,286
13,,618
5,,642
21,,678
24,,000
3,,302
341
2.,822
55,,909
12,,610
4,,794
19,,210
20,,511
2,,729
279
2,,307
+ 15
+ 7
+23
+15
+18
+23
+27
+24
Savings 5c Loans**
Total Deposits
NOW
Sav i ngs
Time
Carmercial Bank Deposits
Demand
NOV
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
28,110
7,786
1,886
7,435
12,432
1,523
117
1,420
27, 744
7, 878
1, 792
7, 222
12,,400
1,,504
109
1,,405
24, 372
7,.190
1,,537
5, 653
11.,080
1,,305
88
1,,217
+15
+ 8
+23
+32
+12
+17
+33
+17
Savings & Loans**
Total Deposits
NOW
Savings
Time
Carmercial Bank Deposits
Danand
VON
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
28,202
5,450
1,724
6,568
14,970
191
18
177
28.,175
5,,520
1,,682
6.,362
15,,132
189
17
184
26.,134
5.,633
1.,527
5.,511
13.,946
213
24
209
+ 8
- 3
+13
+19
+ 7
-10
-25
-15
Savings & Loans**
Total Deposits
MOW
Sav i ngs
Time
Carmercial Bank Deposits
Danand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
13.,169
2.,546
958
2.,592
7.,439
»
13.,063
2,,469
914
2,,532
,457
7,
12.,19b
2.,361
849
2.,355
6., 947
»
+ 8
+ 8
+13
+10
+ 7
Savings & Loans*»
Total Deposits
NOV
Savings
Time
Carmercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
25,,533
4,.472
2,,209
5,,203
13,,693
1,,247
93
1,,168
*
*
*
*
»
2b,,360
4.,594
2.,095
5.,176
13,,657
1.,202
86
1,,127
Savings
Time
IVbrtgages Outstanding
IVbrtgage Carmitments
IVbrtgages Outstanding
Mortgage Carmitments
Mortgages Outstanding
iVbrtgage Carmitments
IVbrtgages Outstanding
IVbrtgage Carmitments
IVbrtgages Outstanding
iVbrtgage Carmitments
Mortgages Outstanding
iVbrtgage Carmitments
*
*
23,,621
4,,339
1,,882
4,,829
12,,704
985
69
923
now
+ 8
+3
+17
+ 8
+ 8
+27
+35
+27
Savings & Loans**
Total Deposits
NOW
Sav i ngs
Time
Mortgages Outstanding
IVbrtgage Carmitments
ANN.
%
CH3.
AUG
1985
JUL
1985
AUG
1984
740,862
25,666
176,076
540,949
628,,086
19,,941
148,,708
461.,454
MY
617.,574
40,,705
682,453
20,582
166,929
497,490
+ 9
+25
+5
+ 9
563,375
47,754
+11
-16
JIM
623,275
39,956
^ ^ ^
98,049
3,976
22,018
72,346
JIN
H B
^ ^
95 ,723
3 ,679
21 ,143
72,,596
N.A.
N.A.
N.A.
N.A.
79,181
4,872
78.,571
4.,791
70,986
5,424
6,,454
232
1,,097
5,,131
6,369
219
1,062
5,132
5,,517
169
880
4,,506
+17
+37
+25
+ 14
4,,484
333
4,411
349
4.,165
222
+ 8
+5
63.,234
2.,668
15 ,079
45 ,401
61,063
2,460
14,318
44,285
57.,948
2.,283
14.,460
41 ,282
+ 9
+17
+ 4
+10
47.,453
3.,276
46,959
3,206
41 ,759
3.,386
+14
- 3
8,425
429
1,890
6,260
8,387
384
1,874
6,272
8 ,064
283
1,794
6 ,117
+ 4
+52
+ 5
+2
9,419
416
9,426
410
8 ,798
489
+ 7
-15
10,962
328
2,348
8,424
10,966
313
2,306
8,499
9 ,605
244
2 ,218
7 ,273
+14
+34
+ 6
+16
9,457
354
9,368
337
8 ,766
724
+ 8
-51
1,913
62
321
1,589
1,907
62
310
1,591
N.A.
N.A.
N.A.
N.A.
