Full text of Economic Review (Federal Reserve Bank of Cleveland) : December 1967

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

DECEMBER 1967

THIS

I SSUE

The D ealer M arket
for U. S. Government
Securities and
M onetary Policy . . .

An Economic Profile
of A k r o n ......................13

C ap ital Spending Plans
in M ajor Metropolitan
Areas of the Fourth
D istric t..........................23

Annual Index to
Economic Review . . .

FEDERAL

RESERVE

BANK

CLEVELAND

Additional copies of the EC O N O M IC R EV IEW may
be obtained from the Research Department, Federal
Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,
Ohio 44101. Permission is granted to reproduce any
material in this publicatfon.

DECEMBER 1 96 7

THE DEALER MARKET FOR
U. S. GOVERNMENT SECURITIES
AND MONETARY POLICY
In comparison to organized securities mar
kets such as the New York or American Stock
Exchange, the market for U. S. Government
securities is certainly less widely known.
Yet, in terms of activity as measured by the
dollar volume of transactions, the U. S. Gov
ernment securities market far surpasses any
of the well-known organized securities mar
kets. For example, in 1966, the total volume
of transactions (both sides, i.e., purchases and
sales) by dealers in U. S. Government securi
ties was valued at about $573 billion com
pared with the volume of stock transactions
valued at $98.6 billion (one side) on the New
York Stock Exchange and the $24.4 billion
(one side) on all other registered securities
exchanges in the country.
Even more importantly perhaps, the role
of the U. S. Government securities market —
and the dealers in that
considered special in the
ket provides important
services to both private

responsibilities — the Treasury in connection
with marketing and refinancing the national
debt and the Federal Reserve in connection
with the conduct of open market operations.
At the same lime, private institutions such as
commercial banks, insurance companies,
savings and loan associations, and nonfinancial corporations, among others, rely on
securities dealers for executing transactions
in U. S. Government securities.

THE DEALER MARKET
Firms in the Market. At present, there are
approximately 20 firms acting as primary
dealers in U. S. Government securities. Some
of these are special departments of commer
cial banks and are accordingly classified as
bank dealers, while the rest are essentially

securities houses that are designated as non
bank dealers. In addition to handling U. S.
Government securities, some of the dealers

market — may be
sense that the mar
(indeed essential)
and public institu

in the second category engage in other
investment banking activities. Although the

tions. On the public side, both the U. S. Trea
sury and the Federal Reserve System make
use of securities dealers to carry out their

main offices of most dealer firms are located
in New York City, branches are maintained
by several in leading metropolitan areas

ECONOMIC REVIEW

throughout the country.
Formally speaking, the dealer market for
U. S. Government securities is an "over-thecounter" market in which the bulk of trans
actions is conducted by telephone and tele
type. That is to say, almost invariably, trans
actions are first contracted through telephone
or teletype and then confirmed in writing.
The key to the organization and the func
tioning of a dealer firm is the trading room.
It is there that markets in U. S. Government
securities are in effect made. The terms at
which securities can be bought and sold are
set by individual traders in each firm. Terms
are constantly readjusted as financial market
conditions change, and news about business
and financial developments is circulated. The
terms traders quote for buying or selling
securities are the market, and tend to reflect
the desire of dealers to add to or reduce
positions in light of their reading of current
developments.
Transactions. Most dealer firms usually
stand ready to execute transactions in some
size in all maturity ranges of U. S. Govern
ment securities. Smaller firms, however, con
fine most of their business to short-term issues,
primarily because they cannot afford the
capital risk involved in longer maturities,
preferring to concentrate in the most active
sector in which risks are less.
Dealer quotations differ according to the
maturity of the issue under consideration.
Treasury bills are quoted on a yield basis.
For example, Treasury bills maturing three
months from now may be quoted at 4.90 "bid"
and 4.80 "asked." This simply means that a
dealer is willing to buy a block of these bills
with a given maturity value at a price that
Digitized for
4 FRASER

would yield him 4.90 percent for the holding
period, or is willing to sell the same bills at a
price that would yield 4.80 percent to the
buyer. In other words, the dealer's selling
price is higher than his buying price. The
difference, or spread, between the buying
and selling price constitutes trading income
for the dealer.
Trading spreads are also maintained on
outstanding certificates, notes, and bonds.
Dealer quotations on these issues are ex
pressed in terms of prices rather than yields.
For example, a bond issue bearing a coupon
of 3V2 percent and maturing in 1980 may be
quoted in the market at 83.24 bid and 84.8
asked. Since the figures after the decimal
point are in thirty-seconds, the above quota
tion should be read as 83-24/32 bid and
84-8/ 32 asked, which indicates that the dealer
is willing either to pay $83.75 or to receive
$84.25 for every $100 in maturity value of
these bonds. A narrowing of spreads indi
cates greater willingness on the part of
dealers to conduct transactions, i.e., to make
a narrower market for U. S. Government
securities, and reflects dealers' assessment of
risk and their ability to turn over inventories.
The volume of securities transactions is
often considered an indicator of performance.
That is to say, a large and increasing volume
may suggest the greater ability of the market
to meet the varied needs of diversified groups
of investors who wish to carry out transac
tions. Table I contains data on dealer trans
actions in the U. S. Government securities
market during 1961-1967, and includes com
bined dealer purchases and sales as reported
to the Federal Reserve Bank of New York. The
data indicate that the level of market activity

DECEMBER 196 7

has risen fairly steadily during the 1960's, par
ticularly in more recent years. The average
daily volume of transactions for all maturity
classes increased from $1,552 million in 1961
to $2,095 million in 1966. Average daily trad
ing in issues maturing within one year has
also shown consistent growth during the
1960's, rising from $1,203 million in 1961 to
$1,706 million in 1966, in fact, accounting for
virtually all of the increase in total transac
tions. In 1-5 year maturities, dealer transac
tions declined from an average daily level
of $265 million in 1961 to $242 million in 1966.
During the first nine months of 1967, the av
erage increased to $257 million. Dealer trans
actions in issues maturing after five years
increased during 1962 and 1963, but then
declined slightly during each of the next three
years, and the first nine months of 1967.
Nevertheless, average daily transactions in
longer term issues during 1966 and 1967 were
considerably higher than in 1961 (see Table I).
Positions. U. S. Government securities deal
ers do not act as mere middlemen for buyers
and sellers, as is usually the case with
brokers for registered stocks. Instead, dealers
buy and sell securities for their own account,
and in so doing act as principals rather than
brokers. Conseguently, dealer holdings of
U. S. Government securities are subject to
capital gains and losses due to interest rate
changes. For this reason, dealers' inventory
positions are sometimes referred to as "posi
tions of risk."
Technically, a dealer may take two types
of positions — a long position and a short
position. A dealer takes a long position when
he buys securities outright for his own ac
count. In a short position, the dealer sells

TABLE I
Dealer Transactions in U. S. Government
Securities, 1961-1967
Par Value
(millions of dollars)

Year

All
M aturities

W ith in
1 Year

1-5
Y ea rs

A fte r
5 Y ea rs

1961

$1,55 2

$ 1,2 0 3

$ 26 5

$ 84

1962

1,786

1,401

228

158

1963

1,734

1,322

218

193

1964

1,770

1,382

220

168

1965

1,827

1,481

194

151

1966

2 ,0 95

1,706

242

146

1 96 7*

2 ,0 8 7

1,733

257

* First nine months only.
N O TE: D a ta on transactions a re a v e ra g e s o f d a ily figures based
on the number o f trading d a y s in the period. Transactions
d a ta represent com bined totals o f d e a le r purchases and
sales as rep orted to the F e d e ra l Reserve Bank o f N e w York.
Excluded from the d a ta a re allotments and exchanges for
new U .S . G overnm ent securities, red eem ed securities b efo re
or a t maturity, d e a le r security sales under the condition
that they must be bought b ack b y d e alers, and d e a le r
purchases that must be sold b ack to orig inal owners.
So urce: Bo a rd of G o v e rn o rs of the F e d e ra l Reserve System ,
F e d e ra l R eserve B u lletin (v a rio u s issues)

securities that he does not have in his account
but borrows the securities in order to deliver
them to the purchaser. The dealer, of course,
must buy back and return the borrowed
securities at a later date. In addition, the
dealer must put up securities that he owns as
collateral for the borrowed securities. Not
surprisingly, there are risks involved in both
long and short positions. For example, if a
dealer has taken a position and securities
prices rise (interest rates fall), capital gains
will be realized in the long position and cap
ital losses in the short position. (In the latter
case, the dealer will have to pay a price that
is higher than his original selling price to buy
back the borrowed securities.)
Obviously, the actual behavior of interest
rates, as well as expectations about that
5

