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QuaimM eoieu/
MONTHLY
IN
FEDERAL RESERVE BANK of CLEVELAND
THIS
ISSUE
Structure and Distribution of
Bank Deposits, 1 9 4 8 -1 9 6 1 ....................... 2
A Glimpse Ahead For Autos..........................9
Octofoi t$ 6 2
DEPOSIT STRUCTURE
DEPOSIT DISTRIBUTION
1947
1947
One of the most sig
nificant aspects of
the deposit struc
t u r e of me mber
banks in the Fed
eral Reserve System
during the postwar
period has been the
i n c r e a s e of t i me
d e p o s i t s f r om 23
percent to nearly
one-third of total
d e p o s i t s , A t the
same time, changes
in deposit distribu
tion have resulted
in c o u n t r y banks
hol di ng a l a r g e r
proportion of total
deposits, while cen
tral r es e r ve city
banks have experi
enced a relative
decline.
Structure And Distribution
Of Bank Deposits, 1948-1961
banks must attract and main
tain deposits in order to assure an
adequate supply of usable funds to compete
effectively in various credit markets. The sig
nificance of a “ stock on hand” is of course
not unique to commercial banks. Quite simi
larly, manufacturing and trade organizations
must maintain adequate inventories to sus
tain or improve their competitive position in
the markets for goods and services.
o m m e r c ia l
C
I f considered only for inventory purposes,
deposits of commercial banks thus provide
the wherewithal of the basic banking func
tion. Moreover, the characteristics of this
inventory are of large significance insofar as
the nature of a bank’s activity is concerned.
In this connection, both the “ deposit m ix” ,
i.e., the ratio of demand deposits and time
deposits to total deposits, and the nature of
deposit ownership play an important role in
the determination of the amounts and types
of loans and investments which a commercial
bank may acquire. These two factors (mix
and ownership) in turn are significant ele
ments in the profitability of bank operations.
Thus, the composition and ownership distri
bution of bank deposits are of major concern
to bank management; they are also important
to the individuals, business firms, and govern
mental units which depend upon the commer
cial banking system as a source of credit.
The discussion which follows examines:
(1) changes in the composition of the depos
its of the member banks of the Federal
Reserve System during the postwar period;
(2) changes in the distribution of deposits
among central reserve city,(1) reserve city,
and country member banks; (3) some of the
changes in loan and investment portfolios
which have either accompanied or followed
2
changes in the composition and distribution
of deposits; and (4) the impact of changes in
deposit composition and distribution on the
postwar banking structure.
Shifting Deposit Structure
One of the most significant aspects of de
posit structure during the postwar period
has been the increased reliance on time de
posits as a source of additional deposits. From
the end of 1947 through 1961, total deposits
at all member banks increased 71 percent. At
the end of 1961, time deposits accounted for
32 percent of total deposits, whereas at the
close of 1947 they had accounted for only 23
percent. This development reflected the fact
that during the period under review, time
deposits moved up 137 percent, as compared
with a 51-percent increase in demand deposits.
In addition, the growth of total deposits
during the postwar period has depended in
creasingly upon time deposits. This is high
lighted by the fact that from the end of 1955
through 1961, the period of greatest deposit
expansion in the postwar period, time depos
its accounted for nearly 72 percent of the
addition to total deposits.
Changes in Deposit Distribution
Largely as a result of changes in the struc
ture of deposits, there have also been signifi
cant changes in the distribution of total
deposits among member banks.
(!) Although the central reserve city member bank classifica
tion was abandoned in July 1962, the term is used through
out this article to distinguish between reserve city member
banks located in New York City and Chicago, and those
located outside of the former central reserve cities. Further
more, no effort is made to adjust deposit and asset totals for
(1 ) changes in classification of country and reserve city
member banks, (2 ) mergers among member and nonmember
banks, and (3 ) inclusion of banks located in Alaska and
Hawaii.
