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MAY 1969 Housing in the 60's: A Survey of Some Nonfinancial Factors . . . . . page 3 Deposit Growth in the Tenth District 1949-68 . . . . . page 11 11 I I Subscriptions to the 1 MoNTHL Y REVIEW are avail- able to the public without charge. Additional copies of any issue may be obtained from the Research Department, Federal Reserve Bank of Kansas City, Federal Reserve Station, Kansas City, Missouri 64198. Permission is granted to reproduce any material in this publication. H e 60' A urve of Some onfinancial Factors By Glenn H. Miller, Jr . URVEY of the developments in the general area of hou ing during the 1960's is featured in this article. In focusing on nonfinancial factors , the article omits consideration of the availability and cost of financing for residential construction; this Review has already devoted considerable attention to the role of financing. 1 In a sense, this article serves as both background and introduction to a forthcoming article that will examine, in some detail, the influence of demographic factors such as population growth, marriage rates, and net household formations on the future market for housing in the United States. RESIDENTIAL CONSTRUCTION IN THF NOMY A look at the residential construction sector within the framework of the gross national product (GNP) accounts gives a broad picture of the recent past performance of this sector, and of its place in the economy. Spending for new residential structures as shown in the GNP 1 J. A. Cacy, "Fin ancial Intermediaries a nd the Postwar Home Mortgage Market," January-February 1967; J. A. Cacy, "Specialized Mortgage M arketing Facilities," July-August 1967; and Robert E. Knight, "The Quality of Mortgage Credit," Part I, March 1969, and Part Tr, April 1969. Monthly Review • Moy 1969 ♦ ♦ accounts, which is mostly the value of new construction put in place for the given periods, covers new dwelling units (the bulk of the total), nonhouse keeping residential facilities, and additions and alterations. Residential construction spending, after being at low levels during the depression of the 1930's and World War II, began to rise rapidly after the war-primarily to repair the deficiency in housing that had developed. In constant (1958) dollar terms, gross private domestic investment in residential structures rose from an annual average of about $16.9 billion in 194 7-49 , to about $20.6 billion from 1950 to 1954, and about $22.6 billion in 1955-59. The real output of residential structures, so computed, averaged about 5.3 per cent of total real GNP in I 947-49 and 1950-54, and about 5 per cent in l 9 5 5 - 5 9. This ratio dropped to about 4.4 per cent for the first half of the 1960's. For the 1960's, quarterly expenditures for residential structures are presented in both current dollars and constant dollars in Chart 1. Following the decline associated with the brief recession of 1960-61, residential construction spending rose until the fourth quarter of I 963, then moved virtually horizontally until early in 1966 when it declined precipitously. Spending for hou ing reached its trough in the first quarter of 1967 , then began the upward move3 Housing in the 60's Chart 1 RESIDENTIAL CONSTRUCTION EXPENDITURES IN CURRENT AND CONSTANT (1958) DOLLARS, AND RATIO TO GNP 1960-68 Billions of Doi lors 34 Seasonally Adjusted Annual Rotes TOTAL RESIDENTIAL STRUCTURES 30 26 18 0~~~~~~~~~~~~~~~~~~~ Per Cent 5 4 3 REAL RESIDENT¼AL CONSTRUCTION REAL GNP 1960 '62 '64 '66 1963. From late 1963 through 1968 real output of residential structures was a declining percentage of real GNP, with allowance for the sharper drop and recovery of 1966-67. Another broad-brush description of const ruction activity in the 1960's is based on empl oy ment information. Although the data in Table 1 are broader than for the residential co nstruction industry alo ne, they arc related closely enough to be relevant. Both total nonagricu ltural employm ent and total contract construction employment declined in 1961, due to recessionary influences, then rose through 1966. Contract construction employment fell in 1967, but total nonagricultural emp loyment co ntinu ed to rise ; both increased in 1968. Contract co nstruction employm ent as a proportion of total nonagricultural mployment was 5.3 per cent in 1960, 5.2 per cent in 1961 through 1965, 5.1 per cent in 1966, and 4.8 per cent in both 1967 and 1968. During the 1960's, construction workers made up about 85 per cent of total employment in the contract construction industry. On the average, about 31 per cent of all construction workers were employed by general building contracto rs and about 48 per cent worked for Table 1 EMPLOYMENT IN NONAGRICULTURAL ESTABLISHMENTS AND IN CONTRACT CONSTRUCTION, 1960-68 '68 (In thousands) SOURCE : U. S. , Department of Commerce, Survey of Current Total Employees Business. ment that lasted through 1968. During this latter period, the constant dollar and current dollar series diverged markedly as rapidly rising prices for the output of this sector m ade their presence ap pa rent. Although the constant dollar value of residential structu res averaged somewhat highe r in the first half of the I 960's than in the last half of the I 950's, the ra tio o f that value to GNP dropped to about 4.4 per cent for 1960-64. In C hart I, this ratio- s hown on