ECONOMIC REVIEW

behavior, will influence dealer position pol
icy. If interest rates are expected to rise in the
future (securities prices fall), dealers will tend
to decrease long positions and increase short
positions. In the event that dealers expect in
terest rates to decline (securities prices rise),
positions in securities will tend to be reversed.
Dealers, of course, realize that expectations
do not always materialize and to avoid the
penalties or costs of mistaken expectations,
dealers may hedge positions. That is to say, if
dealers are not certain about the future course
of interest rates, they can reduce or eliminate
risk by covering long positions with short
positions. In other words, dealers can sell a
certain amount of securities short each time
that the same amount of securities is taken
into a long position.
Hedging also contributes to the improve
ment of the market by permitting the dealer
to sell an issue that he does not hold against
one that he does, and thereby satisfies a
customer's need. In fact, many hedged posi
tions result from security swaps with cus
tomers. In any event, from the standpoint
of a well-functioning U. S. Government securi
ties market, it is important to have dealers
who are willing to take positions. Only in this
way can the interests of individual investors
be best served.
To a large extent, dealer willingness to take
new positions is influenced by the size of
actual positions already taken. Table II con
tains annual data on average daily positions
during 1961-1967. It should be noted that the
data represent "net" positions, i.e., short posi
tions have been deducted from long positions,
so that net positions are in effect long posi
tions "not hedged.” Although Table II shows
Digitized for6 FRASER

positive net positions on balance throughout
the 1961-1967 period, net positions may have
been negative for short time periods, in some
maturity categories. Over longer time pe
riods, however, long positions as a rule tend
to be several limes larger than short positions.
As shown in Table II, average daily posi
tions in all maturities in 1961 were over $2.7
billion. Dealer positions rose to and remained
at a level of around $3V3 billion during the
next four years. In 1966, the daily average of
dealer positions fell appreciably, in fact, to
almost $300 million less than the 1961 level,
with a similar pattern emerging in positions
classified by maturity. The decline in dealer
positions in 1966 in large part can probably
be ascribed to the marked and dramatic
shifts that occurred in financial flows and
TABLE II
Dealer Positions in U. S. Government
Securities, 1961-1967
Par Value
(millions of dollars)

Year

All
M aturities

W ith in
1 Year

1-5
Y ears

A fte r
5 Y ea rs

1961

$2,74 8

$ 2 ,3 5 7

$ 33 8

$ 54

1962

3,3 20

2 ,9 22

276

122

1963

3 ,4 06

2 ,8 76

385

145

1964

3,4 23

2,901

313

217
391

1965

3,3 48

2 ,8 16

140

1966

2 ,4 76

2,2 62

142

196 7*

3 ,4 69

2,911

415

143

* First nine months only.
N O T E : D a ta a re a v e ra g e s o f d a ily figures b ased on number o f
trading d a ys in the period. Position figures a re on “ net”
basis, i.e., short sales h a ve been deducted from long posi
tions. Securities sold b y d e alers under the condition that
th e y must be repurchased a t a la te r d a te (unless such
sales a re offset b y eq uivalen t amounts o f securities pur
chased b y d e ale rs under the condition that they must be
resold la te r to orig inal owners) a re included in long posi
tions and therefo re a re reflecte d in net positions.
So urce: Bo a rd of G o v e rn o rs of the F e d e ra l Reserve System ,

F e d e ra l R eserve B u lletin (vario u s issues)

DECEMBER 1 9 6 7

financial markets, as well as in expectations.
However, during the first nine months of 1967,
when market conditions and expectations
changed, dealer positions increased sharply
in all maturity categories. Thus, on balance,
the willingness of dealers to take positions
in U. S. Government securities seems to have
improved during the 1960's.
Financing. Dealer transactions, positions,

and financing during 1960-1967 are illustrated
in the chart. As the chart shows, dealer trans
actions, in general, tend to move in the same
direction as dealer positions and financing,
although the relationship between dealer
positions and financing is certainly a closer
one — indeed, the two series are conspicu
ously close. The latter relationship should not
be surprising in that, although dealers act as
principals in buying and selling securities,
they use very little of their own funds. The
bulk of dealer working capital is accounted
for by borrowing. Securities dealers can usu
ally borrow money from banks on a 2-5 per
cent margin of eguity capital when making
bond purchases and on virtually zero margin
for bill purchases.
Dealers depend basically upon two types
of loans to finance positions: bank loans (for
which the securities purchased are used as
collateral) and repurchase agreements (RPs).
Bank loans as a rule carry a higher financing
cost for the dealer than do RPs.1 Accordingly,
from the dealers' viewpoint, RPs constitute
the preferred source of financing. Usually, a
repurchase agreement involves a dealer's
commitment to buy back securities that he
1 For a more complete discussion of Ihe role of RPs in
dealer financing, see Money Market Instruments, Federal
Reserve Bank of Cleveland, 1965, pp. 19-30.

has sold earlier. The interval from the time
ihe dealer sells the securities to the time he
buys them back may vary from one business
day to several weeks, or even months. The
relative amounts of dealer positions financed
through collaterized bank loans and through
repurchase agreements depend largely upon
the general availability and distribution of
funds in the money market. When interest
rates are high and ihe availability of funds
limited, the reliance on RPs for dealer finan
cing tends to increase relatively.
U. S. Government securities dealers execute
repurchase agreements with a number of in
stitutions, including commercial banks, nonfinancial corporations. Federal Home Loan
banks, and state and local governments. In
addition, ihe Federal Reserve Bank of New
York makes funds available under repur
chase agreements to n on ban k dealers. This,
of course, is done at the initiative of the
Federal Reserve Bank, when it is deemed
desirable from the standpoint of open market
operations.
Table III presents data on the major sources
and extent of dealer borrowing during 19611967. As indicated earlier, the volume of deal
er financing needs depends mainly upon ihe
size of dealer positions. Throughout the
1960's, commercial banks have been the most
important source of dealer borrowings, pro
viding nearly half of dealer financing. Corpo
rations have provided over 40 percent of
dealer financing, while borrowings from other
sources (including RPs from the Federal Re
serve Bank of New York) have contributed
over 10 percent during 1961-1967.
Income. As noted earlier, ihe spread be
tween dealers' selling and buying prices
7

ECONOMIC REVIEW

TRAN SAC TIO NS, POSITIONS, and F IN A N C IN G of DEALERS
in U.S. G O V E R N M E N T SECURITIES
B illio n s o f d o lla r s

MON T HL Y A V E R AG E S OF DAI LY FIGURES

1961

’62

'63

'64

’65

’66

'67

* P a r v a lu e .
S o u rce of d a ta :

B o a r d o f G o v e r n o r s o f th e F e d e r a l R e s e r v e S y s te m

L a s t e n tr y :

S e p t.

constitutes an important source of dealer in
come. Spreads vary according to the maturity
of the issue. For example, the spread on U. S.
Treasury bills is likely to be small. This is
true first, because bills are not as susceptible
as longer term issues to large capital losses,
and second, because the volume of dealer
transactions in bills is much greater than in
coupon issues. Accordingly, the spread is

(falling securities prices), a dealer is likely
to incur capital losses in his long positions
and capital gains in his short positions. If
long positions are larger than short (as is
usually the case since dealers must maintain
at least minimum trading positions), rising
yields will tend to have a negative effect on
dealer income. When interest rates are fall
ing, the effect on income would be the reverse.

usually much larger for longer term issues,
which carry a greater risk of capital loss.
Typically, spreads on 3-month bills average

Finally, the difference between interest

about 2-5 basis points, while spreads on
long-term bonds average around 8-16 thirtyseconds, i.e., $0.25-$0.50 on a $100 bond.
A second source of dealer income arises
from price changes in securities that dealers
hold in position, which, of course, is not al
ways positive. During periods of rising yields
8

earned on securities in position and the in
terest cost of financing such securities con
stitutes another source of income for a deal
er; usually referred lo as "carry” income.
Whether income from carry is positive de
pends mainly upon the composition of dealer
long positions and the term structure of in
terest rates. For example, if a considerable

DECEMBER 1 9 6 7

THE DEALER MARKET AND
MONETARY POLICY

TABLE III
Financing of Dealers in U. S. Government
Securities, 1961-1967
Par Value
(millions of dollars)

Year

All
Sources

Comm ercial
Banks

Corporations

A ll
Others

1961

$ 2,7 2 5

$ 1,2 8 9

$ 1 ,1 7 7

$ 25 9

1962

3,3 59

1,542

1,461

256

1963

3 ,5 59

1,705

1,465

389

1964

3,5 03

1,812

1,317

374

1965

3 ,5 46

1,738

1,336

471

1966

2 ,6 66

1,238

1,018

411

1 96 7*

3,591

2,2 56

798

537

* First nine months only.
N O TE: Financing d a ta a re a v e ra g e s o f d a ily figures based on
the number o f ca le n d a r (rather than trading ) d a ys in
the period.
Source: Bo a rd of G o vern o rs of the F e d e ra l Reserve System ,
F e d e ra l Reserve B ulletin (vario us issues)

portion of dealer long positions consists of
coupon issues, and short-term interest rates
are above long-term rates, the carry is likely
to be negative. This could be the case because
dealers finance positions through short-term
funds and the interest cost would tend to be
greater than the interest earned on long-term
securities held in position.
Published data on dealers' income are not
available for the period of the 1960's. In an
earlier study, however, it was found that in
come of securities dealers varied widely dur
ing the 1948-1958 period, with net income
before taxes ranging from a high of $38.8
million in 1958 to a low of -$1.9 million in
1955.2

2 Allan H. Mellzer and Gert von der Linde, A Study of the
D ealer Market tor Fed era l Securities, Join! Economic Com
mittee, 86th Congress, 2nd Session (Washington, D. C.:
U. S. Government Printing Office, 1960).

