View original document

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



^ -

o ooimMKet/ieu/


The Price of Farm Land..........................


Automated Check Processing.................


Notes on Federal Reserve Publications. . . 9

fc a te , I 9 6 0

Employment and Unemployment in

Although the advance of farm land prices has slowed, the average
price per acre is now more than ten times the net income per acre,
a ratio that has been without precedent fo r more than tw enty years.

* A nnual N «t Farm Incom *, including inventory c h a n s * .
** Farm la n d a n d b uildin g* on M arch 1 of th* follow in g y * a r .

Additional copies of the MONTHLY BUSINESS
REVIEW may be obtained from the Research De­
partment, Federal Reserve Bank of Cleveland
Cleveland 1, Ohio.

The Price of Farm Land

h e l o n g continued rise in prices of farm
a downward trend of farm income. Neverthe­
less, market values of farm real estate con­
land has moderated considerably in recent
months. A 3 percent increase from a year agotinued to advance as farmers sought to en­
large existing holdings in order to obtain the
in the average price of farm land in the na­
benefits of an increased scale of operations,
tion was indicated by the March 1 survey of
and as the demand for industrial sites
market values conducted by the Department
and rapidly growing suburban communities
of Agriculture.(1) That increase was in con­
brought competitive bidding for land ad­
trast to advances of 6 percent to 8 percent a
year for the previous three years. Even though
jacent to rapidly growing centers of popula­
the latest advance was small—one percent in
tion. The high level of economic activity and
inflationary advance in the general price
each of the three consecutive four-month
periods—it lifted land prices to a new high
level provided still another broad source of
of 173 percent of the 1947-49 average. The
demand for farm land. A traditional view
present level is 68 percent higher than ten
that has been widely held is that ownership
years ago and 253 percent above that of
of farm land affords protection of capital
twenty years ago.
against loss of purchasing power. The in­
fluence of this view on the demand for farm
real estate was operative in the late ’forties,
Twenty-Year Advance in Market Values
but has probably been of greater significance
During the decade of the ’forties, both
during the past decade.
land prices and farm income rose, but the
The upsweep in market prices of farm real
advance in farm income was much sharper,
estate over the past twenty years has been
as will be noted in the chart on the cover.
interrupted on two occasions. Market values
The relatively moderate rate of advance of
actually declined in 1950 and again in 1954,
farm real estate prices during this period re­
but in each instance resumed an upward
flected the influence of a number of factors.
trend in the following year.
Probably the most important factor was the
war-induced scarcity of labor and machinery
which restrained farm operators from adding
Relation of Price to Income
to the size of their farms. Another factor
In 1940, the beginning of the period under
which presumably exerted a restraining influ­
consideration, the average price of farm real
ence on market values was the conservative
estate in the nation was $31.94 per acre and
attitude of many farmers, born of their postthe net income per acre averaged $4.31, as
World War I experiences, toward the incur­
shown by the cover chart. The ratio of aver­
ring of long-term debt.
price to income at that time was 7.4.
Much of the ’fifties was characterized by
Thereafter, the ratio narrowed to 3.9 in 1943,
(i) Farm land price surveys are conducted regularly three
then widened to 6.2 by 1950. During the
times a yew by the U. S. Department of Agriculture and re­
ported in that agency’s publication, Current Developments in
period of the last ten years the ratio has
the Farm Real Estate Market. The May 1960 issue contains
the findings of the March 1960 survey.
continued to widen. With market prices aver­



aging $111.32 per acre and farm income
$10.19 in 1959, the ratio of price to income
was 11.0, the highest ratio in more than
twenty years.
Only twice before in the period for which
records are available has the ratio of price
to income exceeded 10; that was in 1921-22
and 1932-34. In both instances land prices
eased before income ultimately recovered, re­
establishing a price-income ratio of less than
10. What the outcome will be on this occasion
is not clear at this time, but the persistent
advance in prices of farm land without
apparent support from gains in farm income
has created a relationship between values and
income that is without precedent in the past
twenty years.

The p e rc e n t of net farm income r e quired fo r farm
real estate taxes has nearly doubled in the past
ten years.


( a s % of n e t f a r m i n c o m e )

Rate of Return on Market Value
Another way of stating the same develop­
ment is to point out that the rate of return
on the current market value of farm real
estate is at the lowest level in two decades, as
shown in the accompanying tabulation. It
will be noted that the rate of return on cur­
rent market values as computed by the De­
partment of Agriculture dropped below the
mortgage rate of interest after 1954.
Computed Return on Current Market Value
of Farm Real Estate and Farm Mortgage
Interest Rates (Selected Years)


Rate of
Return on
Real Estate


3.0 est.