a quarterly basis- moves virtually horizontally through 4 1960 1961 1962 1963 1964 1965 1966 1967 1968 Construction Wo rkers All Non agricultural Industries All Contract Construction All Contract Con struction General Building Con tractors Special Trade Con tractors 54,234 54,042 55,596 56,702 58,3 32 60,832 64,034 66,030 68 , l 34p 2,885 2,816 2,902 2,963 3,050 3,186 3,275 3,2 03 3,256 2,459 2,390 2,462 2,523 2,597 2,710 2,784 2,705 2,750 785 753 756 787 817 852 888 835 822 1,1 62 1,131 1,192 1,214 1,250 1,297 1,315 1,297 1,335 p Pr e liminory. Burec, u of La bor Statistics, Employment and Earnings and Monthly Report on the Labor Force, and U. S., De- SOURCE : U. S. , partment of Commerce, Construction Review . Federal Reserve Bank of Kansas City Housing in the 60's special trade contractors-a category including plumbing, electrical work, painting, masonry, sheet metal work, and so on. The remainder were employed by heavy construction contractors. Chart 2 NCY RATES, A IPMENTS A s D 1960-68 Thousands of Units Seasonally Adjusted Annual Rotes 1800 SOME FEATURES OF THE MARKET FOR 60- Residential structures have relatively great durability and a long avL:ragc ]ife span, and spe ndin g for new residential construction is included in the GNP accounts as a part of gross private domestic investment. There is a very large stock of hou ing in the United States, cspe ·ially in relation to the additions to the stock that m,1y be made in any one year. l or example, according to the 1960 CL:nsus of housing, there were approxima tely 58 million hou sing units in the United States in that year. Thus , 1.5 million housing starts in o ne year is only about 2.5 per cent of the total hou sing stock-a relatively small change in the total number of dwelling units, which also is affected by removals from the stock. The level of removals from the housing inventory and th e replacement demand generated do influence the overall demand for new construct io n. But this influence is of le scr im portance than some others. 1600 1400 1200 1000 0 L...L.L..1.....L....L...L..L.-L...L-.!....WL.J-L..LIL-L.J'-'-JL..LJ-'-'-'-l--1...J....L.J......I.....L..LL...LJ Per Cr-e_n_t --r---r------,---.-- -.--~-~-~~ 0 Housing Starts Chart 2 brings together severa l quarterly series for the period since 1960 that represent some different features of the market for shelter in the United States. The series on new private housing units started shows the seasonally adjusted annua] rate of new dwelling units in housekeeping residential buildings begun in each quarter. As such, it provides the fundamental clement of change in the stock of housing (a long with remova]s and changes due to conversions or mergers). The hou sing starts series also is closely related to the GNP series on investment in new resident ial structures. Monthly Review • May 1969 Thousan ds of Units 100 Quarterly Totols Unadjusted BO 60 Mobile Homes Manufacturers Shipments (Excludes Trove! Trailers} 40 20 0 L....L.L._.L..L._.L..J...J....L..1.....L...L.L..L..J....LIL...L.L..LJL....ULLJL.L.ILLJJ...L....L.L....LJ...LJ 1960 '62 '64 '66 '68 SOURCES: U. S., Bureau of the Census, Construction Reports ; U. S., Bureau of the Census, Current Housing Reports; and U. S., Business and Defense Services Administration, Construction Review . The hou sing starts data of Chart 2 arc for all private units , as already noted, a lthough farm starts have been a negligible part of the total. Before 1959, housing sta rts data are available only for nonfarm private units. On that basis, starts moved up very sharply imme5 Housing in the 60's diately after the end of World War 11. An underlying upward trend continued to 1955, but the average level of starts in the last half of the 1950's was below that of the first half. Turning to the total private starts series shown in Chart 2, following a decline through 1960, the seasonally adjusted annual rate of private housing units begun marched steadily upward until the first quarter of 1964, when it fell sharply and then moved horizontally until the end of 1965. The deep but relatively narrow trough in housing starts commencing in early 1966, like that in spending for residential construction- due mainly to financial factorshas been followed by further upward movement. However, the decade-peak levels of 1963 and early 1964 were not yet reach d by the end of 1968, although this was accomplished in the first quarter of 1969 . The division of total new private housing units started between single-family homes and multifamily structures is shown in Table 2 for the years 1960-68 . The trend toward an increasing proportion of total units started found in multifamily structures is clear: in 1960, single-family homes accounted for 80 per cent of all units begun; in 1968, for just 60 per cent. A relatively long list of factors may be assembled to explain this shift, dmong them the following : increa ing numbers of single young adults, young married couples, and older people-groups that tend to prefer apartment living for one reason or anotherthe rising trend of construction costs and housing prices generally, including especially the cost of land, and the relatively favorable position of multifamily structures with regard to these factors; and the preference of some lenders for financing apartment houses where they can receive an equity interest, rather than single-family