The Federal Reserve System, in carrying
out its role in economic stabilization policy,
relies mainly upon three instruments of
monetary management: reserve reguirement
variation, discount rate changes, and open
market operations. Of the three, open market
operations are used most freguenlly. Open
market policy is made by the Federal Open
Market Committee, and in turn is executed
at what is commonly known as the Trading
Desk of the Federal Reserve Bank of New
York, under the responsibility of the Manager
of the Federal Open Market Account, who is
an officer of the Federal Reserve Bank of
New York.
Dealer services are essential in the process
of implementing open market operations. In
fact, the role of the dealers in this process
may be construed as the first link in the series
of events that transform actions taken by the
Desk into financial and economic effects.
Federal Reserve open market operations are
initially reflected in the reserve position of
commercial banks. Suppose, for example,
that the Trading Desk sells securities to deal
ers. Bank dealers pay for the securities acguired from the Desk by drawing on their
reserve accounts at the Federal Reserve Bank
of New York. Nonbank dealers pay by using
a check drawn on a commercial bank, which
clears the transaction (the transaction is
usually conducted in Federal funds, i.e., same
day money); when this check is received, the
Federal Reserve Bank of New York reduces
the reserve account of the commercial bank.
On the other hand, purchases by the Trading
9

ECONOMIC REVIEW

Desk lead lo increases in member bank re
serves. In this case, bank dealers are paid
by credits to their accounts at the New York
Federal Reserve Bank, as are eventually
the banks with whom nonbank dealers do
business.
In its approach to dealers, the Desk often
employs a technique commonly known as a
"go-around.” This procedure begins when the
Desk's traders contact securities dealers and
ask for "firm" bids or offers, i.e., quotations
that ordinarily cannot be changed or with
drawn within a stated time interval without
the consent of the Desk. After all dealers have
been contacted and their offerings tabulated
and compared, the Desk chooses the offerings
on a best price basis, while also taking into
account several other considerations, for ex
ample, those affecting the System's portfolio.
Dealers are then informed about the outcome
of their offerings. The entire operation in
volved in a "go-around” is on average com
pleted within 30 minutes time.
Types of Transactions. There are basically
two types of transactions that the Desk may
enter into with dealers. The Desk may buy
or sell securities outright on behalf of the
System's Account without any conditions at
tached. Alternatively, it may buy or sell while
simultaneously contracting to resell (a repur
chase agreement) or to repurchase (a matched
sale-purchase transaction). All transactions

are undertaken at the initiative of the Desk,
which also determines the aggregate volume
of transactions.
Only nonbank dealers are eligible for re
purchase agreements (RPs), while matched
sale-purchase transactions are carried out
with all dealers. The length of lime covered
Digitized 10
for FRASER

by the contract involving RPs between the
Desk and dealers cannot be any longer than
15 days. At any time within the time interval
of the contract, the agreement may be termi
nated by either parly. RPs involve a repur
chase price that affords a return to the Sys
tem that is usually equal to the discount
rate of the Federal Reserve Bank of New
York. In matched sale-purchase transactions,
the Desk offers to sell selected issues of Trea
sury bills at specified rates, with dealers com
peting at the rate at which they will sell the
securities back within a stipulated time of
several days. Contracts are concluded up to
an amount the Desk wishes to do at the best
rates available. Neither party can alter the
terms of the transaction, once consummated.
Whether the Desk uses outright purchases
or RPs depends, among other things, upon
conditions in financial markets and the ob
jectives of the Trading Desk and the Federal
Open Market Committee. Outright transac
tions are usually undertaken when the Sys
tem wishes to supply or withdraw bank re
serves on a more permanent basis, whereas
RPs or matched transactions are used lo inject
or withdraw reserves for a limited lime only.
System Transactions, 1961-1967. The vol

ume and nature of System transactions dur
ing 1961-1967 is shown in Table IV. Taken
together, the volme of outright transactions
and RPs increased from $24.6 billion during
1961 lo $45.1 billion in 1966. The total of
$41.0 billion of such transactions during the
first nine months of 1967 suggests that Sys
tem transactions in 1967 as a whole will
surpass those of 1965 and 1966. The average
volume of transactions during 1961-1966 was
$34.7 billion per year. When total transactions

DECEMBER 196 7
TABLE IV
Federal Reserve System Open Market
Transactions
(millions of dollars)

are broken down into outright and repurchase
agreements, it can be observed that, although
the average RP volume of $17.8 billion was
about $1.0 billion greater than that of outright
transactions, the amounts of the two types of
transactions varied from year to year. RPs
exceeded outright transactions during 1963,
1964, 1965, and the first nine months of 1967.

Year

Outright
(purchases
plus sales)

Repurchase Agreem ents
(purchases plus sales)

Total
Transactions

1961

$15 ,1 6 2

$ 9,481

$ 24 ,6 4 3

1962

1 6,5 50

1 2,047

2 8 ,5 9 7

1963

13,322

18,121

31,44 3

1964

15,891

1 8,046

3 3 ,9 3 7

1965

14,1 15

3 0,094

4 4 ,2 0 9

actions,

1966

2 5 ,9 4 8

19,176

4 5,1 2 4

196 7*

13,491

27,531

4 1,02 2

$16,831

$ 17 ,8 2 7

$34 ,6 5 8

transactions during 1961-1967 was conducted
in Treasury bills (see Table V). System pur
chases during 1961-1966 amounted to $63.7
billion, of which $53.5 billion (84 percent)
were in Treasury bills. The remainder of
the purchases were in coupon issues vary
ing in maturity from less than a year to
over ten years.

Annual
A v e ra g e
19611966

Maturity Breakdown

* First nine months only.
N O TE: Sa les figures do not include redemptions.
Source: Bo ard o f G overnors o f the Fed e ra l Reserve System

of Outright Trans

1961-1967. The bulk of outright

System outright sales were even more
concentrated in Treasury bills than were
TABLE V
Maturity Distribution of Federal Reserve System Outright Purchases and Sales
(millions of dollars)

1965

1966

1 96 7*

Annual
A v e ra g e
1961-1966

$ 9,4 33

$8,958

$ 1 5 ,1 7 7

$ 8 ,9 69

$ 8,9 09

199

324

843

465

500

208

543

918

326

543

440

340

244

393

111

133

$ 9,105

$ 9,82 9

$8,7 9 0

$ 10 ,4 5 4

$ 9,888

$15,651

$ 9 ,9 4 0

$ 10 ,6 1 9

$ 4,486

$6,211

$4,4 2 9

$ 5 ,4 37

$ 4,2 2 7

$ 1 0 ,2 9 7

$ 3,5 55

$ 5 ,8 4 7

1,474

402

322

108

5-1 0 y e a r issues

O v e r- 10 y e a r issues

$ 6,05 7

$6,721

$ 4,533

$ 5 ,4 37

$4,2 2 7

$ 1 0 ,2 9 7

$ 3,5 55

$ 6,212

1961

1962

1963

1964

$ 5,794

$ 6,813

$7,2 8 0

600

1,085

1,923

1,569

5-1 0 y e a r issues

660

O v e r- 10 y e a r issues

128

Purchases:
Treasury bills
O th er issues within 1 y e a r
1-5 y e a r issues

TOTAL
Sales:
Treasury bills
O th er issues within 1 y e a r
1-5 y e a r issues

TOTAL
* First nine months only.

N O T E : Sa les figures do not include redemptions.
Source: Bo a rd o f Go vern ors o f the F ed e ra l R eserve System

1 1

ECONOMIC REVIEW

purchases. Of a total of $37.2 billion of
securities sales, only $2.2 billion were in
issues other than bills and almost all of
these sales were in issues maturing within
one year. The System did not undertake any
sales of securities carrying maturities of
five years or longer.
Although System transactions outside ihe
Treasury bill area were small, they never
theless constituted a departure from previ
ous practice in that before 1961, System
transactions were normally confined to Trea
sury bills. The Trading Desk bought and
sold securities with longer term maturities
only in unusual circumstances, such as dis
orderly conditions in the market for U. S.
Government securities. Beginning in Febru
ary 1961, however, the Federal Open Market
Committee authorized transactions in longer
term issues under other circumstances. The
Committee's decision was prompted in part
by the need to help protect the United States
balance of payments position at a time when
domestic economic conditions dictated a
stimulative monetary policy. Under such
conditions, there was some feeling that open
market purchases of longer term issues would
help the System to provide bank reserves
without depressing short-term interest rates
— an approach that, it was believed, would
tend to reduce short-term capital outflow from
the United States while at the same lime
encouraging domestic economic activity.

markei operations. In terms of number of
firms, the dealer market is relatively small;
only about 20 firms are responsible for all
the business in the market. Nevertheless,
these firms occupy a key position in the
American financial system by virtue of the
fact that they provide important services to
private as well as to public institutions.
It is, of course, not easy to find inde
pendent criteria upon which ihe technical
performance of the dealer market can be
evaluated. The data on the volume of dealer
transactions and the size of dealer positions,
however, suggest a secular improvement in
the functioning of the market during the
1960's. For financing securities positions,
dealers depend largely upon borrowed funds,
all of which are in the form of short-term
loans. The dealers have developed several
ingenious ways for tapping temporarily idle
funds from financial and nonfinancial insti
tutions, with repurchase agreements a case
in point. During 1961-1967, commercial banks
have been the largest source of dealer bor
rowings, with business corporations running
a strong second.
From the standpoint of monetary policy,
dealers are important mainly because of
their role in the 'execution of open market
operations, which is the most frequently
used method of influencing the availability
of credit. By standing ready to buy and sell

market for U. S. Government securities and

securities from ihe System's Open Market
Account, the dealers constitute in effect the
principal channel through which the Federal
R eserve u ltim ately influences ihe entire

its relationship to Federal Reserve open

economy.