The most significant trend in deposit dis
tribution has been the decline in the propor
tion of total deposits held at member banks
located in New York City and Chicago. Dur
ing 1948-1961, inclusive, the proportion of
deposits held by central reserve city banks
fell to 22 percent of total deposits from
nearly 26 percent. A t the same time, the pro
portion of total deposits at country banks
moved up to 39 percent from 36 percent at
the end of 1947, while the share held by re
serve city banks remained relatively constant.
An explanation for the decline in total
deposits held at New York City and Chicago
banks would include (1) the increasing im
portance of time deposits in total deposit mix
in general and (2) the moderate expansion
in demand deposits at central reserve city
banks.
Until very recently, the central reserve city
banks placed primary emphasis on demand
deposits as a means of expanding total depos
its. Demand deposits consistently have pro
vided all but a small proportion of total de
posits at both New York City and Chicago
banks. As recently as the end of 1961, mem
ber banks located in these two centers de
rived more than 80 percent o f their total
deposits from demand deposits. On the same
date, less than 68 percent of the deposits of
all member banks were classified as demand
deposits, and country banks reported only 61
percent of total deposits as demand deposits.
In the early postwar period many of the
larger New York City and Chicago banks did
not promote actively the acquisition of time
deposits. Due to the interest cost associated
with time deposits and the heavy dependence
on corporate deposits rather than individual
accounts, many of the larger banks elected to
direct their major efforts toward attracting
additional demand deposits. Thus, as of the
close of 1947, central reserve city banks held
nearly 26 percent of total member bank de
posits but only 8 percent of total time depos
its. Although, during the following fourteen
years, central reserve city banks demonstrated
an increasing interest in attracting time de
posits, they acquired only 17 percent of the
additions to total member bank time deposits
during 1948-1961. This turn of events was
due to the fact that increases in time deposits
represented, for the most part, individual
savings rather than corporate deposits.
Contrary to popular opinion, central re
serve city banks accounted for a much smaller
share of the expansion in total time deposits
in the latter half of the 14-year period under
review than in the first seven years. In the
1948-1954 period, New York City and Chi
cago banks accounted for 23 percent of the
total addition to member bank time deposits.
In marked contrast, and despite the intensi
fication of efforts to attract time deposits, the
central reserve city banks obtained only 15
percent of the total gain in member bank time
deposits in the 1955-1961 period.
The slower expansion in the latter half of
the period is reflected further in the fact that,
although the central reserve city banks in
creased their share of total time deposits at
member banks from 8 percent of the total as
of the end of 1947 to 12 percent at the close
of 1954, by the end of 1960 no further in
crease had occurred. The record of central
reserve city banks in the latter half of the
14-year period contrasts significantly with
the success of suburban-based banks in at
tracting individual time deposits. This turn
of events reflects at least in part restrictions
on branch banking which have blocked the
formation of suburban branch offices by both
New York City and Chicago banks.
On the other hand, during 1961 the stabil
ity of the proportion of time deposits at New
York City and Chicago banks that had char
acterized the 1955-1960 period was undone.
These banks were able to increase their hold
ings of time deposits from 12 percent of the
total at all member banks to 14 percent, pri
marily as a result of the successful marketing
of negotiable certificates of deposit to corpo
rate customers.
Distribution of Demand Deposits
The recent intensification of efforts by the
central reserve city banks to attract time
3
deposits stems primarily from the pattern of
change in demand deposits during the post
war period. As noted earlier, demand depos
its expanded by 51 percent during 1948-1961,
as compared with a 137-percent increase in
time deposits during the same period. Within
these aggregates, central reserve city banks
experienced a modest 26-percent advance in
demand deposits, while country banks in
creased their holdings of demand deposits by
67 percent, and reserve city banks by 58 per
cent. Thus, the proportion o f total demand
deposits at all member banks which were ac
counted for by the central reserve city banks
fell from 31 percent of the total as of the end
of 1947 to 26 percent at the close of 1961.
The retardation in the growth of demand
deposits at central reserve city banks reflected
in large part changes in corporate financial
practices. The introduction of improvements
in corporate cash management practices,
coupled with increasingly attractive rates on
short-term, highly-liquid investments during
the post-war period, encouraged many corpo
rate financial officers to reduce cash balances
to minimum working balances, and to invest
any temporary excess of funds in short-term
money market instruments rather than to
permit such funds to remain in non-interest
bearing demand deposits.
