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MONTHLY IN — F E D E R A L R E S E R V E BANK of C L E V E L A N D - THIS ISSUE The Year In Fourth District Banking . . . 2 Department Store Trade— Review of 1956 ............................ 7 flcu tcccv u f t $ 5 7 Statement of William McC. Martin, Jr. . 11 LOANS OUTSTANDING AND HOLDINGS OF U. S. GOVERNMENT SECURITIES Fourth District Member Banks The Year In Fourth District Banking “ n n iG H T m oney” w ill probably endure as a X popular description of banking condi tions in 1956. Like most short-cut descrip tions, it glosses over the underlying pressures that brought about the condition of tightness in money and capital markets. Sparked by an unprecedented expansion in plant and equipment expenditures, the econ omy moved from record levels in 1955 into new high ground in 1956. Despite a reduction in the output of houses and autos, and a fiveweek strike in the steel industry, the nation’s During 7956, total loans and investments at member banks posted the smallest annual Increase of the past six years. productive resources ran at or near capacity. Financial resources, especially those of com mercial banks, were strained by growth in the unrelenting demands of businessmen and con sumers for credit. The growth of savings lagged behind the pace set by the demand for savings. Only a part of the gap was closed by an increase in the supply of money and credit, as the Fed eral Reserve continued to moderate the ex pansion of bank credit. Thus, tightness developed from an excess of the demand for funds over the available supply; it was re flected in higher interest rates and in the postponement of plans by some borrowers. Although the expansion of bank credit in the Fourth Federal Reserve District, as well as in the nation, was restrained, Fourth Dis trict member banks increased the total of their loans and investments by about 3 per cent, a somewhat smaller gain than a year ago. Nevertheless, they managed to meet a substantial share of the demand for loans by increasing loans by about 15 percent and re ducing holdings of U. S. Government securi ties by about 10 percent. Demand for Bank Credit As shown on the following chart, busi ness loans in 1956 at Fourth District weekly reporting banks continued the upward move ment that began in mid-1954. After the usual lull early in the year, business loans began a vigorous expansion that led to an increase in 2 FED. RES. All types of loans at weekly reporting banks In creased in 7956, but only business loans maintained the pace set in 1955. business loans of $89 million around the March tax date, an addition of $72 million followed in April, with only slight retrench ment in subsequent months. Moderate reduc tions in business loans outstanding at Fourth District weekly reporting banks were made in only three of twelve months of 1956. This sug gests that a considerable volume of loans was rolled over as corporate financial managers delayed new security issues with the expecta tion that lower rates could be obtained at a later date. Weekly reports from a sample of large banks in the Fourth District indicate that nearly every type of business shared in the increased volume of business loans. (See ac companying chart.) Manufacturers of metals and metal products set the pace with a $120 million addition to their outstanding bank debt between January 1 and December 5, the latest date for which reports were available at press time. outstandings of nearly 20 percent during the year. The unprecedented expansion in ex penditures for new plant and equipment, although financed mainly through security issues in the capital market, markedly affected business demands for bank credit. Bank loans to business increased, as firms borrowed in advance of actual security flotations and others borrowed in order to continue plans to expand while delaying security flotations in anticipation of a decline in issuing rates. Business financial managers also found it necessary to go to banks for more of their working capital requirements. Current ex penditures rose during 1956 under the influ ence of higher costs and larger inventories to meet a growing volume of sales. Accelerated corporate tax payments under revisions of the Internal Revenue Code of 1954 added further to business needs for funds. It would seem likely that amounts borrowed to meet tax deadlines or in anticipation of long-term security financing would be repaid within several months. Such repayment is not evident in the aggregate figures for weekly reporting member banks in this District. For example, after a net increase in outstanding Public utilities were second largest bor rowers in 1956. By December 5, they had made a net addition of nearly $58 million to their bank-held debt in contrast to a net re duction of about $28 million during the com parable year-ago period. On the other hand, sales finance companies, net borrowers to the tune of $83 million a year ago, made net re payments of $64 million in 1956. Repayments by sales finance companies occurred when funds were obtained from nonbank investors, but did not reflect reduced credit extensions to consumers. In 1955, consumer and all other loans, largely loans to individuals, had risen more than 20 percent at Fourth District weekly reporting member banks. It is somewhat re markable that such loans at Fourth District weekly member reporting banks continued to increase during 1956, rising an additional 17 percent. During the postwar period, the borrowing experience of individuals has been enhanced by steady incomes and increases in incomes that made it easier to pay off old bills. The past year was no exception. As individual in- 3 NET C H A N G E IN LARGE BUSINESS LO A N S O U T ST A N D IN G 1 By Type of Business, Jan. 1— Dee. 5,1956 Fourth District M illio n s of D o lla r s -100 -50 +50 | —i—i—i—i— i—i—i—i—i—0|—i—i—i—i— | —i—i—i—+100 i—| —i—i—i—+150 i—| MANUFACTURING METALS S METAL PRODUCTS PETROLEUM,COAL, 8 CHEMICALS FOOD, LIQUOR, a TOBACCO TEX TILES, APPAREL, a LEATHER OTHER MFG. a MINING TR A D E WHOLESALE a RETAIL OTHER SALES FINANCE COMPANIES PUBLIC UTILITIES CONSTRUCTION COMMODITY DEALERS ALL OTHER 1 Includes loans of $50,000 or more at 14 weekly reporting banks. 