SUMMARY
This article has attempted to describe ihe

Digitized for12
FRASER

DECEMBER 1 9 6 7

AN ECONOMIC PROFILE OF AKRON
Akron is the sixth largest metropolitan
area (SMSA) in Ohio and the forty-eighth
largest in the nation.1 The City is known as
the rubber capital of the world; however,
Akron's importance in the nation's rubber
industry has been sharply reduced as a
result of decentralization by the major rub
ber companies to other areas in the United
States and foreign countries.

POPULATION
As shown in Table I, population in the
Akron SMSA recorded the largest gain among
Ohio's eight major SMSA's between 1900
and 1965.2 The largest ten-year population
gain in the Akron metropolitan area oc
curred between 1910 and 1920, mainly reflect
ing the growth of the rubber industry.
Akron's first rubber plant was established
in 1870; however, the industry's most rapid
expansion in the City did not take place until

Although the Great Depression had a
severe impact on employment in the Akron
area, and population failed to increase dur
ing the decade of the 1930's, World War II
provided renewed stimulus to Akron's econ
omy, and population growth was resumed.
In fact, Akron's population grew at rates
above those of both the State of Ohio and
the United States during the 1940's and
1950's. During 1960-1965, the growth of
Akron's population continued to exceed the
rate for Ohio; however, it fell short of the
national pace.

EMPLOYMENT DISTRIBUTION

are those having a population of 500,000 or more, or

Manufacturing is by far the most impor
tant source of nonagricultural wage and
salary employment in the Akron SMSA and
accounted for 43 percent of total nonfarm
employment in 1966 (see Table II). This pro
portion was the third largest among Ohio's
major SMSA's, and was substantially higher
than in the United States as a whole. Due tothe high percent of employment in manufac
turing, the proportion of employment in other
industries, particularly services, construction,
and finance, insurance, and real estate, was
low in the Akron SMSA compared with other
major Ohio SMSA's, the Stale of Ohio, and

40,000 or more employed in manufacturing.

the United States.

the period from 1910 to 1920, when tire pro
duction increased in response to gains in
the automobile industry.
1 The

Akron

Standard

Metropolitan

Statistical

A rea

includes Summit and Portage counties.
2 Major Standard Metropolitan Statistical A reas in Ohio

ECONOMIC REVIEW
TABLE I
Population
Akron SMSA, Other Selected SMSA's in Ohio, State of Ohio, and United States

1900-1965
Population
(thousands o f persons)

Percent
Increase

1900

1910

1920

1930

1940

1950

1960

1965

1900-1965

19 60-19(

76,21 2

9 2,22 9

106,022

123,203

132,165

1 51,326

179,323

19 3,7 9 5

154%

8 .1 %

O hio

4,1 58

4 ,7 67

5,7 59

6 ,6 47

6,908

7 ,9 4 7

9 ,7 06

10,241

146

5.5

Total 8 S M S A ’s

2,1 14

2,614

3,502

4 ,3 46

4 ,5 04

5,343

6,7 46

7,171

2 39

6.3

101

139

322

387

386

474

6 05

650

544

7.4

123

177

222

235

2 83

3 40

3 56

275

4.5

Cincinnati

618

675

713

844

885

1,023

1,269

1,347

118

6.2

C levela n d

498

699

1,013

1,288

1,320

1,533

1,910

2 ,0 00

302

4.7

Columbus

218

275

336

4 14

443

5 36

755

8 47

289

12.1

D ayton

229

262

312

381

407

5 46

727

791

2 45

8.8

Toledo

238

272

358

451

455

531

631

657

176

4.2

YoungstownW a rre n

117

169

2 70

3 59

373

417

5 09

523

347

2.7

United States

Akron
Canton

Source: U. S. Departm ent o f Comm erce, Bureau o f the Census

LONG-TERM EMPLOYMENT TRENDS
Pre-World War II. Because manufacturing

has been the bellwether of Akron's econ
omy, a long-term perspective on employ
ment trends in that sector reveals much
about the ebb and flow of economic activity
in the area.
As mentioned earlier, Akron's most rapid
period of industrialization occurred between
1910 and 1920, and was spearheaded by
the rubber industry.3 In 1919, manufacturing
employment totaled 91,000 in Akron (Summit
County) with the rubber industry accounting
for 85 percent of the total. Between 1919 and
1929, manufacturing employment declined
15 percent in Akron (but less than 2 percent
in the United States). Akron's loss is attrib
utable entirely to the beginning of decen
tralization of the rubber industry.
3 In Akron, the tire and inner lube portion of the rubber
industry has alw ays been predominant.

Digitized for14
FRASER

From 1929 to 1939, the economy of Akron
experienced another severe jolt, as manu
facturing employment plunged 32 percent.
Again, the rubber industry accounted for all
of the decline. In contrast, there was a net
loss of only 1 percent in the nation's manu
facturing employment over the same tenyear period. By 1939, manufacturing employ
ment in Akron had been reduced to 53,000;
however, the rubber industry still accounted
for two-thirds of the total despite the loss
of 42,000 jobs in Akron's rubber industry
over the previous twenty years. Not all of
that employment loss was accounted for
by decentralization; weak demand for tires
was partly responsible. Although tire plants
in the rest of the nation also reduced em
ployment during the 1920's and 1930's, the
losses were well below those in the Akron
area.
A number of economic forces were re
sponsible for decentralization of the rubber

DECEMBER 1 9 6 7
TABLE II
Percent Distribution of Total Nonagricultural Employment
Seven Major Employment Categories
Akron SMSA, Other Selected SMSA's in Ohio, State of Ohio, and United States
1966 Annual Average
W h o le s a le and
Retail T rad e

M anufacturing
Canton

4 9 .4 %

Toledo

2 1 .3 %

Columbus

20.7

YoungstownW a rre n

47.5

Akron

42.9
Cincinnati

Dayton

41.9

Cleveland

O hio

39.6

Akron

19.7

C levelan d

39.2

Ohio

19.2

Toledo

36.6

Cincinnati

35.6

Canton

17.8

29.9

YoungstownW a rre n

17.7

Dayton

17.4

United States
Columbus

United States

Governm ent

Services
15 . 0 %

Columbus

2 0 .8 %

D ayton

17.6

United States

17.0

15.0

Toledo

14.2

C leveland

13.9

20.4

Cincinnati

13.9

O hio

13.7

20.1

YoungstownW a rre n

13.1

Cincinnati

13.0

O hio

12.8

Akron

12.6

Dayton

12.4

Toledo

12.5

C levela n d

11.8

2 0.7

Akron

12.3

YoungstownW a rre n

9.2

Canton

11.8

Canton

8.7

26.2

Contract
Construction

Transportation
and Public Utilities
Cincinnati

7 .5 %

Toledo

7.3

United States

Finance, Insurance,
and R ea l Estate
5 .1 %

Columbus

5.1

Columbus

6 .1 %

Cincinnati

5.1

United States

6.5

Toledo

4.7

United States

4.8

Akron

6.3

Ohio

4.4

C levela n d

4.6

C levelan d

6.2

Cincinnati

4.4

O hio

3.8

Columbus

6.0

YoungstownW a rre n

4.3

Canton

3.3

O hio

5.9

C levelan d

4.2

Toledo

3.2

D ayton

4.1

Canton

3.8

Akron

2.7

Akron

3.5

D ayton

2.7

YoungstownW a rre n

2.6

YoungstownW a rre n

5.4

Canton

5.0

Dayton

3.8

Sources: U. S. D epartm ent o f Lab or and Division o f Research and Statistics, O hio Bureau o f Unem ploym ent Compensation

indusiry. For one ihing, technological devel

thus achieving marketing economies. During

opments permiiied Akron's tire companies
io build smaller capacity tire plants (as effi
cient as larger plants) in other parts of the
United States as well as in foreign countries,

the 1930's, unfavorable labor relations and
high labor costs in Akron's rubber industry
contributed further to decentralization. More
over, it was held that the operation of

ECONOMIC REVIEW

Akron's tire plants on a six-hour, six-day
week encouraged firms to establish plants
outside the Akron area, where a more effi
cient eight-hour, five-day week was the
practice.4 The following figures highlight
of the long-run decline of Akron's position
in the nation's tire industry.
A k ro n 's * S h a re o f the N a tio n 's Tire and Tube Industry
Production W o rk e rs

W ages

1929

61%

65%

1939

1947

1954

1958

1963

*Su m m it C o u n ty o nly,
in 1963 d a ta .