Furthermore, the increased amount of cor
porate funds available for short-term invest
ment has enlarged substantially nonbank
sources of funds available to corporate bor
rowers. Consequently, many large corpora
tions have adopted the practice of borrowing
directly in the money market, e.g., by selling
commercial paper and bankers acceptances,
and thereby reducing their demand for com
mercial bank credit. This practice also has
been a factor in the slackening pace of de
mand deposit growth, as the increased use of
nonbank credit permits a takedown in the
level o f compensating balances which corpo
rate borrowers agree to maintain as long as
all or any part o f a bank loan remains out
standing.
Due to the structure o f their deposits, cen
4
tral reserve city banks have been affected
most by these relatively recent innovations in
corporate financial practices. The severity of
the impact on New York City and Chicago
banks is evidenced in the fact that, while
demand deposits of individuals, partnerships,
and corporations at all member banks in
creased 46 percent from the end of 1947
through 1961, demand deposits at central
reserve city banks moved up only 16 percent.
During the same period, demand deposits
held by individuals, partnerships, and corpo
rations at reserve city member banks moved
up 59 percent, while those held at country
banks advanced 55 percent.
Relationship Between Deposit Structure
and Bank Credit
The composition of deposits also serves as
a major determinant of the types and amounts
of assets which a commercial bank may ac
quire. For example, if the total deposits of a
commercial bank were comprised solely of
highly volatile demand deposits, it would be
necessary that the bank hold a large amount
of secondary reserves, i.e., primarily short
term, highly-liquid loans and investments as
earning assets.
This is no different from the fact that the
character and availability of borrowed funds
may serve as a primary factor in establishing
the asset total and asset mix of a non-financial
firm. Thus, if a non-financial firm were to
acquire all of its initial capital through short
term borrowing, the management of the firm
would be obliged to acquire primarily assets
of a short-term, highly-liquid nature to avoid
financial calamity when the short-term loans
fell due.
In view of the close relationship between
bank deposits and asset structure, it is not
surprising that the postwar changes in de
posit structure and distribution have been
accompanied by significant shifts in the com
position and distribution of earning assets at
member banks.
Earning Asset Structure
The most significant change in the struc
GROWTH AND COMPOSITION OF EARNING ASSETS
All Member Banks, U.S.
B i l l i o n s of d o l l a r s
2 00 -------------------
150
100
{
1947
1949
1951
1953
1955
ture of member bank earning assets in the
postwar period has been the increasing pro
portion of bank credit extended as loans
rather than investments. As of the end of
1947, only one-third of member bank earning
assets were held in the form of loans. By the
close of 1961, however, loans represented ap
proximately 60 percent of total earning
assets. The preference by member banks for
loans rather than additional investments is
further evidenced by the fact that total loans
increased more than threefold during 19481961, while holdings of securities advanced
only 12 percent. As a result, more than 90
percent of the total increase in earning assets
at member banks during the 14-year period
was accounted for by additions to loan port
folios.
The large proportion of member bank
credit held in investment portfolios in the
early postwar period reflected the important
role played by the commercial banking system
1957
1959
LOANS
1961
in meeting the credit needs of the Federal
government during W orld War II. For exam
ple, as late as 1948, holdings of U. S. Treas
ury securities accounted for approximately
60 percent of the total earning assets of mem
ber banks.
The increase in interest expense resulting
from a larger proportion of total deposits
held in the form of time deposits coupled
with increases in other bank operating costs
has made it necessary for bank management
to seek higher-yielding earning assets and to
reduce the proportion held in U. S. Treasury
securities. Furthermore, the opportunities for
higher yields have occurred more frequently
in bank lending activity than in security
holdings.