Rate <2>

(1) Residual return on market value of land and buildings.
(2) Rate charged by all lenders combined.
Source: U. S. Department of Agriculture: Current Develop­
ments in the Farm Real Estate Market, February
1960, and Agricultural Finance Review, July 1957.

N O TE — Net farm incom e is taken before real estate
taxes and rent to nonfarm landlords.

Owners whose farms are debt-free and
others who have accumulated substantial
equities in their holdings may not be greatly
concerned by the present low return on mar­
ket values. Owners with limited equities,
however, as well as prospective purchasers
and lenders, do have reason to be concerned
as mortgages and land contracts are becoming
more difficult to repay than in much of the
past twenty years, since the current rate of
return is equal to about one-half of the pre­
vailing interest rate on newly-written farm
Mounting Real Estate Taxes
Another factor of increasing importance,
aside from the current low rate of return on
market values, is the steady upward trend
of farm real-estate taxes. Taxes on farm real
estate have absorbed an increasing percentage

of pretax farm income, as shown by an ac­
companying chart. The increase in the per­
centage of net income required to pay farm
realty taxes has been particularly significant
during the past nine years. Moreover, the
growing need in many communities for more
schools and other public buildings as well as
for public services constitutes a strong influ­
ence toward further increases in the taxes
assessed against farm real estate.

Fewer Inquiries to Buy
In view of the record level of market values
of farm real estate and the unprecedentedly
low return on those values, it is not surpris­
ing that the inquiries about buying land this
spring have been reported to be below a
year ago. The number of people seeking farm
land is reported by the March 1960 land mar­
ket survey to have shown clear indications of
weaker demand, particularly in the Corn Belt
and the Lake States. Elsewhere in the nation,
the opinions of reporters were said to be more
evenly divided between those who thought

Tfce advance in farm land prices during the 'fifties
was greater In Ohio and Pennsylvania than it was
In Kentucky and W est Virginia.

that the demand for land had increased and
those who said that the demand was weaker.

Offerings and Transfers Remain Low
The number of farms available for pur­
chase continues low. The survey respondents
indicate that the number of farms offered for
sale has not changed perceptibly over the
past three years. The limited number of farms
offered for sale has, in fact, tended to sustain
the upward trend of market values.
With limited interest on the part of pros­
pective buyers and sellers, ownership trans­
fers have remained comparatively low. About
190.000 tracts of land and farms are reported
to have changed ownership during the year
ended March 1, 1960. That number of trans­
fers is equal to a rate of 47.1 transfers per
1.000 farms, or only moderately above the
all-time low of 44.1 per 1,000 for the twelve
months ended March 1954. Under present
market conditions a small increase in offer­
ings (or bids) could conceivably have a sig­
nificant influence on market values.

Farm Land Prices in the Fourth District
The market price of farm land registered
further gains in the four states wholly or
partially in the Fourth Federal Reserve Dis­
trict during the twelve months ended March
1, 1960, as shown in an accompanying chart.
As also may be noted from the chart, farm
land prices are currently at a new high in
all four states. The magnitude of the change
in market values during the recent twelve­
month period varied appreciably in the four
states as it has on several occasions over the
past twenty years. The largest year-to-year
gain was reported in Kentucky where market
values per acre are indicated to have ad­
vanced 6 percent. The increase in market
values was nearly as great in Pennsylvania
where the average price per acre is reported
to have risen 5 percent during the recent
twelve months. Market prices of farm real
estate in Ohio and West Virginia, however,
rose only 1 percent and 2 percent, respec­
tively, during the period.