1929-1958;

30
P o rtag e

C o u n ty

included

So urce: Census of M a n u fa ctu res

During World War II, manufacturing em
ployment in the Akron area rose to more
than 100,000 — with over three-guarters of
the workers engaged in the production of
airships and rubber products. The war,
however, gave further impetus to decentral
ization of Akron's rubber industry.
Post World War II. After serious employ
ment losses during the two decades before
World War II, Akron's economy recovered
smartly; nevertheless, it remained vulnerable
to the vagaries of the business cycle. During
the nation's four postwar recessions, manu
facturing employment declined relatively
more in the Akron area than in the United
4 In mid-1965, workers gave approval lo management
of one major rubber company in Akron lo change over
to an eight-hour, five-day week. For further discussion

States as a whole and employment in the
rubber industry in Akron bore the brunt of
each recession (see chart).
Interestingly, growth in manufacturing
employment within the Akron SMSA failed
to keep pace with employment gains of
those who live in the area. As a case in
point, employment in manufacturing of per
sons living in the Akron SMSA (but not
necessarily working therein) increased 13
percent between 1950 and 1960. In contrast,
manufacturing employment within the Akron
SMSA (by place of work) grew only 3 per
cent over the same period.5 The data indi
cate a rapid growth in the number of work
ers who commute to places outside the
Akron SMSA, particularly the Cleveland
area. This is indeed indicative of the grow
ing closeness of the Cleveland and Akron
SMSA's — geographically as well as in
terms of economic activity.
As illustrated in the chart, the stimulus to
manufacturing employment in the Akron
area during the early Fifties came largely
from industries other than rubber. The sharp
rise in manufacturing employment, exclud
ing rubber, during the Korean War followed
mainly from the reactivation of Akron's air
ship and airplane parts industry. The rubber
industry in Akron also received a temporary
boost during the Korean War, but then re
sumed its long-run downward trend. Never
theless, the rubber industry continued to
account for more than half of Akron's manu
facturing employment until 1962.

of this subject, the decentralization movement, and the
rubber industry, see W arren W. Leigh, Rubber Industry,

5 Employment by place of residence is recorded by the

With Particular R eference To The Tri-County Region

U. S. Department of Commerce, Bureau of the Census,

Ohio,

Tri-County

Regional

Akron, Ohio, 1965.

Digitized for
16FRASER

Planning

Commission,

while employment by place of work is recorded by the
U. S. Department of Labor, Bureau of Labor Statistics.

EMPLOYMENT in M ANUFACTURING INDUSTRIES and the RUBBER INDUSTRY
United States and Akron SM SA

M i l l i o n s of p e r s o n s

22
20
18
16
14

rson s

120
110

100
90
80
70
60
50

RATIO SCALE

AN NU A L AVERAGES

J_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I_
_
_I____ 20
1946

'4 8

'5 0

’52

’5 4

'5 6

'5 8

'6 0

'6 2

'6 4

’6 6

* C o v e r e d e m p lo y m e n t u n d e r O h io U n e m p lo y m e n t C o m p e n s a t io n L a w .
Note-. A v e r a g e f o r f ir s t n in e m o n th s o f 1967.
S o u rce s of d a ta :

U .S . D e p a r t m e n t o f L a b o r

and

O h io B u r e a u o f U n e m p lo y m e n t

D iv is io n o f R e s e a r c h a n d S t a t i s t i c s ,
C o m p e n s a t io n

La st e n try :

'67

ECONOMIC REVIEW
Recent Growth Patterns. Beginning in 1962

(Ihe first lime since Akron became estab
lished as Ihe Rubber Capital) and in each
succeeding year, the rubber industry's share
of Akron's manufacturing employment has
consistently been below 50 percent.6 Growth
in the area's manufacturing employment
during recent years has been moderate
compared with gains in the United States
and most metropolitan areas of Ohio (see
Table III).
In contrast, as shown in Table III, nonmanufacturing sectors in Akron posted very
respectable employment gains during the
1960-1966 period, as was the case during ihe
1940's and 1950's. For example, from 1960 to
1966, government employment increased 40
percent, which was substantially more than
in any other major SMSA in Ohio, the State
of Ohio, or the United States as a whole.
In fact, Federal Government employment
in the Akron SMSA recorded ihe largest
gain among ihe major Ohio SMSA's, due
in large part to increases in employment by
ihe Post Office Department. Gains in state
and local government employment in ihe
Akron SMSA also compared favorably with
other major SMSA's in Ohio. Wholesale and
retail trade employment in ihe Akron SMSA
increased more rapidly than in ihe major
Ohio SMSA's, ihe Siaie of Ohio, or ihe
United Siaies as a whole (see Table III).
6 A high rate of productivity increase is one factor that
helps to explain why there has been no net growth in
employment in the tire industry (either in Akron or in
the United Stales) during the past decade. According
to the Bureau of Labor Statistics, output per employee
man-hour between 1957 and 1964 grew twice as fast in
the tire and inner tube industry as in manufacturing
as a whole.

As a result, although trailing the national
pace, the growth rate of Akron's total nonagricultural employmeni during 1960-1966
was exceeded by the growth rates of only
Columbus and Dayton, among Ohio's major
SMSA's.

OTHER MEASURES OF
ECONOMIC ACTIVITY
Unemployment Rates. Even with ihe domiance of ihe rubber industry in the Akron
SMSA and ihe long-term decline in employ
meni in that industry, the rate of unemploy
ment in Akron has been relatively low in
ihe pasi several years (see Table IV). In
1966, for example, ihe unemployment rate
in ihe Akron SMSA averaged 2.7 percent, ihe
ihird lowest rate among ihe major SMSA's
in Ohio, and was somewhat less than in
ihe Siaie of Ohio as a whole, and substan
tially less than in ihe United States. As was
ihe case in ihe Fifties, the continuation of
"outside” employmeni of persons living in
Akron may be one possible explanation of
ihe SMSA's relatively low rate of unemploy
ment.
Wages in Manufacturing. During 1966, av

erage hourly earnings of production workers
in the Akron SMSA were $3.42, ihe highest
level among Ohio's major SMSA's, and were
considerably higher than ihe level in ihe
United States as a whole (see Table V). The
wage differential in Akron's manufacturing
sector is largely attributable to the tire indus
try, which requires highly skilled labor, and
in which both productivity and wage levels
are high. In 1966, average hourly earnings
in the tire and inner tube industry were $3.83
in the Akron SMSA compared with $3.68 in

TABLE III
N onagricultural Employm ent
Seven M ajor Em ploym ent Categories
Akron SMSA, Other Selected SMSA's in Ohio, State of Ohio, and United States
1966 Annual Average and Percent Change 1960-1966
Transportation

Total
Employment

Manufacturing

Percent

United States
Ohio

Finance,

Contract

and

W holesale and

Insurance, and

Construction

Public Utilities

Retail Trade

Real Estate

Nonagricultural

Percent

Services

Government

Percent

1966

Change

1966

Change

1966

Change

1966

Change

1966

Change

1966

Change

1966

Change

1966

Change

(000)

1960-1966

(000)

1960-1966

(000)

1960-1966

(000)

1960-1966

(000)

1960-1966

(000)

1960-1966

(000)

1960-1966

(000)

1960-1966

63,864

+ 18%

19,081

+ 14%

3,281

+ 14%

13,220

+ 16%

3,086

+ 16%

9,582

+29%

10,850

+ 30%

3,528

+ 12

1,399

Akron

221

+ 12

Canton

125

+ 12

+ 11

4,137

208

—

678

+ 10

157

451

+ 21

484

+ 23

+40

+ 11

+ 24

+ 20
+25

134

+ 18

+ 12

+ 21

Cincinnati

456

162

—

+ 20

Cleveland

798

+ 11

312

—

161

+ 11

11 1

+ 23

+ 25

Columbus

324

+ 20

+ 13

+ 27

+ 17

+ 24

+ 30

Dayton

297

+ 18

124

+ 19

+ 20

+ 10

+ 16

+ 20

+ 29

+ 12

Toledo

218

+ 12

+ 20

+ 27

+ 26

180

— 20

+ 29

+ 15

YoungstownW a rre n

N O TE: 1960 d ata for Akron, Cincinnati, Cleveland, Columbus, Dayton, and Toledo have been modified by Federal Reserve Bank of Cleveland to be comparable with 1966 data.
Sources: U. S. Department o f Labor and Division o f Research and Statistics, Ohio Bureau of Unemployment Compensation

ECONOMIC REVIEW
TABLE IV
Rate of Unemployment Among all Civilian Workers 14 Years of Age and Over
Akron SMSA, Other Selected SMSA's in Ohio, State of Ohio, and United States
1960-1966
1960

1961

1962

1963

1964

1965

1966

United S ta te s ..................................................

................................

5 .6 %

6 .7 %

5 .6 %

5 .7 %

5 .2 %

4 .6 %

3 .9 %

O h i o ................................................................

................................

5.3

7.3

5.7

5.1

4.2

3.5

3.1

A k r o n ...........................................................

................................

4.6

7.4

4.9

4.7

4.2

3.2

2.7

C a n t o n ...........................................................

................................

5.9

8.9

7.0

6.3

4.4

3.5

3.0

C in c in n a t i.......................................................

................................

4.0

5.5

4.4

4.2

4.8

4.0

3.1

C le v e la n d .......................................................

................................

4.8

7.0

5.2

4.4

3.6

3.1

2.6

C o lu m b u s .......................................................

................................

3.8

4.3

3.3

2.8

2.6

D a y t o n ...........................................................

................................

3.6

5.1

3.9

3.7

3.0

2.8

2.5

T o l e d o ...........................................................

................................

5.0

8.4

6.2

5.1

4.4

3.7

3.3

Y o u n g s to w n - W a rre n ....................................

................................