Due to larger holdings of time deposits,
and the relative stability of such deposits,
many banks have adopted a policy of devot
ing a larger share of their loan portfolios to
longer-term, higher-yielding loans. This situ
5
ation is demonstrated, for example, in the
rapid growth of consumer loans during the
postwar period. During 1948-1961, consumer
loans moved up to 21 percent of total mem
ber bank loans from 14 percent, while busi
ness loans dropped from 52 percent to 38
percent. In addition, there is a substantial
amount of evidence that during the postwar
period an increasing proportion of business
loans has been granted for periods in excess
of one year. Despite the fact that real estate
loans qualify as a long-term, higher-yielding
loan, during 1948-1961 such loans remained
almost stable as a percentage of all member
bank loans.
TOTAL LOANS OUTSTANDING
All Member Banks, U.S.
B i l l i o n s of d o l l a r s
The influence of deposit structure on the
composition o f earning assets is also reflected
in the differences in earning assets among
the classes of member banks. As of the end
of 1961, the central reserve city banks held 56
percent of their total loans in business loans
as compared with nearly 76 percent at the
end of 1947.
On the other hand, country banks, with a
larger proportion of time deposits to total
deposits, have consistently held a larger rela
tive amount of long-term loans to total loans
than have central reserve city and reserve
city banks. At the end of 1961, country banks
held only 25 percent of their total loans as
business loans, while real estate loans and
consumer loans accounted for 33 percent and
28 percent, respectively. It appears somewhat
surprising, however, in the face o f the rapid
growth of time deposits at country banks dur
ing the postwar period that real estate loans
would decline as a proportion of total loans
(from 38 percent to 33 percent), while con
sumer loans would move up (from 19 per
cent to 28 percent). The explanation for this
development seems to be that in recent years
many country banks have devoted much of
their efforts to attracting consumer loans.
the proportion of “ other securities” in invest
ment portfolios. With the rise of bank earn
ings during the postwar period, an increasing
number of smaller banks have moved up
from the 30 percent to the 52 percent maxi
mum corporate income tax rate. Thus, the
acquisition of tax-exempt state and local gov
ernment securities has become increasingly
attractive to the smaller banks, as well as the
larger ones. In this connection, during 19481961, holdings of “ other securities’ ’, which
comprise primarily tax-exempt state and
local government obligations, increased from
10 percent to 28 percent of total investments
at central reserve city banks, from 11 percent
to 25 percent at reserve city banks, and from
13 percent to 27 percent at country banks.
Changes in the composition of earning
assets resulting in part from a changing
deposit structure have also appeared in mem
ber bank investment portfolios. For example,
many bank investment officers have increased
The role of deposits as a major factor
affecting the distribution of earning assets
during 1948-1961 is demonstrated clearly by
the fact that, as the proportion of total bank
deposits held by central reserve city banks
6
Distribution of Earning Assets
declined, a nearly equivalent decline occurred
in the proportion of total earning assets held
by these banks. At the same time, the per
centage of total earning assets accounted for
by country banks moved up to 41 percent of
the total from 37 percent, and reserve city
banks increased their share from 37 percent
to 38 percent.
The distribution of the various components
of earning assets, however, has not followed
a uniform pattern during the postwar period.
In the case of total loans during 1948-1961,
both central reserve city and reserve city
banks experienced a decline in their respec
tive shares of total loans, while the share of
country member banks moved up to 37 per
cent from 31 percent.
On the other hand, the decline in the pro
portion of total deposits at all member banks
held by New York City and Chicago banks
was larger than the decline in the share of
total loans granted by these banks. Conse
quently, the reduction in the proportion of
loanable funds at the disposal of central
reserve city banks has not been fully offset
by an equal decline in the proportion of total
loans which these banks have provided. In
many instances, this development has reduced
significantly the liquidity of central reserve
city banks. The relatively sharp reduction in
the level of liquidity at the New York City
and Chicago banks is demonstrated by the
fact that the relationship o f total loans to
total deposits, a widely used measure that
varies inversely with bank liquidity, rose
from 24.9 percent as of the end of 1947 to
53.9 percent at the close of 1961. A t the same
time, the loan-to-deposit ratio at all member
banks moved up from 26.6 to 51.2.