2 Less than $2 million. comes rose, expenditures for consumer dura bles, partly affected by price increases, also rose, and borrowing directly from banks or indirectly through sales finance companies continued to move upward. Unlike business loans, real estate loans lost some of the spark of recent years, though they continued to rise during 1956. Increased costs and a larger average size of housing units partly overcame the decline in sales insofar as the demand for real estate credit was con cerned. Real estate loans at Fourth District weekly reporting member banks rose $76 mil lion in 1956 in contrast to a $118 million in 4 crease in 1955. These figures do not include bank loans to real estate mortgage lenders, often called “ warehousing” loans, which de clined about $12 million during the twelve months ended November 16, 1956. Meeting the Demand Inasmuch as the commercial banking sys tem is a fractional reserve system, its capacity to handle growing pressures for loan expan sion, without reducing security holdings, de pends upon the excess of reserves over the volume of reserves it is required to maintain. At this point, decisions of the Federal Be- serve System become of strategic importance. Reserves might be freed by lowering the re quired ratio of reserves to deposits. Additional reserves might be supplied through purchases of U. S. Government securities by the Federal Reserve System. Reserves can also be obtained for short-run emergency or seasonal needs by borrowing from the Federal Reserve Banks.1 Also, commercial banks within a specific region, such as the Fourth Federal Reserve District, might gain reserves at the expense of declines in other regions. During 1956, the Federal Reserve System followed a policy, typified as “ active re straint/ ’ designed to hold the expansion of the money and credit supply within the na tion’s capacity to grow without inflationary excesses. As a result, reserves were supplied sparingly to the banking community to meet seasonal, emergency, and long-run growth needs. Further, there is no evidence of a significant net gain in reserves at Fourth Dis trict banks as a result of a net loss from the rest of the nation. The accompanying chart reveals the vary ing degrees of tightness felt by Fourth Dis trict member banks since 1951. When banks have substantial free reserves, i.e., excess re serves less borrowings from the Reserve Banks, they actively seek new business. This free-reserve situation prevailed in 1954 and to a steadily decreasing extent in 1955. On the other hand, when bank borrowings are greater than excess reserves, commercial bankers are generally more conservative in their lending and investing operations. This is the position Fourth District member banks found themselves in during most of 1956. For that reason, loan expansion depended heavily upon commercial banks’ willingness and ability to reduce investments and cash resources. For the year as a whole, the decline in holdings of U. S. Government securities at Fourth District member banks amounted to more than half of the rise in loans. (See cover chart.) To some extent, i Other operating factors that affect the level of reserves are taken into account when Federal Reserve System policy is put into effect through open market operations. The cushion of free reserves available to member banks for loan expansion in 7954 and most of 7955 changed to the restraining influence of net bor rowed reserves in much of 7956. especially for short periods of adjustment, Fourth District member banks also reduced their vault cash and balances with other banks. Effects on Deposits Reflecting the tighter reserve position and the limited capacity to increase loans and in vestments, demand deposits at Fourth Dis trict member banks increased only slightly during 1956. However, holders of demand deposits made more intensive use of existing balances. Demand deposits, excluding bank and U. S. Government deposits, at banks in 28 reporting centers in the Fourth District were turned over at an annual rate of 23.2 in 1956 in contrast to 21.3 in 1955. Time de posits at Fourth District member banks in creased 3 percent during 1956. Effect on Bank Liquidity and Earnings In addition to the fact that the shift from securities, and to some extent from cash re sources, to loans has enabled Fourth District member banks to increase their loans by a substantial $835 million in 1956, the shift from securities to loans has other important results. 5 Monetary restraint la 7956 was reflected in a slower rate of growth in demand deposits at mem ber banks than had occurred in the previous year. First, bank liquidity has been lowered. Liquidity, of course, is a relative concept. It is sometimes measured as the ratio between cash resources and U. S. Government securi ties to total assets. At the end of the war, this ratio was unusually high at 79 percent. By the end of 1955, it had declined to 53 percent and it fell below 50 percent in 1956. The decline in liquid assets was largely con centrated in short-term U. S. Government securities, i.e., bills, certificates of indebted ness, and notes, which commercial banks con sider a secondary reserve. During 1956, Fourth District weekly reporting member banks reduced their holdings of short-term Governments about 12 percent, to the lowest level since 1949. The reduction in liquidity, which includes a smaller volume of secondary reserves, contributes to a greater degree of responsiveness by member banks to creditrestraint actions taken by the Federal Re serve System. 