7.4

9.9

8.3

6.5

4.2

3.9

3.6

Sources: U. S. Departm ent o f Lab o r and Division o f Research and Statistics, O hio Bureau o f Unem ploym ent Compensation

the United States as a whole. Despite rela
tively slow growth in Akron's manufacturing
employment between 1960 and 1966 (less
than one-third the national rate), growth in
average hourly earnings for the Akron area
matched the percent gain for the United States.
Value Added and Capital Spending. Other
measures of industrial activity also reflect
the slower growth of manufacturing activity
in the Akron SMSA, compared with other
major metropolitan areas in Ohio or the
nation. Value added by manufacture, for
example, increased 25 percent from 1958 to
1963 (the most recent year for which figures
are available) well below the gain in Ohio
and the United States. During the period, only
Youngstown-Warren, among Ohio's SMSA's,
recorded a smaller increase (see Table VI).
A small gain (16 percent from 1958 to
1963) in value added by the manufacture
of rubber and miscellaneous plastics prod
ucts, which was partly tempered by a sharp
decline in wholesale prices of rubber prod
ucts, largely accounted for the relatively
slow growth of value added. Increases in
0 FRASER
Digitized 2for

other industry groups, however, partially
offset the sluggishness in value added by
the rubber industry. Among the other large
manufacturing industries in the metropolitan
area, fabricated metal products recorded a
24-percent increase in value added during the
five-year period, and nonelectrical machinery
a gain of 111 percent.
TABLE V
Average Hourly Earnings in Manufacturing
Akron SMSA, Other Selected SMSA's in Ohio,
State of Ohio, and United States
1966
Percent

United S t a t e s .......................

196 6

Chang e
1 96 0-1966

$2.71

+ 20%

3.10

+ 19

3.42

+ 20

3 .10

+ 16

2.92

+20

C l e v e l a n d ...........................

3 .1 7

+ 19

C o l u m b u s ............................

2.9 7

+20

Y oungstow n-W arren

3.39

+24

3.23

+ 19

3 .3 7

+ 15

Sources: U. S. D epartm ent o f Lab or and Division o f
Research and Statistics, O h io Bureau o f Unem
ploym ent Compensation

DECEMBER 1 9 6 7
TABLE VI
Measures of Manufacturing Activity
Akron SMSA, Other Selected SMSA's in Ohio, State of Ohio, and United States
V a lu e A d d e d b y M an ufacture

1958

1963

Percent
C hange
1958-1963
+ 36%

(mil. $)

C a p ita l Expenditures (new )

(mil. $)
1958

1963

Percent
C hang e
1958-196

United S t a t e s ................................

..................

$141,541

$ 1 9 2 ,1 0 3

$9,54 5

$11,371

O h i o ..................................................

..................

11,473

15,506

+ 35

796

848

+ 19%
7

A k r o n ..............................................

..................

809

1,014

+25

C a n t o n ..............................................

..................

450

667

+48

+25
— 27

C in c in n a t i.........................................

..................

1,555

2 ,0 5 7

+ 32

107

C l e v e l a n d .........................................

..................

2,558

3 ,3 79

+ 32

143

177

+23

C o lu m b u s .........................................

..................

680

962

+41

+ 10

..................

912

1,318

+45

+43

T o l e d o ..............................................

..................

716

911

+ 27

— 26

Y o u n g sto w n - W a rre n .......................

..................

729

902

+ 24

Source: U. S. D epartm ent o f Commerce

New capital expenditures by manufac
turers in the Akron metropolitan area totaled
$63 million in 1963 — a gain of only 8 per
cent from the 1958 level. The rubber industry
accounted for slightly more than one-half
of manufacturers' new capital expenditures
in the Akron area during 1963; however, in
that year Akron did not receive its usual
share of new capital expenditures by the
nation's tire industry. In 1963, the Akron
SMSA accounted for 31 percent of employ
ment in the nation's tire and tube industry,
but received only 25 percent of the industry's
new capital expenditures.

larger gain in that period. Savings deposits
of individuals at Akron banks virtually
doubled between 1960 and 1966.
The volume of loans outstanding at banks
in the Akron SMSA increased 78 percent
between 1960 and 1966, the second largest
gain among the major SMSA's in Ohio.
Despite the fact that several national com
panies headquartered in Akron tend to bor
row elsewhere (largely because of size con
sideration), commercial and industrial loan
volume at Akron banks increased 129 per
cent in the period — a greater increase than
that of any other major metropolitan area
in Ohio.

Financial Activity. Several measures of

financial activity in the Akron metropolitan
area have shown marked growth in recent
years, compared with other major cities in
Ohio. Bank debits in Akron, for example,
increased 77 percent from 1960 to 1966
(see Table VII). Among the other major
SMSA's in Ohio, only Columbus scored a

CONCLUDING COMMENTS
Total employment in Akron is currently
at an all-time high, and is moving for
ward. With the exception of manufacturing,
Akron's economy has experienced a fair
rate of economic growth in recent years
(compared with the State of Ohio and most
21

ECONOMIC REVIEW
TABLE VII
Bank Debits, Savings Deposits of Individuals, and Loans Outstanding
Akron and Other Selected Cities in Ohio

1966
Loans Outstanding (ye a re n d )
Saving s Deposits
o f Individuals
(annual a v e r a g e )

Bank Debits
(annual totals)

(mil. $)
1966
Akron

Percent
C hang e
1960-1966

(mil. $)
1966

(mil. $)
1960

Percent
Chang e
1960-1966

(mil. $)
1966

Percent
C hang e
1960-1966

$ 1 2 ,3 6 5

77%

318

99%

514

78%

3,852

135

-f

2 36

Cincinnati

3 2,08 5

361

1,136*

428*

C levela n d

7 3 ,5 1 5

1,852

3,473

1,175

Canton

Percent
C hang e
1960-1966

Com m ercial
and Industrial

Total

144

+ 129%

+ 102

Columbus

2 8,44 5

+ 112

331

+210

8 44

+ 129

237

D ayton

10,7 04

152

+ 142

51 1

141

Toledo

12,253

279

436f

121 f

6,374

132J

39+

341

Y oungstow n-W arren

* Does not include D earb orn County, Indiana.
f Does not include M onroe County, M ichigan.
| Youngstown only.
N O T E : Bank debits and savings deposits d a ta a re for reporting banks (m em ber and nonmember) in selected centers, which a re rep orted
monthly to the F e d e ra l Reserve Bank o f C levela n d . Saving s deposits a t reporting banks (m em ber and nonmember) represent
chiefly savings deposits o f individuals and eleem o syn ary organizations, Christmas savings and similar thrift accounts, and time
certificates o f deposit o f individuals. Loan d a ta a re from call reports o f all insured commercial banks in the SM SA 's.
Source: F e d e ra l Reserve Bank o f C leveland

major metropolitan areas in the State).
Over the long run, Akron's economy has
become progressively less dependent on
manufacturing in general, and on the rub
ber industry in particular. Fifty years ago,
every other employee in Akron worked in
the rubber industry. Today, only one out
of every five employees in the Akron area
works in the rubber industry. Akron's share
of total employment in the nation's tire in
dustry declined sharply before World War
II, and continued to decline from a postwar
high of 46 percent in 1949 to about 35 per
cent today. Nevertheless, because a number
of major rubber companies are headguartered in Akron, the City undoubtedly will
continue to be recognized as the "Rubber
Capital of the World."
Digitized for
22FRASER

In 1967, selected indicators of economic
activity in the Akron metropolitan area have
shown a mixed pattern, which is not sur
prising in view of the sluggishness in the
United Stales economy as a whole during
the first half of the year, as well as the
strikes in the rubber industry earlier this
year. Employment increased 3 percent in
the Akron SMSA in the first eight months
of 1967, more than in any other major SMSA
in Ohio, but the unemployment rate in Sep
tember was virtually the same as in January
and in September a year earlier. Among
the financial indicators, savings deposits of
individuals increased 7 percent through
October, but bank debits declined 5 per
cent, the only decline among Ohio's major
SMSA's.

DECEMBER 1 9 6 7

CAPITAL SPENDING PLANS IN MAJOR
METROPOLITAN AREAS
OF THE FOURTH DISTRICT
According lo Ihe results of the most recent
official survey,1 total spending for new plant
and equipment in the nation, on a year-toyear basis, will increase considerably less
in 1967 (2 percent) than in 1966 (16 percent).
Spending for new plant and equipment by
manufacturing firms in 1967 will show no
gain compared with an increase of 20 per
cent in 1966. In both cases, the latest figures
are less than earlier expectations of 1967
spending. A similar pattern of reduced
spending in 1967 was evident in the results
of the most recent semiannual surveys of
capital spending plans undertaken by the
Federal Reserve Bank of Cleveland in major
metropolitan areas of the Fourth Federal
Reserve District.2
Responses lo the fall 1967 surveys in the
District indicated that, in the six-month in
terval between the spring and fall surveys,
a large proportion of participating man
ufacturing firms scaled down spending in

1967 and raised spending plans for 1968.
As a result, the margin of increase in spend
ing in 1967 over 1966 was reduced from
what had been expected earlier. At the
same time, the outlook for 1968 was im
proved from what had been expected in the
spring, with many planned cutbacks in
spending becoming increases or smaller
cutbacks. The net result for 1967-1968 of the
revisions reported in the fall survey (for man
ufacturing firms participating in both the
spring and fall surveys) was an increase in
total capital spending planned in two of the
major areas of the District, and a decline
in one area.

1 The survey is conducted jointly by ihe U. S. Department

Chamber of Commerce, the G reater Cleveland Growth

of Commerce and ihe Securities and Exchange Commission.