One of the major factors in postwar loan
patterns has been the increased reliance of
business borrowers on central reserve city
banks. Despite a declining share of total loans
being held at New York City and Chicago
banks, 34 percent of business loans granted
by all member banks as of the end of 1961
were made by the larger banks. This figure
compared with 30 percent of the total as of
the end of 1947.
An explanation which is offered frequently
for the increased dependence of business bor
rowers on the New York City and Chicago
banks is that many business firms are now so
large, due to the numerous corporate mergers
and corporate growth in general during the
postwar period, that their credit needs can
only be satisfied by the larger money market
banks. That is to say, due to the limitations
on the size of loans to one borrower imposed
on commercial banks, many of the nation’s
banks are unable to grant loans of the magni
tude which the larger business borrowers
require. As a result, business firms increas
ingly have turned to the largest banks to
satisfy their credit needs.
This development is interesting in that it
is mainly the cash management practices of
large corporations which have resulted in a
slower rate of deposit expansion at central
reserve city banks, with the pressure on bank
liquidity as the banks attempt to satisfy the
loan demand which stems primarily from the
same segment of the business community.
Since 1957, however, there is evidence that
major business borrowers have been acquir
ing an increasing share of their short-term
credit through nonbank sources. From the
end of 1957 through 1961, the percentage of
business loans at all member banks which
were accounted for by New York City and
Chicago banks dropped to 34 percent of the
total from 39 percent. Such a development
does not necessarily reflect a redirection of
business borrowers away from the larger
banks toward the reserve city and country
banks. This is demonstrated by the fact that
from the end of 1947 through 1957 business
loans at all member banks advanced at an
average annual rate of 8.6 percent; from 1958
through 1961, however, the average annual
rate of expansion dropped sharply to only
2 percent. The slackened pace of business loan
demand has reflected largely the increased
use of nonbank short-term credit arrange
ments by corporate users that might other
wise borrow primarily from central reserve
city banks.
7
With all of the decline in total investments
during 1948-1961 occurring at central reserve
city banks (a substantial gain simultaneously
occurred in the proportion of total invest
ments held at country banks) the pattern
followed closely that of member bank loans.
As of the end of 1961, country banks ac
counted for more than 45 percent of total
investments of member banks, as compared
with 40 percent at the end of 1947. At the
same time, the share held by central reserve
city banks fell from 26 percent to 19 percent.
Furthermore, the decline in the share of hold
ings of securities experienced at the larger
banks was concentrated in those of the U. S.
Treasury.
Impact on Banking Structure
Postwar changes in the structure and dis
tribution of member bank resources have
quite clearly brought about some fundamen
tal changes in the structure of commercial
banking. The foregoing discussion has shown
that the extent of control of resources by the
large central reserve city banks has declined
markedly during the postwar period. Further
more, the trend toward a wider distribution
of these resources among all classes of banks
indicates that changes in banking structure
during the postwar period have not resulted
in a larger share of banking resources being
controlled by the nation’s largest banks. On
the contrary, changes in banking structure
have, for the most part, resulted in a sub
stantially larger share of both total deposits
and earning assets being held by country
banks, with a small increase in the propor
tions accounted for by reserve city banks.
The redistribution of bank resources is an
outgrowth of the restructuring of banking
markets in the postwar period. Changes in
the markets for both deposits and bank credit
have created an environment which is partic
ularly favorable to the growth of suburbanbased and consumer-oriented country banks.
Changes in the structure o f the deposits
and the earning assets o f commercial banks
indicate clearly the increased importance of
8
the consumer as both a source of deposits and
a major user of bank credit. With the migra
tion of population from the metropolitan
centers toward the suburbs, many country
banks have benefited from a substantial in
crease in the size of the markets in which
they do business. In addition, the modest
growth in the market share of reserve city
banks has been due largely to the formation
of branch offices which has permitted such
banks to follow the consumer to the suburbs.
In the case of the central reserve city
banks, however, attempts to participate in
widening markets have often been blocked or
restricted by legislation dealing with the
operation of branch offices. Thus, the large
banks have found it increasingly difficult to
attract deposits, as corporate customers con
tinue to constrict the level of their deposits,
while branch banking regulations often pre
vent such banks from competing freely for
individual time and demand deposits.