Automated Check Processing
stra n g e
looking characters which
World War to the point where the banks in
this country have now been virtually snowed
appear at the bottom of this page are the
key to the solution of the biggest paper han­under by huge drifts of paper. Last year an
enormous total of 12 billion checks were is­
dling problem in the banking industry. Briefly
sued by Americans and it is estimated that
stated, the problem is the handling of checks
the total this year will be 14 billion. That will
from the time they are deposited or cashed by
represent an increase of about 60 percent
the payees until the time they are finally
from a year as recent as 1952 and will be
charged to the drawers’ accounts. Even today
double the total at the end of World War II
such characters may be seen along the bottom
and three times as many as were issued an­
edge of many checks, and in a relatively short
nually prior to the war.
period of time will appear as routine and
standard procedure on a very large percent­
Checks represent about $9 of every $10
age of all checks issued. The banking industry
spent in the United States. With the increas­
is confident that in the not too distant future
ing realization on the part of the public of
the checks on which these characters do not
the desirability of checking accounts as the
appear will be rare exceptions to the general
best medium for the payment of bills, coupled
with the mushrooming growth of the popu­
The new characters along the bottom edge
lation, it is estimated that by the year 1970
of the checks are associated with other tech­
the number of checks issued annually will
nical developments which will make possible
reach the staggering total of 28 billion.
complete automation in the handling of
When it is considered that each check is
checks. Following is a brief summary of how
handled approximately ten times from the
this plan evolved and how it will work in
time of issuance until it is charged to the
actual practice.
drawer’s account, it can be seen that by 1970
approximtely 280 billion check handlings an­
The Problem
nually will be involved. During this process
Since checks were first used in this country
each check will have been handled by an
average of two and one-half banks, and not
in Boston about in the year 1680, there has
less than 50 percent of all the checks issued
been a steady growth in their volume. Growth
will have been handled at least once in the
in use of checks was accelerated by the in­
Federal Reserve System’s check collection
crease in the money supply during the Second



operation. At the present time the three of­
fices of Federal Reserve Bank of Cleveland
handle daily an average of approximately
1,200,000 checks; this is by far the largest
operation of the bank.
Several years ago the banking industry
realized that something had to be done to
cope with the relentless, ever-increasing vol­
ume of checks. It was becoming more difficult
to recruit and maintain the armies of clerical
workers for the tedious operations which had
over the years made only slight progress from
hand work to the present semi-mechanized
proof machines. It was felt that some form of
complete automation was the only answer and
the American Bankers’ Association turned
the problem over to its Bank Management
Commission for study and recommendations.
The Solution
The Bank Management Commission of the
American Bankers Association met with
representatives of the check printing indus­
try and the equipment manufacturers and,
after almost four years of working together,
came up with the solution. Basically it was
that checks would have imprinted thereon a
common machine language and the equip­
ment manufacturers would develop machines
that could read, sort, and list the checks by
character recognition of such language.
The common machine language decided
upon is in the type font (as illustrated by the
characters in the illustration) which was
chosen after exhaustive tests and evaluation
by the group of bankers, printers and manu­
facturers. It is known as Type E13B. The
characters are to be printed on the check in
magnetic ink which contains iron oxide. As
the checks pass through the common machine
language equipment, which will operate at
very high speeds, the characters will receive
an electrical charge which will magnetize
them. Signals, which differ for each charac­
ter, are then transmitted to a reading head
which, in turn, activates a computer that per­
forms the designated sorting, listing and post­
ing tasks.

The imprinting of the common machine
language is in a band extending 6 inches
from the right edge of the check and % of
an inch from the bottom edge. This band con­
sists of three areas; the right-hand area is for
the amount, the middle area is for the ac­
count number or other information desired
by the drawee bank, and the left-hand area
is for the routing symbol-transit number. The
latter item will consist of the present routing
symbol number but only the suffix of the
present transit number; that is the one in
which the Federal Reserve System is the
most interested since it is the area or field
which will be used for sorting to drawee
banks. On checks 7% inches or more in
length, an optional fourth area to the left of
the third area is also available for imprinting
the check serial number or any other infor­
mation which the drawee bank or customer
The check routing symbol in fractional
form, consisting of the full transit number as
the numerator and the routing symbol num­
ber as the denominator, will be shown as at
present in the upper right-hand corner of
the check in conventional type.
Information contained in all but the ex­
treme right area of the band is expected to
be printed in the common machine language
at the time the check itself is printed. The
dollar amount of the check will be imprinted
in the common machine language in the righthand area at a later stage. It is to be done as
a by-product of the proofing operation by the
use of amount encoders built in or attached
to adding machines or proof machines, and it
is contemplated that ordinarily this would be
done by the first bank handling the item. It is
of course possible and indeed preferable for
large issuers of checks to supply encoding of
amounts at the time the checks are issued.
Once the encoding in the common machine
language is in place for all four areas, it is
obvious that from that time on the check can
be handled by automation throughout the
entire collection and on-us posting processes.(1)
(1) “ On us” posting refers to the posting of checks to indi­
vidual accounts by the drawee bank.





123 ANY S T R E E T

/ S ' . .1g


X %x


1 X3. V S






u»O O O O O EaEu«

I i:0 U 2 '"0 1 5 D H





A .B .A .








(A ctual size o f specimen check is larger than illustration.)

The specifications with respect to the com­
mon machine language encompass certain
conditions as to size and design of checks and
also certain dimensional and tolerance re­
quirements. Full details regarding these
specifications are available in Bank Manage­
ment Publications Nos. 147 and 149 of the
American Bankers Association.(2) Check
printers and equipment manufacturers are
completely familiar with these specifications.
An accompanying illustration shows a
check properly encoded in all four areas in
the common machine language.