Board, and the Federal Reserve Bank of Cleveland, was

2 The survey in ihe Pittsburgh area is conducted by

firms. See Economic Review, Federal Reserve Bank of

special arrangement with the University of Pittsburgh.

Cleveland, May 1967, pp. 10-13.

CLEVELAND AREA
The fall 1967 survey of capital spending
plans in the Cleveland metropolitan area
revealed that large manufacturing firms re
porting in both the spring and fall surveys3
3 The spring survey, undertaken jointly by the Cleveland

more comprehensive, and included small as well as large

ECONOMIC REVIEW

planned lo spend 12 percent more for plant
and equipment in 1967 than in 1966 (see
Table I). In the spring, the same firms had
expected to increase spending by 38 percent.
Between ihe spring and fall surveys, 58 per
cent of ihe reporting firms reduced spending
plans for 1967, while 28 percent raised them.
The scaling down of increases in spending
plans for 1967 was most pronounced in ihe
durable goods industries as a group, from
36 to 8 percent. In ihe fall survey, each of
ihe individual industries showed a smaller
percent increase or a larger percent decline
than was ihe case in the spring. In the non
durable goods group — where much smaller
dollar totals are involved — the earlier ex
pectation of a 55-percent increase for 1967
was reduced io 46 percent. Cutbacks in
spending among individual industries in
that group were generally smaller than in
the durable goods group, and one industry

TABLE I
Capital Spending by Manufacturing Firms
Cleveland Metropolitan Area
(Fall 1967 Survey)
Year-to-Year Percent Changes
1966 (actual)
to
19 6 7 (planned)
8%

D u rab le g o o d s ..................

Prim ary m e t a ls ..................

F a b rica ted metals

.......................

19 6 7 (planned)
to
19 68 (planned)
+

54%

+ 209

—

Transportation equipm ent.

—

C h e m ic a ls ...........................

—

Rubber and plastics .

+ 1 35

47%

M achinery

Electrical equipm ent .

N o nd u rab le goods . . . .
F o o d ....................................
Printing and publishing .

TOTAL

................................

12%

Source: F ed e ral Reserve Bank o f C leveland

— printing and publishing— raised its sights
between ihe spring and fall surveys.
Revised spending plans of all manufac
turing firms indicated a 47-percent increase
in 1968 over ihe revised total for 1967 (see
Table I), which represented a considerable
upgrading of ihe 5-percent increase (from a
larger base) reported in ihe spring survey.
The overall increase reflects the combined
effect of upward revisions by 54 percent of
the participating firms, and downward revi
sions by 33 percent.
The pattern of revisions was largely dom
inated by ihe durable goods group; in ihe
nondurable goods group, curtailed spend
ing for 1967 was not uniformly accompanied
by raised spending plans for 1968. In 1968,
ihe nondurable goods industries as a group
will about match ihe level of 1967 spending;
in ihe spring, the group had expected 1968
spending io exceed that in 1967 by 36 per
cent.
The 1967 and 1968 proportions of spending
for structures (see Table II) did not differ
significantly from the earlier survey. How
ever, ihe relative decline in spending for
expansion of facilities expected in 1968 was
considerably more severe than indicated in
ihe spring survey. This implies a reduced
need io increase manufacturing capacity or
at least less incentive for doing so, and re
flects relatively large amounts of unused
capacity, as well as rising cost pressures
and smaller profit margins.
Answers io ihe question on capacity were
virtually unchanged between ihe two survey
dates for ihe manufacturing group as a
whole. Manufacturing capacity was reported
''adequate" by over one-half of the firms

DECEMBER 1 9 6 7
TABLE II
Capital Spending by Manufacturing Firms
Cleveland Metropolitan Area
(Fall 1967 Survey)
Percent Distribution of Total Spending by Type*
(Between Structures and Equipment and Between
Expansion and Replacement)
Structures")"

D urable goods

Expansion^

1966

1967

1968

1966

1967

1968

19%

15%

24%

61%

56%

44%

Fabricated
metals

M achinery

Electrical
equipment

Transportation
equipment

N o ndu rab le goods 24

Prim ary metals

Food

Printing and
publishing

Chemicals

15%

23%

59%

46%

Rubber and
plastics
TOTAL

12
20%

* Ba sed only upon returns in which these breakdow ns w ere supplied,
f Spending fo r equipm ent equals 100 percent less the percent
shown fo r structures.

\ Spending fo r replacem ent eq uals 100 percent less the percent
shown for expansion.

ties. In the entire area, both the percent
increases in spending plans (7 percent for
1967 and 39 percent for 1968) and the effects
of revisions of spring plans were similar to
those in the Cleveland area. This similarity
was particularly apparent for the durable
goods industries, where the Cleveland area
accounts for more than 90 percent of ihe
total capital outlays in the eight counties.
In contrast, however, spending plans in the
nondurable goods group followed a different
pattern. In that group, firms located outside
metropolitan Cleveland account for threefourths of all capital spending in the eight
counties. In the rubber industry, for example,
spending plans for 1967 and 1968 in the
entire area reflect the continuation of strong

TABLE III
Capital Spending by Manufacturing Firms
and Public Utilities
Eight Northeastern Ohio Counties*
(Fall 1967 Survey)
Year-to-Year Percent Changes

Source: F e d e ra l Reserve Bank o f C leveland

replying to the question and "less than re
quired" by one-third.

1 9 6 6 (actual)
to
196 7 (planned )
Durable g o o d s ..................
Stone, cla y, and glass .

Prim ary m e t a ls ..................

EIGHT NORTHEASTERN OHIO COUNTIES
Spending plans of manufacturing firms in
the eight-county northeastern Ohio area,
which includes Ashtabula, Lorain, Portage,
Summit counties, and the four counties that
comprise metropolitan Cleveland, closely
followed the Cleveland pattern (see Table
III). This is not surprising since metropolitan
Cleveland accounts for over three-fourths
of total capital spending in the eight coun

F a b rica ted metals
M achinery

.......................

19 6 7 (planned)
to
1968 (planned)

+ 11%

+ 21

+ 34

—

+ 136

42%

— 28

Transportation equipm ent.

—

— 24

+ 60

—

7
38

Electrical equipm ent .

N o ndu rab le goods . . . .

Printing and publishing .

C h e m ic a ls ...........................

+ 14

TOTAL M A N U F A C T U R IN G .

39%

P U BLIC U T IL IT IE S ..................

—

53%

Rubber and plastics .

* A shtabula, C u y a h o g a , G e a u g a , Lake, Lorain, M e d in a , P o rta g e ,
and Summit Counties.
Source: F e d e ra l Reserve Bank o f C leveland

ECONOMIC REVIEW

spending programs of ihe large Akron rub
ber manufaciurers.
The iolal amounl that manufacturers in
ihe eight-county area participating in both
surveys plan to spend in 1967 and 1968
combined exceeds the spring estimate by
almost 5 percent. In the Cleveland area,
ihe spring and fall totals for the two-year
period were virtually the same.
Spending in 1967 on new plant and equip
ment by public utilities in the eight-county
area was estimated in the latest survey to fall
short of ihe 1966 figure by 1 percent, com
pared with an estimated increase of 12 per
cent reported in the spring. Spending plans
for 1968, which most utilities had been unable
to report in the spring, indicate a 53-percent
increase over 1967, due mainly to one com
pany's plans to spend more than twice as
much in 1968 as in 1967.

CINCINNATI AREA
According to the most recent survey, capi
tal spending by manufacturing concerns in
the seven-county Cincinnati metropolitan
area will be 17 percent larger in 1967 than
in 1966 (see Table IV), instead of 31 percent,
as estimated in the spring. Public utilities
reduced estimated increases in capital spend
ing for 1967 over 1966 from 21 percent to 13
percent. Within ihe totals, however, a few
more of the individual firms participating in
both surveys reported increases over earlier
estimates than reported reductions.
Even after downward revisions, capital
spending in the soft goods industries in 1967
will still exceed actual 1966 outlays, but by
a much smaller margin than estimated in
the spring (except for the food industry,
Digitized for26
FRASER

where the margin widened). In the hard
goods sector, however, spending in 1967,
as estimated in the fall, will fall short of
1966 for the entire group, as well as for all
individual industries shown in Table IV.
Between the two survey dates, spending
plans for 1968 were raised by four times the
number of firms that reported a downward
revision. As a result, total capital spending
by participating manufacturers was expected
to rise 15 percent above 1967; a decline of
24 percent had been anticipated in the spring.
The general upward revision of spending
plans for 1968 was not evenly distributed
throughout all manufacturing industries. As
shown in Table IV, some of the nondurable
goods industries plan to spend less in 1968
than in 1967. In contrast, the durable goods
industries expect to spend more in 1968 than
TABLE IV
Capital Spending by Cincinnati Area Firms
(Fall 1967 Survey)
Year-to-Year Percent Changes
1966 (actual)
to
19 6 7 (planned )

1 967 (planned)
to
19 6 8 (planned )

M A N U F A C T U R IN G . . . .

+ 17%

15%

D urable g o o d s ..................

—

Prim ary and fa b ric a te d
m e t a ls * ...........................

—

M a c h i n e r y .......................

— 23

Electrical equipm ent

— 23

+ 110

—

Transportation equipm ent
N o nd u rab le goods

Printing and publishing

C h e m i c a l s .......................
PUBLIC UTILITIES
TOTAL

. . . .

................................