2,156
285
2,149
263
2,059
223
+5
+28
7,061
257
1,283
5,541
7 ,031
241
1,273
6 ,817
6,,996
197
1,,282
5,,549
+ 1
+30
+ 0
- 1
6,212
208
6 ,258
226
5,,439
380
+ 14
-45
JIN
JIN
JIN
JIN
JIN
JW
JIN
MVY
MUT
M\Y
MÖ
M\Y
MftY
MVY
JIN
JIN
JIN
JIN
JIN
JIN
JIN
+12
-10
Notes: A l l deposit data are extracted fran the Federal Reserve Report of Transaction Accounts, other Deposits and Vault Cash (FR2900), and
are reported for the average of the week ending the 1st Monday of the month. This data, reported by institutions with over $15 m i l l i o n in
deposits and $2.2 m i l l i o n of reserve requirements as of June 1984, represents 95% of deposits in the six state area. The annual rate of
change is based on most recent data over December 31, 1980 base, annualized. The major differences between this report and tlie " c a l l report"
are size, the treatment of interbank deposits, and the treatment of f l o a t . The data generated frcm the Report of Transaction Accounts is for
banks over $15 m i l l i o n in deposits as of Decarfcer 31, 1979. The total deposit data generated frcm the Report of Transaction Accounts eliminates
interbank deposits by reporting the net of deposits "due to" and "due frcm" other depository i n s t i t u t i o n s . The Report of Transaction Accounts
subtracts cash in process of c o l l e c t i o n frcm demand deposits, while the c a l l report does not. Savings and loan mortgage data are frcm the Federal
Heme Loan Bank Board Selected BalanceSheet Data. The Southeast data represent the t o t a l of the six states. Subcategories were chosen on a
s e l e c t i v e basis and do not add to t o t a l .
* = fewer than four i n s t i t u t i o n s reporting.
** = S&L deposits subject to revisions due to reporting changes.
N.A. = not a v a i l a b l e at this time.
42
O C T O B E R 1985, E C O N O M I C R E V I E W
CONSTRUCTION
JUL
1985
J UN
1985
JUL
1984
ANN.
% .
CHG.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
65,966
Industrial Bldgs.
8,630
Offices
16,712
Stores
10,210
Hospitals
2,115
Schools
1,124
64,639
8,566
16,485
10,027
2,025
1,127
58,587
7,730
l4,0l4
8,883
1,865
891
+13
+12
+19
+15
+13
+26
JUL
1985
JUN
1985
JUL
1984
ANN.
%
CHG.
76,609
75,280
74,834
+ 2
910.2
728.9
897.0
727.7
940.3
770.8
- 3
- 5
142,575
139,919
133,421
+ 7
13,397
13,636
14,195
- 6
189.9
157.7
187.4
159.1
193.2
183.8
- 2
-14
24,274
23,700
23,166
+ 5
UNITED STATES
^Residen^^Bim^niH^rraits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
ding
otal Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
10,878
1,075
2,504
2,073
415
140
10,065
1,040
2,438
2,018
372
115
8,972
897
2,015
1,741
474
116
+?i
+20
+24
+19
-12
+21
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Nonresidential Building
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
651
68
125
150
52
13
646
68
122
139
' 51
9
736
184
80
111
13
6
-1?
-63
+56
+35
+300
+117
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permit s - $ Mil.
Total Nonresidential
5,74b
Industrial Bldgs.
572
Offices
1,131
Stores
1,165
Hospitals
211
Schools
49
5,ill
559
1,102
1,156
183
40
4,362
428
933
995
2i8
45
+3?
+34
+?1
+17
- 3
+ 9
Kesiaentiai buiiaing Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Nonresidential Building
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
$ Mil.
1,883
279
502
303
26
19
1,821
272
493
290
29
16
1,608
168
517
236
62
17
+17
+66
- 3
+28
-58
+12
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Nonresidential Building
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
1,334
47
401
241
68
43
1,310
46
390
239
64
37
1,184
29
307
204
148
41
+13
+62
+31
+18
-54
+ 5
Value - $ Mi 1.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Mississippi
Nonresidential Building
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
lits •- $ Mil.
273
18
50
56
17
8
242
14
45
48
6
5
246
14
27
51
13
1
+11
+29
+85
+10
+31
+700
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Nonresidential Building
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
y9l
91
295
158
41
8
935
81
286
146
39
8
836
74
151
144
20
6
+19
+23
+95
+10
+105
+33
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
476
477
478
- 0
9.4
6.6
9.1
6.4
8.3
8.5
+13
-22
1,127
1,123
1,214
- 7
7,545
7,746
8,300
- 9
100.9
95.3
100.0
96.2
105.9
102.1
- 5
- 7
13,290
12,857
12,662
+ 5
2,850
2,843
2,733
+ 4
45.1
23.1
44.3
23.1
43.1
27.9
+ 5
-17
4,733
4,664
4,341
+ 9
832
848
1,170
-29
12.4
8.6
12.4
8.9
16.3
17.5
-24
-51
2,167
2,158
2,353
- 8
341
353
-383
-11
6.2
3.1
6.2
3.5
5.8
6.3
+ 7
-51
613
594
629
- 3
1,353
1,369
1,131
+20
15.9
21.0
15.4
21.0
13.8
21.5
+15
- 2
2,344
2,304
1,967
+19
NOTES:
Data supplied by the U. S. Bureau of the Census, Housing Units Authorized B.y Building Permits and Public Contracts, C-40.