dwellings. Vaca ncy Ra tes Vacancy rates are used to indicate the degree of pressure of demand for housing on 6 Ta ble 2 TOTAL NEW PRIVATE HOUSING UNITS STARTED IN THE UNITED STATES, BY TYPE OF STRUCTURE, 1960-68 (In thousands and as per cent of total) In Structures With: Total One Unit Year Num ber Per Cent 1960 1961 1962 1963 1964 1965 1966 1967 1968p 1,252.1 1,313.0 1,462.7 1,610.3 1,529.3 1,472.9 1,165.0 1,291 .6 1,507 .5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Two or More Units Number Per Cent Number Per Cent 994.7 974.4 991.3 1,020.7 971 .5 963 .8 778.5 843.9 899.4 79.4 74 .2 67 .8 63.4 63 .5 65.4 66 .8 65 .3 59.7 257.4 338.6 471.4 589.6 557.8 509.1 386.5 447.7 608 .l 20.6 25.8 32.2 36.6 36.5 34.6 33.2 34.7 40.3 pPrcliminary. SOURCES : 1960-62, U.S., Bureau of th Census, Housing Construction Statistics: 1889-1964, p . 20. 1963-68, U. S., Congress, Joint Economic Committee, Economic Indicators, March 1969, p . 21. the supply-given by the inventory of applicable housing units-and are shown in Chart 2 for both homeowner and rental housing units. Obtained from sample surveys by the Bureau of the Census, the vacancy rate for each category is the percentage relationship of vacant units available for sale or rent, respectively, to the appropriate total inventory. The total inventory in each category includes occupied units, vacant units for rent and sale, respectively, and vacant units rented and sold, respectively, but awaiting occupancy. In computing the rate, the following vacant units are excluded from the inventory in both categories: those too dilapidated to be considered fit for living quarters; seasonal housing units; and units held off the market for various reasons. Declining vacancy rates generally are con ·idcred to be an indication of strength in hou sing markets. The rental vacancy rate for the United States, as measured in annual averages, rose from 5.1 per cent in 1957 to 6.4 per cent for 1959. The rates in Chart 2 are on a quarterly basis, and show the rental vacancy rate Federal Reserve Bank of Kansas City Housing in the 60's ri ing to 8.1 per cent in the second quarter of 1961. After falJing back to the 7 .3-7.4 per cent level in the last half of 1962, this rate moved nearly horizontally until the end of 1965. From then the rental vacancy rate dropped sharply, reaching 4.9 per cent in the fourth quarter of 1968. The annual average homeowner vacancy rate rose slightly from 0.9 per cent in I 957 to I. l per cent in 1959. On a quarterly ba is, as shown in Chart 2, the homeowner rate shows a very slight upward movement until 1963 , when a leveling tendency began. The decline in the homeowner vacancy rate al o began in 1966, but was not as sharp as that in th e rental rate; the homeowner rate was I . I per cent in the fourth quarter of 1968. Mobile Homes Shipments The final series in Chart 2 shows manufacturers' shipments of mobil e homes ( excluding travel trailers) in quarterly totals, unadjusted for seasonal variations. Mobile homes are not included in the housing starts series, nor in the GNP account for investment in residential structures. However, mobile homes are becoming an increasingly important source of shelter, especially in the lowe r range of prices. As such, some note must be taken of them in any consideration of f uturc markets for hou ing. Having become larger, more attractive, and better-designed in recent years, mobile homes now dominate the market for new low-priced, single-family homes, and the mobile homes industry has been called "a major force in the permanent shelter market." According to one estimate, the industry is supplying nearly 30 per cent of all single-family dwellings, and about three-fourths of the homes selling for under $12,500. The steady increase in manufacturer ' hipments of mobile home since the beginning of 1960 i clearly seen in Chart 2; total J 968 shipments amounted to more than 300,000 units, and the Mobile Home ManuMonthly Review • May 1969 facturer ' Association estimates shipments of 400,000 units a year by the early 1970's. The prime market for mobile homes appears to be among young married couples, and older, often retired, couples-both rapidly growing segments of the population. At the same time, mobile homes ( or some related dwelling unit such as modular units or other factory-built homes) often are mentioned as possible sources of helter for low-income families. Factorybuilt homes, mass-produced on production lines and transported to the site rather than built there, are thought to have the potential to reduce both building costs and construction time significantly. Since it is not too difficult to switch from mobile homes to sectional homes or modular units, some mobile home companies arc already producing factory-built homes. But neither mobile homes nor factorybuilt homes represent a simple panacea for the burgeoning demand for shelter, for they have problems, too. One is the problem of acceptance by potential occupants, by homebuilders and construction workers, and by zoning bodies. Both have the problem of finding suitable sites, and in the case of factorybuilt homes there are often problems in erecting them once they arc built- especially in crowded city conditions. Finally, although banks, savings and loan associations chartered in some states, and finance companies finance mobile homes, financing problems have not been completely resolved. CONSTRUCTION COSTS AND HOME PRICES Rising land and construction costs and home prices, and expectations concerning them on the part of builders and homebuyers, also seem to be stimulating demand for hou ing currently, and may well continue to do so in the future. The importance of, and interest in, these developments calls for a brief ummation of the recent construction co t-price situation. Five kind of data have been chosen for this summary, and are shown in Chart 3: the Bureau 7 Housing in the 60's Chart 3 AND HOUSE PRICES CONSTRUCTION C 130 Composite Construction C Price Index for New One-Family Houses Index 1957- 59 = 100 Seasonally Adjusted 120 110 100 Price of New One-Family Houses Index 1963=100 90 eo._._............................................._._.......