—

+ 49

+ 55

+71

—

+ 26

—

+ 52

+ 13

+ 15%

19%

* Combined in o rd er to preclude disclosure of individual estab
lishment d ata.
Source: F e d e ra l Reserve Bank o f C leveland

DECEMBER 1 9 6 7

in 1967, with one notable exception — trans
portation equipment — where capital invest
ment reductions are scheduled for two suc
cessive years. Despite these reductions, the
transportation equipment industry will ac
count for 43 percent of total spending by all
participating manufacturing firms in the
area in 1967 and for 36 percent in 1968. Re
vised total spending plans for 1967 and 1968
combined of manufacturing concerns partici
pating in both surveys exceeded the spring
estimate by 9 percent.
Public utilities plan to spend 25 percent
more in 1968 than in 1967, up slightly from
the earlier estimate. Because of a reduced
base figure for 1967, however, the utilities'
total spending will be smaller in dollar terms
than the spring estimate.
A relatively high proportion of spending
by manufacturing firms in 1967 and 1968 is
designated for new structures (see Table V).
A high figure for 1967 had been indicated in
the spring survey; the reported proportion
for 1968, however, represented a sizable
increase over the spring estimate. In Cin
cinnati, spending for expansion continues to
surpass spending for replacement and mod
ernization of facilities. This is somewhat
surprising since capacity pressures appear
to be lessening in the area, as reflected in
the fact that in the three most recent sur
veys the number of manufacturers reporting
"less than required" facilities declined from
25 percent to 22 percent to 19 percent.

PITTSBURGH AREA
The most recent survey conducted by the
University of Pittsburgh under arrangements
with the Federal Reserve Bank of Cleveland

TABLE V
Capital Spending by Cincinnati Area Firms
(Fall 1967 Survey)
Percent Distribution of Total Spending by Type*
(Between Structures and Equipment and Between
Expansion and Replacement)
Expansion!

Structures!

M A N U F A C T U R IN G
Durable goods

1966

1967

1968

1966

1 967

1968

22%

33%

64%

69%

73%

Prim ary and
fa b ric a te d
metals§

M achinery

Electrical
equipment

Transportation
equipment

70
71

N ondurab le
goods
Food
Paper
Printing and
publishing

PUBLIC UTILITIES

TOTAL

23%

33%

32%

66%

69%

73%

Chemicals

* Based only upon returns in which these breakdow ns w ere supplied,
f Spending for equipm ent equals 100 percent less the percent
shown for structures.
J Spending for rep lacem ent equals 100 percent less the percent
shown for expansion.
§ Com bined in o rd er to preclude disclosure o f individual estab
lishment d a ta .
Source: F e d e ra l Reserve Bank o f C levelan d

indicated that spending for new plant and
equipment by business firms in the fourcounty Pittsburgh metropolitan area in 1967
would exceed actual spending in 1966 by 8
percent. Manufacturing firms expected to
increase capital spending in 1967 by 18 per
cent over 1966 (see Table VI), which repre
sented a downward adjustment of plans re
ported in the spring. At that time, business
firms had expected to spend 21 percent more
than in 1966, while manufacturing firms had
anticipated a 25-percent increase. Between
27

ECONOMIC REVIEW
TABLE VI
Capital Spending by Pittsburgh Area Firms
(Fall 1967 Survey)
Year-to-Year Percent Changes
1 96 6 (actual)
to
19 6 7 (planned)

19 6 7 (planned)
to
19 68 (planned)

18%

— 10%

—

— 53

— 60

M a c h i n e r y .......................

+ 1 24

+ 98

Electrical equipm ent

M A N U F A C T U R IN G . . . .
D u rab le g o o d s ..................
Stone, cla y , and glass.
Prim ary metals

. . . .

Fa b rica te d metals

—

+ 1 23

+ 18

— 24

F o o d ................................

— 49

C h e m i c a l s .......................

+ 11

— 48

—

RETAIL T R A D E .......................

TO TAL

N o nd u rab le goods

T R A N S P O R T A T IO N
PU BLIC UTILITIES

. . . .

................................

+ 65
—

Sources: University o f Pittsburgh and
Fe d e ra l Reserve Bank o f C leveland

duced earlier estimates. Revised spending
plans for 1967-1968 combined of all manu
facturers participating in both the spring
and fall surveys amount to 7 percent less
than was reported in the spring survey.
Most individual industries listed in Table
VI follow the pattern of the combined manu
facturing group, showing higher spending in
1967 than in 1966 and less spending in 1968
than in 1967. In the machinery, electrical
equipment, and chemicals industries, how
ever, capital spending is expected to rise in

TABLE VII
Capital Spending by Pittsburgh Area Firms
(Fall 1967 Survey)
Percent Distribution of Total Spending by Type*
(Between Structures and Equipment and Between
Expansion and Replacement)

ihe spring and fall surveys, 42 percent of all
firms participating in both surveys reported
reduced spending plans, and 36 percent re
ported higher spending.
Fall estimates of 1968 spending plans, al
though higher than the spring estimates,
were still short of expected spending in 1967.
Manufacturing firms plan to spend only 10
percent less in 1968 than in 1967, compared

Structures!

M A N U F A C T U R IN G
D urable goods

1968

1966

1967

16%

15%

18%

32%

1968
29%

Fab ricated
metals

M achinery

Electrical
equipment

combined plan to spend 8 percent less in
1968 than in 1967; the previous survey had
indicated a 20-percent reduction. The smaller
percent decline reflects not only a reduced
1967 base figure but some enlarged plans in

Chemicals

Digitized for28
FRASER

1 96 7

Prim ary metals

N ondurab le
goods

ual firms participating in both surveys plan
to spend more in 1968 than they had indi
cated in ihe spring, while only one-fifth re

1966
21%

Stone, clay,
and glass

with a 28-percent reduction anticipated in
the spring. All participating business firms

individual cases. Almost half of ihe individ

Expansion!

PUBLIC UTILITIES

RETAIL TRADE

TOTAL

25%

22%

25%

26%

34%

36%

Food

T R A N S PO R T A T IO N

* Based only upon returns in which these b reakdow ns w ere supplied,
f Spending fo r equipm ent eq uals 100 percent less the percent
shown fo r structures.
| Spending for replacem ent equals 100 percent less the percent
shown fo r expansion.
Sources: University o f Pittsburgh and
F e d e ra l Reserve Bank o f C levela n d

DECEMBER 1 9 6 7

both years, with rather substantial increases
in machinery and electrical equipment in
1967. All three of these industries have ear
marked a large proportion of total spending
in both years for expansion, mostly for
machinery and equipment (see Table VII).
The primary metal industries, despite very
little increase in spending, continue to ac
count for more than half of total capital out
lays by all manufacturing firms in the Pitts
burgh area.
One in every six dollars of new capital in
vestment by manufacturing firms in 1967 and
1968 will be spent for structures, compared
with one dollar in every four by all participat
ing business firms combined. Although there

were some changes for individual industries,
those proportions changed little between the
spring and fall surveys.
Spending for expansion of facilities by both
manufacturing and all business firms was
expected to be lower in 1967 and 1968 than
was reported in the spring. This downward
revision was consistent with the change in
the proportion of firms reporting capacity
shortages. "Less than reguired" facilities
were reported in the spring survey by one in
every four firms answering the question com
pared with one in nine firms in the most recent
survey. The proportion of responding firms
with "adeguate" facilities rose from twothirds to three-fourths of the total.

ANNUAL INDEX TO ECONOMIC REVIEW— 1967
M ONTH
JANUARY

ARTICLE TITLE
Advance Refunding and Commercial Bank Participation
Population and Banking Changes in the Fourth District, 1954-1965

FEBRUARY

An Economic Profile of Lexington, Kentucky
Recent Patterns in Term Lending
A Note on Branch Banking Legislation and Banking Structure in the
Fourth District

MARCH

A Note on Defense Spending
1966 Patterns in Fourth District Banking
Growth of Deposit-Type Financial Institutions in the Fourth
District, 1947-1965

APRIL

1966 Survey of High School Seniors in Cuyahoga County
Municipal Securities: Recent Trends in Bank Investment
Fourth District Developments in Bank Credit Card and
Check-Credit Plans

MAY

M onetary Policy in a Changing W o rld
Capital Spending Plans in Cleveland and Northeastern Ohio
Agricultural Loans at Commercial Banks in the Fourth District

JUNE

M onetary Policy, Financial Liquidity, and the Outlook for
Corporate Profits
An Economic Profile of Toledo
Capital Spending Plans in Cincinnati and Pittsburgh

JULY

Profile of Short-Term Interest Rates in the United States and
Abroad, 1965 to 1967
Farm Operators and Bank Debt

AUGUST

Trends in Prices, Production, and Inventories
An Economic Profile of Dayton

SEPTEMBER

Some Aspects of United States Foreign Trade and the Kennedy Round
A Note on Bank Deposits and Bank Credit in 1965-1967

OCTOBER

Financial Flows: Recent Patterns and Problems
Trends and Recent Relationships in Yields on U. S. Government
Securities

NOVEMBER

Employment Performances of Cleveland, Pittsburgh, and Cincinnati
Part I: Comparison with the United States
A Note on Business Inventories

DECEMBER

The Dealer M arket for U. S. Government Securities and M onetary Policy
An Economic Profile of Akron
Capital Spending Plans in M ajor Metropolitan Areas of the
Fourth District