Nonresidential data excludes the cost of construction for publicly owned buildings. The southeast data represent the total of the six
states. The annual percent change calculation is based on the most recent month over prior year. Publication of F. W. Dodae construc3
tion contracts has been discontinued.
FEDERAL RESERVE BANK O F ATLANTA
43
GENERAL
Personal Income
($bi1. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Art-. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
($bi1. - SAAR)
Taxable Sales - Sbil.
Plane Pass. A r r . (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
l$bil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
MIAMI
Kilowatt Hours - mils.
Personal Income
($bi1. - SAAR)
Taxable Sales - $bil.
Plane Pass. Arr. (000's)
P e t r o l e u m Prod, (thous.)
Consumer Price Index
1967 = 100
ATLANTA
K i l o w a t t Hours - m i l s .
Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
l$bi1. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
(Soi 1 - - SAAR;
Taxable Sales - Sbi1.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
NOTES:
ANN.
X
CHG.
LATEST
CURR.
DATA
PERIOD
PREV.
PERIOD
YEAR
AGO
1Q
3,129.1
N.A.
3,082.9
N.A.
2,906.5
N.A.
+ 8
AUG
8,926.0
8,957.5
8,785.0
+ 2
AUG
JUN
323.5
189.2
322.8
177.6
313.0
189.1
+ 3
+ 0
375.9
N.A.
5,037.1
1,539.0
351.5
N.A.
4,669.4
1,502.0
+ 9
JUN
AUG
381.7
N.A.
4,811.1
1,527.0
+ 3
+ 2
JUN
N.A.
32.9
N.A.
28.5
N.A.
31.1
+ 6
JUN
AUG
41.1
N.A.
147.1
58.0
40.7
N.A.
147.8
58.0
38.6
N.A.
122.8
54.0
JUN
N.A.
4.3
N.A.
3.7
N.A.
4.1
145.4
89.8
2,113.6
34.0
JUL
171.4
9.9
142.9
88.9
2,258.7
34.0
JUN
17TTÖ
8.1
131.7
80.7
2,198.7
35.0
JUL
167.0
8.6
70.6
N.A.
2,016.8
N.A.
AUG
33T74
5.5
69.4
N.A.
2,104.8
N.A.
JUN
32ÏÏ7ÎJ
4.8
64.2
N.A.
1,788.9
N.A.
AUG
315.9
5.2
+10
49.1
N.A.
290.7
1,362.0
46.9
N.A.
345.5
1,322.0
+ 6
JUN
AUG
49.6
N.A.
300.9
1,350.0
-13
+ 2
JUN
N.A.
5.4
N.A.
4.8
N.A.
5.2
+ 4
JUN
AUG
23.9
N.A.
38.4
85.0
23.4
N.A.
38.5
85.0
22.6
N.A.
37.3
91.0
+ 3
- 7
JUN
N.A.
2.3
N.A.
2.0
N.A.
2.2
+ 5
51.1
N.A.
194.3
N.A.
50.4
N.A.
196.6
N.A.
47.4
N.A.
176.2
N.A.
N.A.
5.5
N.A.
5.2
N.A.
5.8
1U
10
10
AUG
JUN
AUG
JUN
1Q
JUN
JUN
10
1Q
10
JUN
JUN
+ 6
+20
+ 7
+ 5
+10
+11
- 4
- 3
+ 3
+15
+13
+ 5
+ 6
+ 6
+ 8
+10
- 5
AUG
1985
ANN.
AUG
%
1984 CHG.
JUL
1985
Agriculture
Prices Rec'd b y Farmers
Index (1977=100)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices ({ per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
122
ib, 679
60.20
28.70
5.05
192
126
86,858
60.00
30.60
5.42
196
143
84,353
59.10
30.60
6.50
225
-15
+ 3
+ 2
- 6
-22
-15
Agriculture
Prices Rec'd by Farmers
Index (1977=100)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (ç per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
114
33,620
56.69
27.72
5.25
189
119
33,358
56.15
29.89
5.49
190
143
31,059
56.10
28.90
6.59
224
-20
+ Ö
+ 1
- 4
-20
-16
Agriculture
Farm Cash Receipts - $ m i l .