__._.__...........'---'--'._._._._._._.._._..o..-L-...._._......................... .L..J Per Cent 25 20 ---------- ---- Site Price as a Per Cent of Total Value of House and Lot 15 10 ~ - ~ - - - - - ~ - ~ - ~ - ~ - ~ - ~ Index (1957-59=100) 120 II 0 All Construction Who lesa le Price 100 90~_..L--_...........__..___._._._.__........................__._._._......_...._._...._._.........._.........__._.._._. Dollars 5.00 4.50 r--------------------, Average Hourly Earnings Construction Workers 4 .00 3 .50 ~ 3 . 00 ~ \\pe ci al Trade Contractors All Contract Constr uction General Bui Id in g Contractors 2.50 1960 '62 '64 '66 '68 SOURCES : U. S., Business and Defense Services Administration, Construction Review ; U. S., Department of Commerce, Business Statistics, 1967; U. S. Savings and Loan League, Sav ings and Loon Fact Book , 1968; U. S., Bureau of Labor Statistics, Monthly Labor Review ; U. S., Bureau of Labor Statisti cs, Employment and Earnings Statistics for th e United States, 1909-68 . of the Census Price Index fo r N w One-Fam ily Hou e , site value of FHA-in ured one-family houses, the Department of Commerce Composite Construction Co t Index, the Bureau of 8 Labor Statistics Wholesale Price Index for Construction M aterials, a nd Average Hourly Earnings of Construction Workers, for all contract construction, general building contractors, and special trade contractors. The price index for new one-family house re ults from a Bureau of the Census program of research aimed at developing a number of new construction price ind xes. It is currently available on an annual basis for the years 1963 through 1968 . As a " price" index, it measures changes in the prices pa id by, or cost to, the ultim ate buyer and, as such, differs from "cost" indexes that measure changes in costs lo spec ulative bui lders or prime contractors, excluding their profit ( but including profits of subcontractors). The new one-fami ly house price index includes va lue of si te, and attempts to correct for "quality" cha nges such as the tendency for new houses to become larger with more facilities, such as extra bathrooms and central ai r conditioning. The index has been succi nctly desc ribed as follows: This is an index of the total sales price of new one-family hou ses built for sale and sold, including the value of the si te on which the house is built. Since this is an index of sales prices, it reflects not only changes in the costs of labor, materials, and land, and selling expe nses, but also changes in productivity and profit margins in residential construction. The index is designed to measure annual changes in the total sales price of hou es with the , ame composition of characteristics . . . . ~ The price of new one-family houses so mea~John . Musgrave, "New Measures of Price ha.nges in Construction," Co11str11c tio11 Re1 •iew, U. S ., Department of Commerce, Business and D efense Services Administration, October 1968, p. 5. F-ederal Reserve Bank of Kansas City Housing in the 60's sured rose by nearly 18 per cent over the fiveyear period, 1963 to 1968. Site Values A s noted, the price index of new one-family hou cs include site value. Land value have gone up more in recent years than other contruction costs, a nd thu a re a ri ing proportion of the total price of house a nd la nd toge ther. The charted serie on la nd values i for FHA-in ured o ne-family homes and is rep re e ntative of the generally increasin g va lues of hom e sites, although the proportion of la nd costs for conventiona ll y financed one-family hom es is probably greater. For F HA -insured one- famil y homes, th e rntio of site price to total value of house and lot has increased from 16.6 per ce nt in 1960 to a n average of ba rely under 20 per cent in 1965-67. The average site price for such hou es rose from $2,470 in 1960 to $3,766 in 1967, or an increa e of 52 per cent. Composite Construction Cost Index Wholesale Price Index for Construction Materials The prices of construction materials, which have made a sizable contribution to the overall upward patte rn of construction costs in recent years, a rc represented he re by the Whole ale Price Index for on truction M ateri als. It con ist · of those product or materia l u ed in building co n truction " which are either ( I ) phy ically incorporated as an integral part of a building ( res ide nti al, commerci al, or indu strial ), or (2) normally installed durin g the process of construction a nd no t removable without seriou sly impairing the use of th e huildin ', or actually destroying a portion of it. "' The