The Present Situation
The enthusiastic reception of the general
program for the automation of check han­
dling has been noteworthy. Banks generally
are moving rapidly to have their new check
(2) These can be secured from the American Bankers Associ­
ation office located at 12 East 36th Street, New York 16,
New York, at a cost of $1.00 each.

orders provide for the encoding of the neces­
sary standard information in the common
machine language according to the specifica­
tions of the A.B.A. Even those banks which
do not intend to have automated on-us check
posting are cooperating with respect to the
routing symbol-transit number which, as
stated previously, is the encoding which is
essential in the transit operations of the Fed­
eral Reserve System and the large commer­
cial banks. Of the one hundred largest banks
in the United States, it is understood that
well over half of them have placed orders for
the new equipment.
Insofar as the Federal Reserve System is
concerned, it has arranged for pilot installa­
tions of the new equipment produced by five
different manufacturers. These installations
will be at the Federal Reserve banks of Bos­
ton, New York, Philadelphia, Chicago, and
San Francisco; the major components of the
equipment at the various installations will be
products of different manufacturers. The first

of the installations is scheduled for July of
this year and the remaining four are expected
to be installed at various times within the
next eight months. It is contemplated that
such automatic handling of checks will be
standard operating practice in at least some
of the Federal Reserve offices not later than
the beginning of 1962.
Need of Participation by Commercial
Banks and Their Customers
It is hoped that every commercial bank,
regardless of size and regardless of whether
or not it intends to go into automatic on-us
bookkeeping, will cooperate in the program,
at least to the extent of having the routing
symbol-transit number preprinted on its
checks according to the A.B.A. specifications.

The cost of checks preprinted in magnetic
ink will be very slightly higher than present
costs. There may also be an additional cost in
cases where check forms must be redesigned,
but this will be a nonrecurring expense which,
when spread over a period of time, can be
considered as negligible.
Checks drawn on any bank in the United
States will, to a certain degree, be deposited
or cashed in localities outside of that of the
drawee bank and, as a consequence, these
checks will appear in the collection stream.
In the not too distant future, checks not en­
coded in the common machine language will
be exceptions rather than the rule. Conse­
quently the time will come when these items
will require special handling and will, no
doubt, be subject to special rules in the col­
lection process.

Among the articles recently published in the monthly business reviews of
other Federal Reserve banks are:
“ The Federal Funds Market” , Federal Reserve Bank of St. Louis, April
‘ ‘ $52 Billion on the Cuff: How Burdensome is Consumer Credit ? ’ ’, Federal
Reserve Bank of Philadelphia, April 1960.
“ The Seaway — Year One in Review” , Federal Reserve Bank of Chicago,
May 1960.
“ The Importance of Recent Inventory Changes” , Federal Reserve Bank of
Dallas, May 1960.
“ The Business Situation: the Long-Run Unemployment Picture” , Federal
Reserve Bank of New York, May 1960.

Copies may be obtained without charge by writing
to the Federal Reserve Bank named in each case.

Employment and Unemployment
in Cleveland*
of good news was recently made pub­
lic when the President of the U. S. an­
nounced that employment in the nation
during April reached a new record for the month
of over 66 million. That was nearly 2 million
more than in the preceding month, March, and
over 1 million more than in the year-ago month
of April. Simultaneously, there was a sharp drop­
off in national unemployment. From mid-March
to mid-April the count of jobless persons declined
by about half a million, or 13%, to 3,660,000. At
this level, unemployment was only about 1%
higher than it was a year earlier.


p ie c e

The figures cited by the President, which were
compiled by the U. S. Department of Labor, de­
scribed the national picture as a whole, but they
do not fully and accurately portray recent trends
in Cleveland. There have been sizeable employ­
ment gains in Cleveland also, during the past
twelve months, but at the same time a significant
and persistently high level of joblessness has
been built up that is well above the year-ago
The record shows that the number of persons
registered for unemployment compensation in
Cleveland has never returned to pre-recession
levels. Last July, when continued claims were at
a post-recession low of 9,300, they were still 16%
above July of 1957. Unemployment has been gen­
erally increasing ever since then except for tem­
porary fluctuations associated with the steel
By January and February of this year, con­
tinued claims had expanded — and only in part
for seasonal reasons—to approximately 20,000 in
Cleveland; the number was still below the yearago level, but only by about 2,000. Subsequently,
* A reprint of a broadcast, in the weekly “ Business Tren ds”
series, by the Research Department, Federal Reserve B ank
o f Cleveland, over Station W G A R , Cleveland, May 22, 1960.


in March, the rising number of unemployment
claims reached 22,000 and overtook the year-ago
level. By mid-April, the number of continued
claims filed for unemployment compensation had
edged higher to 22,800, which exceeded the yearago level by 7,000, or more than one-third, and
was roughly twice as high as in the correspond­
ing months of the pre-recession years 1956 and
1957. The most recent data for May show a
strong seasonal decline but there was still a sub­
stantial excess of about one-third above the yearago level, and the number was still double that
of two years ago.