As previously mentioned, the increased
dependence of large corporations on the
major money market banks to satisfy bank
credit needs has meant that the decline in the
share of total deposits held by these banks
has exceeded the rate of decline in total loans.
This, in turn, presents problems of defining
adequate liquidity standards for the larger
banks. Considering the changing composition
of bank deposits, there may be a need for
a revaluation of the widely accepted measures
of bank liquidity.
One reason for the number of mergers
among major banks is to make possible the
extending of larger loans to corporate bor
rowers. The merger of two or more banks,
however, does not in itself provide a solution
to the problem of inadequate deposits at
major banks.
An increased use of nonbank sources of
short-term credit by corporate borrowers does
not solve the problem of bank liquidity, as
the nonbank lenders frequently are other
corporations which, in turn, reduce demand
deposit balances at major banks in order to
(Continued on Page 12)
A Glimpse Ahead For Autos
year 1962 promises to be the secondbest year for car sales and production.
By year end, more than 6.7 million cars will
probably have rolled off assembly lines, while
dealers are likely to have sold nearly as many
domestically produced autos. In addition,
sales of imports may push total car sales
above 7 million units.
T
he
The glowing picture of production and sales
during 1962 has led many observers of the
automobile industry to believe that the cur
rent year’s ebullient rate of production and
sales will be sustained during the year 1963.
At the same time, there are, of course, other
observers who hold a different view for 1963.
Notwithstanding the diversity of various
forecasts, automobile manufacturers and sup
pliers carefully scrutinize such forecasts and
necessarily prepare their own predictions.
This is done in order to gauge the probable
demand for a large number of materials, such
as steel, glass, and rubber, which go into the
making of automobiles. In addition, produc
tion schedules, employment requirements, and
budgets for the ensuing year are based on
the forecasts.
DOMESTIC NEW CAR SALES
Three-month moving average
A N N U A L R A T E ( m i l l i o n s of c a r s )
SALES OF IMPORTED CARS*
The development of most forecasts takes
into account the interrelationship of basic
data of the auto industry as shown in the
following equation:
T o ta l S ales — Im p o r ts + E x p o r t s ±
Changes in Dealer Inventories = Production
Estimates for the components o f the equation
must, of course, not only balance out mathe
matically, but each component must be rea
sonable in the light of anticipated develop
ments in various segments o f the economy.
In connection with the latter point, prob
ably the most important consideration which
has a bearing on the forecasts of new car
sales (and thus has a bearing on production)
’55
’56
'57
’58
’5 9
'6 0
'61
’62
'63
* Registrations.
NOTE: Shaded areas represent recession periods.
9
is the assumed future course of business
activity. As the accompanying chart shows,
declines in general business activity usually
are associated with periods of low levels of
sales. On the other hand, during periods of
rising business activity, new car sales have
reflected the buoyancy of business conditions.
Thus the projected cyclical pattern of busi
ness activity is the most important single fac
tor in estimating the future level of car sales.
Consideration is given to such factors as
anticipated changes in consumer income,
changes in used car prices, and the status of
buying confidence as shown, for example, in
the willingness of consumers to incur instal
ment debt.
DOMESTIC NEW CAR SALES AND
CHANGES IN BUSINESS ACTIVITY
A N N U A L R A T E ( m i l l i o n s of ca r s )
Of course, not all of the factors affecting
car sales reflect cyclical changes in business
activity. For example, the design of autos is
regarded as having an influence on sales, yet
auto design is only remotely connected with
business conditions.
DOMESTIC CAR PRODUCTION
M o n t h s from p e a k
(1) July 1953, July 1957, May 1960.
A N N U A L R A T E ( m i l l i o n s of c a r s )
TTrough months: August 1954, April 1958, February, 1961.
10
9
Sales and Production. The pattern of car
sales during three postwar recessions indi
cates that if a recession should occur in the
coming year, sales of new cars probably
would decline sharply within a few months
following the peak in business activity. More
over, a marked decline in production would
accompany the drop in sales.