index thu s includes plumbin g and hea tin , eq uipm e nt but excl udes consum e r durabl es, such a. kitc he n ra nge . Being a component of th e Wholesa le Price Index, th e index measures prices at the first level of commercial transaction in the United States. The seve n m a in pa rts of the index and their relative weigh ts are as follows: lumber and wood products, 24 per cent; building paper a nd board , 2 per cent; paint a nd paint materials, 6 per cen t ; metals and metal products, 3 7 per ce nt ; machine ry a nd mo tive products, 5 per cent ; no nm e tallic minera l products, 25 per cent; a nd ho use hold durables ( main ly floor coveri ng), I per cent. " The total materials index pa rticipated in the ge neral stability of wholesale prices in the ea rly I 960's, rising by just over l pe r cent from 1960 to the close of 1965. From th at point to the end of 1968, however, the increase amou nted to more than 12 per cent, a nd the index rose by 7 per cent in 1968 alone. The Departme nt of Commerce composite construction cost index is an implicit price de fl a tor th at "measures the combined result o f cost c ha nges and of changes in the weigh ts of diffe re nt typ s of co nst ruction in the current dollar construction activity aggregate." Thus , its coverage is broader than resident ial construction alone; it includes, besides farm a nd nonfarm residential building, nonresidential building of various types , public utility construction , and several other types of nonbuilding construction." This index increased by about 12 .6 per cent from the beginning of 1960 to th e e nd of 1965 and by about 15.4 per cent from the beginning of 1966 to the clo. e of 1968. The increase in l 968 alone amounted to 6.3 per cent. '"Building Materials Who lesa le Price In dexes," Construction R e1·iell', U. S., Business and Defense Services Admi nistrat ion , August 1967, p. 4. "Fo r more det a il on the construction of thi in lex, . cc U. ., Department of ommercc, Business Statistics: 196 7, Explanatory Notes to the tatistical Series, p. 51. "For a discussion of the relative importance of the vario us commodities in the index, see Ibid., pp. 5-9. The indexes for selected group and co mmodities appear monthly in the Construction R e 1•iew. Monthly Revi w • May 1969 9 Housing in the 60's Average Hourly Earnings of Construction Workers The last cost factor shown in Chart 3 is average hourly earni ngs of con truction workers, by total and two major classes. Although not even a measure of total labor co t to employers, much less of labor costs per unit of output since no productivity considerations are involved, the e serie make up a highly significant part of both of tho e measures, and movements in them are indicative of movements in labor co t . From 1960 through 1965, average hourly earnings of all contract con truction workers ( including th se employed by heavy contractors) increased ahout 23 per cent. ~arn in gs of workers employed hy gen ·ral building contractors rose about 24 per cent in the sam period; and thos hired by the sp cial trade contractors, 23 per cent. Thus, th hourly earnings of all three groups ro e on the average about 4 per cent per year from 1960 through 1965. From the beginning of 1966 to the end of 1968, the relative rise in average hourly earn ings of all contract construction workers was 19.6 per cent, or about 6.5 per cent per year. For the same interval, general building con truction workers' ea rnin gs rose 20 . 1 per ce nt, while earning of those in the spec ial trades increa ed 16 per cent- average yearly increases of about 6.7 per cent and 6.5 per cent, respectively. 10 SUMMARY Residential con truction act1v1ty in the I 960's has been a source of concern, especially with regard to its variation in respon e to changing financial pre ure , and to the needs of low-income families. Housing starts and construction put in place both responded sharply to the financial squeeze in 1966-67. But thi s survey ha s emphasized everal other features of the hou sing ituation. Residential construction activity as a share of total GNP (both expressed in real terms) has declined throu gh the 1960's, a~ ha s contract construct ion e mploym ent ;1s a share of total nonagri c ullurnl employment. I lousing units in multi unit structure" h,1vc hecome a si ,nifi ·antly greater proportion of total private h using unit started , and increasing sa les of mobile homes have rai ed that industry's share in the total number of new ingle-family dwellings. Ri si ng shelter need and underbuilding, associated with financing problems and other factors, also have found expression in falling vacancy rates-especially toward the end of the period. Finally, all of these things occurred in an environment of ri ing land costs, construction costs, and home prices, agai n especially in the latter years of the period. Federal Reserve Bank of Kansas City Deposit Grow h 1n the T Distric -1949-68 By F. R. Krohmer hanks in the Tenth Federal Reserve District experienced considerable changes in their patterns of deposit growth during the past two decades . This article discusses these changes with respect to total depo its and their components at all insured commercial banks in the Tenth District. Deposit growth is examined by states, by metropolitan and nonmetropolitan areas, and by individual metropolitan areas. The article