Employment Gains
Although as a general rule trends in unemploy­
ment can be traced to the ups and downs of busi­
ness activity, this explanation does not suffice at
present. In March and April, most Cleveland busi­
ness indicators were at or above their year-earlier
levels and, despite the increase in unemployment,
there were actually more people working in the
Cleveland area in March 1960 than in March
1959. Total nonagricultural employment was esti­
mated by the Ohio Bureau of Unemployment
Compensation, in cooperation with the U. S. Bu­
reau of Labor Statistics, to have numbered
693,000 in March 1960, or 15,000 more than in
March last year. Furthermore, when the sub­
divisions of employment according to industry
classifications are examined, it is seen that yearto-year expansion permeated virtually the entire
Manufacturing e m p l o y m e n t in Cleveland
showed the largest increase both proportionately
and in actual numbers. There were 295,000 em­
ployees on the March manufacturing payrolls, up
4%, or nearly 12,000, from a year earlier. Most
of the increase occurred in durable goods manu­
facturing industries. Major increases were as

follows: nonelectrical machinery employment, up
3,700; fabricated metal products, up 3,500; elec­
trical machinery, up 1,600; transportation equip­
ment and primary metals, up 1,000 in each case.
There was no major industry in the durable man­
ufacturing group that reported an employment
Employment changes in the nondurable group
of manufacturing industries were smaller, but
still on the upside during the 12-month period.
Employment in n o n m a n u f a c t u r i n g industries
showed less change. The March 1960 total was
398,000, up only 3,300, or less than 1%, from the
same month a year earlier. Employment by gov­
ernment, both Federal and local, including
schools, rose by about 2,000 to show the largest
nonmanufacturing employment increase.

But Unemployment Remains a Problem
The positive and sizeable year-to-year rise in
total employment—up 15,000 as stated above—
indicates that the simultaneous unemployment
increase—up 2,000 in March—has not been due
simply to a general cutback in employment. In­
stead, the figures imply that during the 12-month
period new jobs have opened in considerable num­
bers, but these jobs have not been filled primarily
from the ranks of the unemployed. In addition to
the insured unemployed, employees can be re­
cruited from among the youngsters reaching
working age, i.e., the natural increase in popula­
tion, from persons who come to Cleveland from
other areas, and from voluntary entrants into
the labor force, e.g., married women or others
who take jobs, but were not previously “ unem­
ployed” .
The question arises, why weren’t more of the
new job openings filled by persons who have been
laid off and are collecting unemployment com­
pensation? For lack of complete and detailed in­

formation, this question can’t be answered with
certainty, but it appears that changing job re­
quirements may provide a considerable part of
the explanation.
In the current May issue of the Monthly Busi­
ness Review of the Federal Reserve Bank of
Cleveland, a study of long-term trends in na­
tional employment reveals that opportunities for
employment have been increasing for profes­
sional and technical factory workers who can
carry on research and development programs,
and for clerical workers and sales personnel, or
in other words the so-called “ white-collar” em­
ployees. On the other hand, the employment of
“ blue-collar” workers on production lines, in
maintenance jobs, etc., has been slowly waning
and requirements for the jobs that remain call
for fewer but more skilled productive personnel
than was the case in the past.
In contrast, a large proportion of the insured
unemployed have little or no training. A recent
study by the U. S. Department of Labor based
on February 1960 data classifies fully half of the
insured unemployed in the nation and in Ohio as
unskilled or semi-skilled. Only one-fourth were
classified as skilled workers. Furthermore, as the
report indicates, of the persons who experienced
long-term unemployment and exhausted their
unemployment insurance benefits in February of
this year, more than half were unskilled or semi­
Cleveland has long been a sizeable manufactur­
ing labor-market area and it has, by the nature
of its industries, attracted a substantial pool of
labor both skilled and unskilled. In view o f the
large numerical size of the unskilled group of
workers, even a relatively small shift away from
the use of unskilled labor may be expected to
have a measurable effect on unemployment in
this area.