6 Bank earnings have been influenced both by the large demands for loans and by the portfolio shift from securities to loans. The lag in the supply of loanable funds has re sulted in an upward movement in the rate structure. For example, prime loans to toprated corporations were 4 percent at the year end, the highest level since 1933. Also, loans typically earn higher rates than securities. Thus, the increased volume of loans and the relatively larger share of assets in loans have both contributed to an increase in operating earnings during 1956. However, the shift has a two-edged effect on earnings, as losses have been sustained on sales of securities in a market where yields were rising and prices falling. In addition, commercial banks have, like business firms, been affected by rising costs, primarily salaries, and by a continuation of large tax payments. Nevertheless, early esti mates indicate that net profits, after taxes, earned by Fourth District member banks for the year 1956 will aggregate 10 to 15 percent larger in dollar volume than in the previous year. Bonking Structure A marked change in the banking structure since the end of the war has been an increase in the number of banking offices, with the number of banks declining through consolida tion and merger and the number of branches increasing, largely through new additions. A l though the merger movement has abated somewhat, 1956 was not an exception to the postwar trend. At the end of 1955, there were 999 insured commercial banks with 567 branches operat ing in the Fourth District. By the end of 1956, the number of banks had declined to 984 and the number of branches had increased to 666. Department Store Trade— Review of 1956 store trade during tlie past year reflected stability of employment and rise of disposable personal income. As consumer confidence continued high, buying at department stores overtopped the all-time high of 1955. Part of the rise in sales, how ever, must be attributed to the rise in prices. D e p a rtm e n t For the Fourth Federal Reserve District, the increase in total department store sales between 1955 and 1956 is estimated (at press time) as about 5 percent. Since there are grounds for believing that the over-all inDepart men t store safes reached new high ground In 1956, with the second halt of the year stronger than the first half. Stocks also rose. Index 1947 - 49*100 Fo urth D is t r ic t Sea son al ly Ad ju ste d i \ 7 5 Latest figu re s p lo tte d : November. 1953 1 I I I I I 1 I II I 1954 N O T E -. Stocks ore end o f month. I I I I I I I I I 1955 Month-to-month changes, seasonally ad justed, are shown on an accompanying chart. At the beginning of the year, there was an easing off from the high position of December 1955. By March, seasonally adjusted sales were nearly 3 percent below the adjusted December position. Unfavorable weather and several days of heavy snowfall in March over much of the District cut into pre-Easter shoping. Moreover, this year’s early date of Easter reduced to some extent the aggregate of sales during the Easter season. By April, depart ment store sales had moved upward again. During the second half of the year, although the monthly path of the adjusted sales index showed a marked pattern of zigzag, the gen eral level was higher than in the first half. Sales in the Fourth District showed consider able strength through the summer, in spite of the impact of the steel strike; in fact the July showing (seasonally adjusted) marked the peak for the year. It was also the highest July on record—one percent above the previous record July in 1950.(1) STOCKS '''''i'll crease in the department-store price level amounted to only one or two percent during the same interval, the gain in physical volume of sales must have been appreciable. II Adjusted sales during August declined from the exceptionally high July showing, but there was a rebound in September. Unseasonally warm weather during October I t I I I L -L L - 1956 ( ! ) It should be emphasized that this statement refers to seasonally adjusted sales. Unadjusted sales are always low in July. brought sales down to 118 percent of the 1947-49 average daily sales—2 percent below those of October 1955. November and Decem ber, however, brought renewed improvement. (December is not shown on the chart.) Sales totals for the Christmas shopping season were somewhat above the record Christmas volume of the previous year. By early autumn of 7956, after a decline in the second quarter of the year, new orders placed by District department stores were reaching into new highs. Inventories End-of-month inventories of Fourth Dis trict department stores (shown by the colored line on the accompanying chart) registered a slight decline during the first five months of the year, after seasonal adjustment. However, in June they reversed direction, and con tinued to rise moderately for the rest of the year. For the past several years, department store inventories have followed a generally orderly pattern. Wide fluctuations caused either by heavy buying or by liquidation of inventories have been absent. On the average, inventories during the year were about 6 per cent higher than for the previous year. This build-up in inventories was broadly in line with expanded sales during the year. New Orders Toward the end of 1955, new orders placed by Fourth District department stores had dipped sharply from the levels of the preced ing three months, after adjustment for sea sonal variation.