concludes with a brief investigation of the role of time deposits in the growth of total bank deposits during recent years. Total deposits of Tenth District commercial banks increased from $5.4 billion in June 1949 to $ 18.4 billion in June 1968.' (See Table 1.) This represents a gain of 240 per cent, or a compounded annual rate of growth of 6.6 per cent. By comparison, commercial banks throughout the Nation grew at a rate of 5.8 per cent. Within the District, depos its at New Mexico bank s grew most rapidly, especially in the early part of the period. However, the e deposits accounted for only a n.:lativcly small percentage of total District deposits. Among the large r states, Colorado and Oklahoma District bank experienced the most rapid growth in deposits, while Nebraska banks had the slowest growth. Following the national pattern of deposit growth, District banks experienced more rapid expansion during the 1960's than during the l 950's. For example, the annual rate of advance of total deposits at commercial banks in the District was 6.3 per cent during the 194960 period and 7 . I per cent during the 1960-68 period. It should be pointed out, however, that thi s grow th pattern did not hold for all of the states, as District bank in Mis ouri, New Mexico, and Wyoming grew more slowly in the I 960's than in the 1950's. (See Table 1.) Time and savings deposits have grown more rapidly than demand deposits during the past two decades, as indicated by trends in deposits of individuals , partnerships, and corporations (IPC) ." (See Chart I.) This is especially true in the I 960's ( 1960-68) , when time and savings deposits grew at a 16. I per cent annual 'The Tenth Di strict includes the ~ta lcs of Colorado, Kan sas, Nebra ska, Wyoming, mo~l of Oklahoma and New Mexico, and the western tier of counties in Missouri. Data in this article pertain to bank . in the Tenth Di~trict only. "The difference between total deposits and IPC deposits i.., comprised of interbank deposits, deposits of states a nd political subd ivi~ions, and deposit of the U. S. Government. I PC deposits account for approximately 80 per cent of total deposits. OM M ERCIAL ST E TT Monthly Review • May 1969 l l Deposit Growth in the Tenth District-1949-68 Table 1 NG STATES DISTRIBUTIO District Commercial Banks June 1949 Per Cent of District Total District $ 888 1,212 921 983 120 1,125 191 $5,441 16.3 22.3 16.9 18.l 2.2 20.7 3.5 100.0 $ 1,885 2,171 1,845 1,529 425 2,389 378 $10,622 June of Increase 1968 District 1949-68 17.7 20.4 17.4 14.4 4.0 22 .5 3.6 100.0 Rate of Chan2e 1949-60 1960-68 --(Per cent) 1949-68 7.3 6.5 6.0 6.6 (Per cent) (Millions) (Millions) (Millions) Colorado Kansas Missouri* Nebraska New Mexico* Oklahoma* Wyoming 1960 of District Compounded Annual Per Cent Per Cent June $ 3,384 4,015 2,776 2,724 685 4,239 612 18.3 21.8 15.1 14.8 3.7 23 .0 3.3 281.2 231 .l 201.4 177.l 470.2 276.8 219.9 7.1 5.4 6.5 4.1 12.2 7.1 6.4 7.6 8.0 5.2 7.5 6.2 7.4 6.2 $18,435 100.0 238.5 6.3 7.1 5.5 9.6 7.2 6.3 *Tenth District portion on ly. In June 1968, thi s represented 29 p r cont of total deposits of $9,610 million in Mi ssouri; 97 por cent of total depo sits of $4,356 million in Oklohomo ; and 62 p r cent of total deposits of $ 1,103 million in N w Mexico. rate, compared with 2.8 per cent for demand deposits. For the 20-year period ( J949-68), I PC time deposits grew at a n annual rate of 12.0 per cent, while IPC demand deposits advanced at a rate of 2.6 per cent. (See Table 2.) Banks in all District states except New Mexico showed a marked increase in the rate of growth of time deposits during the 1960's compared with the 1950's . The more rapid growth in time and savings deposits during the 1960's was especially evident in Nebraska, where the rate increased from 4.1 per cent in the J 950's to 22.8 per cent during the years 1960 to 1968. The sharp increase in time and savings deposits at Nebraska banks may be attributed to payment of higher interest rates on such deposits and the resultant "catching up effect." During the 1950's, deposit interest rates in Nebraska were considerably lower than the District average and the deposit structure of Nebraska banks showed a considerably smaller proportion of time and savings deposits compared with all commercial banks in the District. However, as Nebraska ba nks began to offer more competitive interest rates during the I 960's, they experienced a rapid growth of time and savi ngs deposits and moved toward a deposit structure more similar to that of the rest of the District. 12 AREA PATTERNS Metropolitan and Nonmetropolitan Areas Deposit growth in the District metropolitan areas has been more rapid than in nonmetropolitan areas. Differential growth was especially pronounced in the 1950's when deposits increased nearly 8 per cent a year in metropolitan areas and lagged elsewhere. During the 1960's, however, deposits grew at about the sa me rate in both metropolitan and nonmetropolitan arcas- 7 per cent a year. (Sec TabJc 3.) This development is somewhat surprisi ng. Relatively higher rates of deposit growth in metropolitan areas may have been expected due to the continued movement of population to urban counties. However, the pace of population growth at District urban centers slowed down in the 1960's, while population increased in nonmetropolitan areas during the 1960's compared with a small decline in