N.A.
(Dates: AUG, AUG)
Broiler Placements (thous.)
11,317
Calf Prices ($ per cwt.)
54.60
Broiler Prices (t per lb.)
27.50
Soybean Prices (S per bu.)
5.44
Broiler Feed Cost ($ per ton)
191
11,244
54.70
29.00
5.55
191
1,218
10,720
55.00
28.00
6.53
220
+ 6
- 1
- 2
-17
-13
3,213
1,852
59.60
29.00
6.53
245
+11
- 1
- 7
-17
-10
1,890
13,130
51.50
28.00
6.55
245
+ 4
+10
- 4
-20
-21
649
N.A.
56.30
31.00
6.79
265
+ 8
- 5
-23
- D
990
6,358
57.30
31.50
6.47
178
+ 3
- b
- b
-20
-13
1,004
N.A.
55.30
29.50
6.59
200
+ 2
-12
-21
-14
AgricuIture
Farm Cash Receipts - S mil.
(Dates: AUG, AUG)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (f per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
-
-
N.A.
2,063
58.90
27.00
5.44
220
2,065
59.90
30.00
5.55
230
AgricuIture
Farm Cash Receipts - $ mil.
N.A.
(Dates: AUG, AUG)
13,699
Broiler Placements (thous.)
56.60
Calf Prices ($ per cwt.)
27.00
Broiler Prices (i per lb.)
5.21
Soybean Prices (S per bu.)
193
Broiler Feed Cost ($ per ton)
13,634
53.70
29.50
5.70
195
Agriculture
Farm Cash Receipts
- $ mil.
N.A.
(Dates: A U G , AUG)
N.A.
Broiler Placements (thous.)
61.00
Calf Prices ($ per cwt.)
29.50
Broiler Prices (t per lb.)
5.26
Soybean Prices ($ per bu.)
250
Broiler Feed Cost ($ per ton)
N.A.
58.40
31.00
5.38
250
Agriculture
Farm Cash Receipts - S rail.
(Dates: AUG, AUG)
Broiler Placements (thous.)
Calf Prices (S per cwt.)
ßroiler Prices (i per lb.)
Soybean Prices (S per bu.)
Broiler Feed Cost (S per ton)
N.A.
6,541
53.90
29.50
5.18
154
0,414
56.80
32.00
5.43
154
Agriculture
Farm Cash Receipts - $ mil.
(Dates: AUG, AUG)
Broiler Placements (thous.)
Calf Prices (S per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
N.A.
N.A.
56.40
26.00
5.22
172
N.A.
53.60
28.50
5.53
173
-
.
-
-
Personal Income data supplied b y U. S. Department of Commerce.
Taxable Sales are reported as a 12-month cumulative, total.
Plane
Passenger Arrivals are collected from 26 airports.
Petroleum Production data supplied by U. S. Bureau of Mines.
Consumer Price
Index data supplied by Bureau of Labor Statistics. Agriculture data supplied by U. S. Department of A g r i c u l t u r e .
Farm Cash
Receipts data are reported as cumulative for the calendar year through the month shown.
Broiler placements are an average weekly
rate. The Southeast data represent the total of the six states. N. A. = not available.
R = revised.
http://fraser.stlouisfed.org/
44
Federal Reserve Bank of St. Louis
O C T O B E R 1985, E C O N O M I C R E V I E W
EMPLOYMENT
ANN.
JUL
1985
JUN
1985
JUL
1984
Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA '
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
117,536
108,854
8,682
7.3
N.A.
N.A.
40.1
382
116,572
107,819
8,753
7.3
N.A.
N.A.
40.6
386
civilian Laoor force - tnous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
M f g . Avg. Wkly. Earn. - $
10,ODi
10,coU
14,055
14,024
13,80b
1,296
1,257
1,258
lifflls
107,484
8,714
7.5
N.A.
N.A.
40.3
370
^ ^ ^
+ 1
- 0
- 0
+ 3
+ 2
+ 3
8.3
8.0
8.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
40.5
41.1
40.7
338
341
326
1,803
1,636
167
8.9
N.A.
N.A.
40.8
348
1,800
1,634
166
8.4
N.A.
N.A.
40.9
347
1,815
1,603
212
11.3
N.A.
N.A.
40.7
327
5,268
4,900
368
7.0
N.A.
N.A.