(2) During the first quarter of 1956, however, new orders moved upward and in March exceeded the year-ago figure. After another decline during the second quarter, they turned up again in July and by early autumn they were reaching into new highs. Apparel and Homefurnishings While sales of apparel, which represents the greater portion of department store busi(2) The new order series shown by the colored line on the accompanying chart is derived by combining information on outstanding orders, _inventories, and sales as supplied each month by a substantial group of cooperating department stores. The sales index depicted in the same chart is based on a some what larger sample of reporting stores. Both series are season ally adjusted and are smoothed by use of three-months moving averages. ness, recorded a moderate rate of increase for the year 1956, sales of homefurnishings showed greater relative strength, along with marked fluctuations. Sales of homefurnishings are shown by the colored line on the chart on the opposite page, and sales of apparel by the black line. (Both are seasonally adjusted monthly values.) The range of fluctuation for homefurnish ings from the low to the high position for the year amounted to nearly 20 percent. On the other hand, District apparel sales have fol lowed closely the path of total sales and have been far more stable than sales of home furnishings. During the 1954 recession, apparel sales had declined approximately 15 percent from the peak reached in 1953, while sales of homefurnishings had slipped nearly 26 percent below the 1953 highs. After the revival, sales of homefurnishings kept a brisk pace and recorded an irregular but definitely upward trend. The 1956 peak was 56 percent above the low point of March 1954. SALES BY DEPARTMENTS, 1956 Percent Change From 1955 Fourth District Department Stores Sales by Departments % Change From 1955 Department Records, Sheet Music, Pianos, Instruments, etc............................................................ Books and Magazines................................ C a n d y .............................................. Upholstered and other Furniture............ Juniors’ Coats, Suits, and Dresses........... Radios, Phonographs and Television___ Furs.............................................................. Toilet articles and Drug Sundries........... Knit Underwear........................................ Aprons, Housedresses and Uniforms... . Toys and Games........................................ Cotton Yard Goods.................................... Linoleum..................................................... +24 +11 +11 +10 +10 +10 + 7 + 7 — — 2 2 — 4 — 4 — 9 Tanuary through November Sales of homefurnis/i/ngs showed greater relative strength during the year than sales of apparel. However, hometurnishings sales also sAowecf wider fluctuations. Index 1947 - 4 9 -1 0 0 Fo ur th District Seasonally Ad ju st e d Late st fig u re s p lo tte d : October ''''''''''' 1953 1954 1955 1956 Most of the departments in 1956 posted gains over the exceptionally high showings of 1955. It is well to note, however, that con sumers have been spending relatively more money on such items as records, books and magazines, phonographs and television sets, as well as furs, toilet articles, and drug sun dries. (See table.) Increased sales of such articles might be taken to highlight a rising standard of living. There were relatively few departments that slipped below year-ago sales; these appeared to include goods which suffer a rather strong competition from substitutes. Thus, for ex ample, sales of silk and cotton goods seem to have been losing ground to synthetic fabrics which have been aggressively promoted and have enjoyed increasing acceptance by the consuming public. The fall in sales of linoleum could well be attributed to consumers’ tastes for higher priced floor coverings, since the sales of domestic floor coverings in general increased by approximately 8 percent. Instalment Sales The importance of instalment selling by department stores has become more evident with an increase of homefurnishings sales. Homefumishings include such high-priced items as major household appliances, furni ture and bedding, as well as radios, phono graphs, and television sets. Sales transacted on an instalment basis continued to expand both in dollar volume and in proportion to total sales. During 1954, instalment sales fluctuated between 11 and 13 percent, as shown by an accompanying chart. However, a year later the range moved up between 13 and 15 per cent and in 1956 instalment sales ranged be tween 15 and 17 percent of the total. Ten years ago, in 1946, instalment sales transacted by department stores accounted for only 5 percent of total sales. 9 Instalment sales as a share of total sales expanded further In 1956. DEPARTMENT STORE SALES Percent Change From 1955* Metropolitan Area Wheeling-Steubenville ..................................................................... Canton.............................................. Pittsburgh......................................... Columbus............................................ Youngstown.................................................... Erie.................................................................. Cincinnati................................................... Cleveland............................................ Akron ..................................................................................... Lexington ........................................................................................ Toledo ................................................................................................... Portsmouth................................................................................... Springfield...................................................... F o u rth Instalment sales have been expanding at the expense of cash sales rather than charge account sales. For the past ten years, sales transacted on a charge-account basis ranged between 48 and 51 percent of the total (yearly averages) with the exception of 1946 when charge-account sales amounted to only 46 percent. (However, 1946 can hardly be con sidered a normal year, since consumers were spending cash balances accumulated during the war.) During the same ten-year period, the share of cash sales steadily declined from 49 percent in 1946 to 35 percent in 1956. 10 D is tric t T o t a l ............................................................. Percent Change + + + + + + 8 7 7 6 5 5 + 4 + 4 + 4 - 0000- + 5 *January through November Metropolitan Areas The year-to-year increase in sales during 1956 was shared by most of the major report ing centers, with the margin of increase rang ing from 4 to 8 percent. The largest increase, 8 percent, was reported by the WheelingSteubenville area. The Canton and Pittsburgh areas each scored a 7 percent gain over 1955. In Lexington, Toledo, Portsmouth, and Springfield, sales were on a par with 1955. Statement of William McChesney Martin, Jr. Chairman, Board of Governors of the Federal Reserve System (before the Subcommittee on Economic Stabilization of the Joint Economic Committee, December 11, 1956) o f m y a s s o c i a t e s o f the Federal Reserve System I want to express our appreci ation for these periodic opportunities to appear before committees o f the Congress. The Con gress has placed a great responsibility upon the Federal Reserve System—a trusteeship, as I conceive o f it, over money. N b e h a lf O The Reserve System has always benefited from thoughtful inquiry. These hearings are not merely a public forum—and that is all to the good. They pro vide a means of keeping the monetary machinery of the country abreast of the times. The Federal Reserve Act provides that we shall report directly to Congress and thus, through it, to the country. The task o f the Federal Reserve System, under today’s conditions, is to determine the volume o f credit that needs to be made available in order to keep the economy running in high gear—but without over-strain. Too much credit would intensify upward pressures on prices. Too little could needlessly starve some activities. We have to rely on human judgments in this determination. There are bound to be differ ences in judgment—sincere differences. We do not undertake—and I do not see how it could be other wise, short o f some form o f dictatorship—to say how a given supply of credit shall be allocated. Experience would seem to demonstrate that alloca tions o f credit determined through the market process are to be preferred to judgments— or guesses—of public authorities, however well-intentioned. I was told recently o f a tongue-in-cheek sign that hung in a Washington office some years ago. It read: “ Our guess is always best. ’ ’ It may be that collective judg ments expressed through the market process are not always best, but that process is consistent with our heritage and our institutions under which direct governmental intervention in economic affairs is con fined largely to broad, general policies necessary to protect and promote the public interest. At any given time the economy is capable o f pro ducing a volume o f goods and services limited by currently available resources, human and material. The difficulty throughout this year has been the attempt to crowd too much into a given time period— demand, in brief, has been pressing strongly against the supply o f labor and materials. Creating more money won’t produce more things when the economy is running at peak levels. A choice has to be made—and the public in the end has to make the choice o f whether we shall have more of this and less o f that. We can have, in a given period, just so many houses, automobiles, household appli ances, schools, manufacturing plants, and a myriad other things, including ships, planes, submarines, and other essentials of defense. Under present conditions, something has to be given up at least for a time. Throughout this year the combined demand for funds —for credit—coming from virtually all sectors o f the economy has been at an all time high. It has outrun the available supply. Contrary to some impressions, the Reserve System has not reduced the money sup ply; in fact the money supply has continued to increase this year though at a lesser rate than in 1955. Moreover, the turnover—the velocity— of the existing money supply has greatly increased. Although the so-called “ tightness” of credit is often attributed to an insufficient supply o f money, the fact is that the tightness results from the volume and intensity o f demand. The great bulk o f loanable funds represents sav ings o f the community made available to borrowers directly or through financial institutions other than commercial banks, such as mutual savings banks, insurance companies, savings and loan associations, private and public pension funds, finance companies, corporations, and individuals. It is often forgotten that when the commercial banking system expands its loans and investments, it generates