the l 950's. Similar developments occurred with regard to income trends, according to available data. Thus, the fact that the pace of deposit growth in metropolitan areas exceeded that in all other areas in the 1950's, but failed to do so in the I960's, is compatible with the income and popul at ion developments . Federal Reserve Bank of Kansas City Deposit Growth in the Tenth District-1949-68 Individual Metropolitan Areas Commercial banks in the District's standard metropolitan statistical a reas (SMSA's) experienced considerably different rates of deposit growth . (See Table 3.) For the 1949-68 period as a whole, gains were most pronounced in the Albuquerq ue, Oklahoma City, and Lawton areas. In Denver, one of the large District metropolitan areas, deposit expan ion was recorded at an annu al rate of 8 per cent . Several other areas, including Colorado Springs, Lincoln, Topeka, and Wichita , also experienced annual growth in total deposits of about 8 to 8.5 per cent. Following at a somewhat slower pace was the Kans.is City area, the largest metropolitan area, toge th er with Omaha and Tulsa . The slowest pace of deposi t expansio n occurred in the Pueblo and St. Jose ph areas. The pattern of deposit growth changed somewh at during the most recent years, the 196068 period. Banks in the Oklahoma City, Colorado Springs, and Lincoln areas enjoyed the most rapid rate of deposit expansion. In the Colorado Springs area, IPC demand deposit increases were substantial, while time and savings deposit growth slipped below the average for all District metropolitan areas. In the Oklahoma ity and Lincoln areas, on the other hand, total deposits received a strong boost from exceptionally rapid growth of time a nd savings deposits. Time and savi ngs deposit growth in the Omaha area was also very rapid but it may have been at the expense of demand deposit expansion. A similar explanation may also be involved in the experience of Tulsa area banks - i.e. , somewhat above average gains in time and savings deposits coupled with a very weak performance of demand deposits. The two largest District metropolitan areas, Kan sas City and Denver, showed relatively similar annual gai ns in l PC time and avings depo its in the years 1960-68 , but Denver area banks experienced sli ghtly greater demand deposit growth. In Topeka, Wichita , and Albuquerque, bank deposits increased at a rate Monthly Review • May 1969 Chart 1 DEPOSIT GROWTH COMMERCIAL BANKS E TENTH DISTRICT, 1949-68 8 i 11 i on s of Do 11 a rs 30.0 Semi-Log Scale 20.0 10 .0 8 .0 '/ 6 .0 ,,,,.,,,,.... --------------------;, Demand Deposits / (IPC) // 4 .0 / / ,,.,,,,,,. 2 .0 ,... _ / / . . Time and Savings Deposits ( IPC) / / 1.0 // .8 .6 ~~~~~__.__~~~~_.___.__...______,'----'----L.----'----'--...L.....I 1949 '52 '56 '60 '64 '68 NOTE : A semi-logarithmic chart emphasizes rates of change rather than absolute changes. For example, the line representing time and savings deposits has a greater slope than that of de mand deposits, showing that time deposits grew faster than demond deposits. so mew hat above the metropolitan area average a nd in the two Kansas areas, time and savings deposit growth also exceeded the average during 1960-68. Expansion continued slow in both deposit categories among banks in the Pueblo and St. Joseph areas. In keeping with longer-term trends, Lawton area banks reported solid gains in total deposit growth during recent years. GROWTH OF TIME DEPOSITS DURING THE 1960'5 The rapid growth in time and savings deposits during the I 960's was associated with increases in the interest rates that banks pay on these deposits. Commercial banks, of course, mu st comply with regulatory ceilings when they 13 Deposit Growth in the Tenth District-1949-68 adjust th e rates they offer on deposits. Federal regulatory agencies, at various times during recent years, raised the maximum rates payable by commercial banks on time and savings depo its. Different ceilings also were established for time deposit and savings deposit . In 1964, the maximum rate payable on time deposit wa rai ed to 4 ½ per cent, and in late 1965 the maximum wa raised again, to 5 ½ per cent. In both in tance , the rate for aving deposits was left unchanged at 4 per cent. These adjustments in maximum rates allowed bank to compete more effectively for the community's avings flows. As a part of this competitive effort, the time certificate or deposit (CD) was employed extensively by banks in the I 960's, and was 4uitc effective, as CD's grew very rapidly. IP tim e deposits (which are mostly D 's) advanced at an annual rate of 33.8 per cent in the 1963-68 period, while savings deposits increased 3.6 per cent a year. (See Table 4.) It is clear that part of the advance in CD's came at the expense of a reduction in the growth of savings deposits. Thus, the growth of time deposits vis-a-vis saving deposits was especially pronounced in the 1965-68 period, foll wing the action of the Federal Re erve allowing banks to pay more on time than on savings deposits. This was dramatically evident in 1966. For the year ending June l 966, IPC time deposits increased 43.2 per cent in the Di trict while savings deposits advanced less than l per cent. In 1964-65, however, CD's had advanced only 19.9 per cent, compared with I 0.6 per cent for saving depo its. The use of the CD was evident in another area- time depo