8
7
6
o sc
DJU STED
NOTE: Shaded areas represent recession periods.
10
Although the sales total for the year 1955
is often regarded as a target, it should be
noted that the record level of auto sales dur
ing that year was accompanied by a some
what unusual, and apparently temporary,
shift in historical spending patterns. Con
sumers poured 6 percent of their total con
sumption expenditures into automobile pur
chases in 1955. This figure compares, for
example, with 4.6 percent in 1960, 4.0 per
cent in 1961, and an estimated 4.4 percent in
1962. (The average for the 1956-62 period
DEALERS' INVENTORIES OF
DOMESTIC NEW CARS
End of month
T h o u s a n d s of c a r s
Imports. Total sales of imported cars have
been sliding downward since the final months
of 1959, when a large number of U. S.-produced ‘ ‘ compact ’ ’ cars were introduced.
Apparently, the impact of the domestic small
car has been favorable during the past three
years, so far as U. S. competition with for
eign produced makes is concerned.
In the past year, the decline in sales of
imported cars is particularly significant in
view of the strong advance in domestic sales
during the same period, indicating that im
ports have lessened their hold on the Ameri
can auto market. (However, representing a
notable exception to the general trend, sales
of the major make of automobile which is
imported from Western Germany have shown
a strong gain during the past year.)
Exports. Auto exports from factories in the
U. S. have remained at low levels for more
than three years, as compared with the level
of auto exports during 1954-55, when exports
were at record levels for the postwar period.
NOTE: Shaded areas represent recession periods.
amounts to 4.5 percent.) Thus, if the experi
ence of the years since 1955 are taken as a
guide, it would seem that any further rise in
consumer spending for automobiles (in abso
lute terms) has to stem from a further expan
sion in business activity and disposable in
come.
U. S. EXPORTS OF DOMESTICALLY
PRODUCED CARS
Five>month moving average
A N N U A L R A T E ( t h o u s a n d s of c a r s )
Inventories. Inventories of new cars held
by dealers have tended to expand during the
latter phases of most business expansions. In
marked contrast to that pattern, inventories
of new cars have remained fairly steady for
the past two years, except for the special cir
cumstances which followed the automotive
strikes in the late summer of 1961. Thus it
appears that much tighter controls on inven
tory levels are playing an increasingly impor
tant part in the planning of automobile pro
duction. Moreover, it is possible that, as a
result, any forthcoming swings in the level
of inventories are likely to be considerably
less pronounced than the earlier fluctuations.
11
It is true that during the first half of 1962
auto exports appeared to show new strength.
However, this strength should be interpreted
in light of the fact that part of the improve
ment was due to an acceleration of exports to
Canada in April, and may have represented
an attempt by U. S. producers to export a
large volume o f cars to Canada before the
value of that country’s dollar fell further. In
addition, a rise in shipments to Argentina
during June reflected some special non-recur
ring circumstances.
From the foregoing discussion, it is clear
that responsible forecasting procedures have
many ramifications which must be conscien
tiously explored.
(Continued, from Page 8)
and Chicago banks to satisfy their credit
needs and the relative lack of mobility of
loanable funds within the banking system,
a question arises as to the desirability of any
further changes in the distribution of total
bank deposits which would reduce the pro
portion available to central reserve city banks.
Consequently, the changing structure of
banking markets suggests that a review of
existing banking legislation may be helpful
to assure that the growth and development
of a particularly important segment of the
banking system is not stifled.
advance the funds. In addition, corporate
borrowers tend to reduce existing levels of
demand deposits as they become less depend
ent upon the larger banks to satisfy their
short-term credit needs.
The reduction in concentration of member
bank deposits at central reserve city banks
thus far in the postwar period may be a
desirable change in the banking structure.
However, in view of the increased dependence
of business borrowers on the New York City
12
It is important to emphasize that no fore
casting technique has been found which gives
perfect results. Nevertheless, estimates of the
future course of auto production and business
activity will continue as long as there is a
need for auto producers and suppliers to plan
ahead.
@FedFRASER