41.0
321
5,239
4,877
362
6.9
N.A.
N.A.
41.2
323
5,179
4,827
352
b.9
N.A.
N.A.
41.2
312
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
M f g . A v g . W k l y . Earn. - i
2,876
2,665
210
7.1
N.A.
N.A.
40.7
325
¿,881
2,677
204
7.0
N.A.
N.A.
41.1
323
2,597
180
6.3
N.A.
N.A.
40.7
307
+ 3
+17
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
1,981
1,752
229
il.3
N.A.
N.A.
40.6
421
1,981
1,752
230
11.1
N.A.
N.A.
41.5
425
i,959
1,764
195
9.6
N.A.
N.A.
41.3
418
+ 1
- 1
+17
~
;
Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - tnous.
Insured Unempl. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. A v g . Wkly. Earn. - $
ANN.
JUL
1985
-0
+ 4
- 1
+ 2
-21
+ 0
+ 6
%
JUN
1985
JUL
1984
19,356
4,951
23,416
15,474
22,121
6,014
5,319
98^53
19,538
4,834
23,355
16,297
22,031
5,971
5,342
19,465
4,627
22,293
15,223
20,946
5,771
5,192
12.,660
2.,284
791
3.,155
2.,165
2.,672
730
733
12,727
2,307
783
3,148
2,229
2,671
727
735
12.,244
2.,310
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & Real. Est.
Trans. Com. & Pub. Util.
1,404
350
69
295
302
234
66
73
1,398
354
67
295
295
233
66
74
1,392
359
67
292
294
229
64
73
+
+
+
+
+
+
1
3
3
l
3
2
3
0
Nonfarm employment - thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & R e a l . Est.
Trans. Com. & Pub. Util.
4,378
513
334
1,165
645
1,143
316
251
4,423
516
332
1,167
687"
1,145
315
251
4,156
499
326
1,107
609
1,062
300
243
+
+
+
+
+
+
+
+
v)
3
2
5
6
8
5
3
thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & Real. Est.
Trans. Com. & Pub. Util.
540
156
675
435
487
137
163
N o n f a r m Employment Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & Real. Est.
Trans. Com. & Pub. Util.
1,575
178
110
381
314
314
84
115
T7593
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & Real. Est.
Trans. C o m . & Pub. Util.
nfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & R e a l . Est.
Trans. Com. & Pub. Util.
% .
CHG
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & Real. Est.
Trans. Com. & Pub. Util.
)nfarm Employment - thous
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & Real. Est.
Trans. Com. & Pub. Util
gJBe
?..,992
,096
2,,518
701
720
CHG
+
+
+
+
+
+
-
+
+
+
+
+
+
1
7
5
2
6
4
2
3
1
2
5
3
6
4
2
FLORIDA
Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. A v g . Wkly. Earn. - $
+ 2
+ 2
+ 5
- 0
+ 3
GEORGIA
MISSISSIPPI
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg.. A v g . W k l y . Earn. - $
1,011
124
i0.5
N.A.
N.A.
39.4
281
l,00i
114
9.5
N.A.
N.A.
40.6
292
961
122
10.8
N.A.
N.A.
39.9
274
Civilian Labor horce - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. A v g . W k l y . Earn. - $
¿,¿89
2,091
198
8.4
N.A.
N.A.
40.3
331
c, ¿00
2,083
181
7.9
N.A.
N.A.
4i .4
337
¿,¿51
2,054
197
8.5
N.A.
N.A.
40.4
318
NOTES:
0
+ 6
- 2
+ 1
+ 5
+ 2
- 1
+ 3
m
+1
- 0
+4
2,609
544
152
671
451
485
136
162
547
138
610
424
446
131
156
- 1
+13
+11
+ 3
+ 9
+ 5
+ 4
- 2
112
382
322
317
84
116
1,602
183
124
385
314
312
84
119
218
42
186
181
¿27
35
40
221
41
186
182
127
35
40
817
220
40
177
175
123
34
39
,865
485
80
453
288
367
92
91
1,863
491
'3
447
292
3b4
91
92
1,818
502
83
421
280
346
88
90
18I
- 3
-11
- 1
0
+ 1
0
- 3
+
+
+
+
+
+
3
3
4
8
3
6
5
1
All labor force dara are from Bureau of Labor Statistics reports supplied by state agencies.
Only the unemployment rate data are seasonally adjusted.
The Southeast data represent the total of the six states.
The annual percent change calculation is based on the m o s t recent data over prior y e a r .
FEDERAL R E S E R V E B A N K O F ATLANTA
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