new money. When, as has been the case this year, aggregate demands for credit have exceeded savings, the only way to finance them all would be by an even greater expansion of bank credit—that is, by generating still more money. And as I have emphasized, creating more money will not create more goods. It can only intensify demands for the current supply o f labor and materials. That is outright inflation. The Reserve System—and it is a nationwide system of 12 Federal Reserve Banks with 24 branches having all told some 260 directors representing varied walks o f life—is united in the conviction that the best 11 course is to do what the System can do, to restrain excesses arising from monetary causes. It has been estimated that a rise o f only one point in the con sumer price index (BLS) would cost the American public two and a half billion dollars a year. The Federal Reserve System has been devoting its efforts, through varying times and circumstances, to assuring monetary and credit conditions that would help to foster high levels of business and employment, maintain the stability of the currency, and promote sustainable growth in the economy. The System has sought to keep constantly alert to changes in economic and financial conditions, and to adapt its operations accordingly—leaning against the breezes of inflation and deflation alike, as I have put it a number o f times. Thus, when the economy had a downturn in 1953, the Reserve System acted promptly to stimulate credit expansion to help halt the decline and foster the recovery that began in 1954 and carried through into 1955. As we moved from recovery to boom in 1955 and on through 1956, and as the economy in general pressed against the limits of immediate capacity, the System took steps to keep expansion of credit within the limits of the growth in resources so as to dis courage excesses that would inevitably produce higher prices and severe economic maladjustments. Focusing more closely on the events of 1956, it was apparent there were positive inflationary dangers inherent in superimposing a massive increase in busi ness investment on an economy already featuring high utilization of resources and upward price pres sures. In this situation, to supply on easy terms all of the credit desired by prospective investors would have increased inflationary bidding for available resources, especially in the sectors o f capital equip ment and construction. It also would have involved a rise in the volume o f outstanding credit, and in commercial bank credit and demand deposits in par ticular, that would compound the threat to economic stability and sustained growth. Despite the restraint on credit growth and spend ing capabilities imposed by monetary policy, demands in many sectors have risen more rapidly than was consistent with price stability. The price advances that began in 1955, after several years of stability, continued during 1956, as output in a number o f key areas pressed against the limits o f capacity. Price increases have been particularly marked in sectors affected by investment expenditures, in machinery 12 and construction lines and, affected in part by them, in metals and metal products. These are the areas in which the restraint imposed upon current expendi tures by monetary policy was, quite possibly, the heaviest. It is in these sectors that such additional demand as would have resulted from easier credit would have been concentrated. Despite the strength of credit demands, growth in total commercial bank credit was limited to a moder ate rate, below the average o f the postwar period and somewhat lower than in the corresponding period in 1955. Thus, the increase in total loans and invest ments o f commercial banks in the 12 months ending with October was held to 2 per cent, and growth in the privately held money supply—demand deposits and currency—to about 1*£ per cent. Restraint on expansion in bank credit and the money supply this year contrasts with the rapid increase that occurred from mid-1953 through 1954, even though loan demands then were generally less active. During that period, policy was directed toward assuring ready availability o f credit in the economy generally, and toward creating liquidity conditions favorable to revival and expansion. In part the devel opments since 1954 should be interpreted as a transi tion from a time o f ready availability o f resources, reduced demands for credit, and a monetary policy of active ease to a time o f intense utilization of resources, very strong credit demands, and a mone tary policy directed to restraint o f inflationary forces. Just now, the year is coming to a close with demands still out-pacing savings, with personal in come at a new high annual rate o f over 332 billion dollars in October—21 billion dollars above the rate a year ago—and international disturbances that could add to further overstraining o f our resources. It is a situation that calls for alertness, as well as prudence and restraint, on the part o f Government, business, finance, labor, and agriculture. Basically, the problem confronting us now—in contrast to that o f the early 1930’s—is not one o f creating millions o f jobs overnight to cure mass unemployment, but one of sustaining the millions of jobs we have today and fostering new job opportu nities for an expanding working force tomorrow. Meeting that problem requires that the efforts of all of us be directed to preserving the stability o f the economy, and the stability of the dollar that underlies it, so that we may move steadily along the road to a higher standard o f living for all.
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