its of tate and local governments , as the e depo itors shifted their idle balances into CD's. Time accounts of state and local governments advanced at a 19.3 per cent rate in the 1963-68 period, compared with only 2.1 per cent for their demand accounts. Time deposits 1 rew more rapidly than savings deposits in each of th' metropolitan areas in the I 960's; however, the extent to which thL occurred varied con iderably. (Table 4.) In most cases, thos areas having relatively rapid CD growth had relatively low savings deposit growth. Thus, banks in the Tulsa, Topeka, and Wichita areas led the District in IPC time deposit growth , but had relatively small advances in savings accounts. Lincoln banks were exceptions, having rapid growth in both time and savings deposits. Following the general pattern, in areas such a Albuquerque, olorado Table 2 Individuals, Partnerships, and Corporations, District Commercial Banks IPC Time and Savings Deposits IPC Demand Deeosits Compounded Annual Rate of Chan~e Amount June 1949 Compounded Annual Rate of Chan2e Amount June 1960 1968 1949-60 (In millions of dollars) 1960-68 1949-68 (In per cent) 1949 1960 1968 1949-60 (In millions of dollars) Colorado Kansas Missouri* Nebraska New Mexico* Oklahoma* Wyoming 220 162 155 139 32 114 46 523 472 351 216 112 463 114 1,457 1,624 1,043 1,118 262 1,644 304 8.2 10.2 7.7 4.1 12.0 13.6 8.7 13.7 16.7 14.6 22.8 11.2 17.2 13.0 10.5 12.9 10.6 11.6 11.6 15.1 10.5 Total District 868 2,252 7,452 9.1 16.1 12.0 667 1,050 766 146 1,032 1,168 1,006 989 211 1,414 191 1,372 1,494 1,186 1,190 272 1,778 210 4.0 1.0 2.5 1.4 8.3 3.1 2.5 4,573 6,010 7,503 2.5 845 88 1,010 1960-68 3.6 3.1 2.1 2.3 3.3 3.9 1.2 1.9 2.3 1.8 6.1 3.0 1.9 2.8 2.6 2.9 *Tenth District portion only. 14 1949-68 (In per cent) Federal Reserve Bank of Kansa'> City Deposit Growth in the Tenth District-1949-68 Table 3 District Commercial Banks, Compounded Annual Rate 1949-60 1949-68 Total Deposits IPC Demand Deposits IPC Time and Savings Deposits Total Deposits (In per cent) Albuqu erque Colorado Springs Denver Kansas City Lawton Lincoln Oklahoma City Omaha Pueblo St. Joseph Topeka Tulsa Wichita 10.4 8.3 8.0 6.8 9.8 8.2 9.4 6.4 5.5 5.4 8.5 6.9 8 .1 7.0 5.0 4 .6 2.9 5.6 3.7 4.2 3.0 2.7 2.3 3.8 2.8 3.5 IPC Demand Deposits 1960-68 IPC Time and Savings Deposits Total Deposits (In per cent) 11.9 12.1 10.8 10.6 17.7 13 .3 16.2 10.3 6.5 7.2 12.0 14.6 15.7 12.5 7.5 8.1 7.5 10.6 7.7 9.2 6.5 6.2 5.7 8.9 7.9 8.2 9.8 4.5 5.1 3.1 6.2 3.2 4.0 3.4 3.9 2.2 3.8 4.6 3.3 IPC Demand Deposits IPC Time and Savings Deposits (In per cent) 11.1 10.2 8.4 7.8 19.2 2.9 12.9 1.7 5.4 6.2 6.7 12.8 12.4 7.6 9.4 7.8 5 .7 8.8 9.0 9.6 6 .3 4.5 5 .0 8.0 5.6 7.9 3.3 5.7 3.9 2.5 4.9 4.3 4.6 2.4 1.1 2.3 3.7 .4 3.8 13.0 14.8 14.1 14.6 15.7 29.3 20.8 23.2 7 .9 8.6 19.8 17.2 20.2 Total SMSA's 7.6 3.6 11.7 7.9 4.1 8.5 7.1 3.0 16.2 Total Non-SMSA's 5.5 1.6 12.4 4.3 .8 9.8 7.2 2.6 16.0 NOTE : Data pertain to standard metropolitan statistical areas as defined in the County and City Data Book, 1967, U. S. Department of Commerce. Pottawattamie County, Iowa, is not included in the Omaha SMSA. Springs, and Pueblo, large advances in savings deposits were accompanied by small gains in JPC time deposits. In other cases, such a St. Joseph, both time and savi ngs deposits were sluggish. It is interesting, however, that total time and savings deposits grew rapidly only in those areas that experienced rapid CD growth. Similar patterns are evident in movements in time deposits of states and political subdivisions relative to changes in the demand accounts of these depositors. Thus, state and local government increased their time deposits quite rapidly in Lawton, Topeka, Oklahoma City, and Omaha . In eac h of these cases, except Omaha , the demand accounts of these depositors declined, or advanced at a slow pace. Time deposits of sta te and local gove rnments declined in Lincoln and recorded sluggish growth in Denver, Albuquerque, and Pueblo, Monthly Review • May 1969 while demand deposits increased sharply in each of these areas except Denver. The pattern of grow th in saving deposits and time deposits was different at metropolitan areas and nonmetropolitan area in the 196368 period. Savings deposits increa ed more rapidly in nonmetropolitan areas, while time deposits advanced at a faster pace in metropolitan areas. Another difference is that fluctuations in deposit growth rates were considerably more pronounced at SMSA banks than at nonSMSA banks . For example, during the 196566 period , sa vings deposit at metropolitan banks declined 1.3 per cent, compared with a I 2.0 per cent grow th in 1964-65, while these accounts continued to grow at non-SMSA banks, although at a reduced rate. On the other hand, the growth of time deposits in 1965-66 increased much more at metropolitan banks. 15 Deposit Growth in the Tenth District-1949-68 Table 4 CATEGORIES CHANGES IN D District Commercial Banks, Compounded Annual Rate Time and Savings Deeosits Demand Deeosits Total Deeosits (In per cent) Albuquerque Colorado Springs Denver Kansas City Lawton Lincoln Oklahoma City Omaha Pueblo St. Joseph Topeka Tulsa Wichita Total SMSA's IPC Demand Deeosits States and Political Subdivisions Inte rbank IPC Time and Savings IPC Time Savings States and Political Subdivisions (In per cent) (In per cent) 6.6 8.4 7.1 5.7 10.6 10.7 7.2 6.9 3.0 5.8 7.3 7.2 8 .5 4.8 5.6 4.9 3.8 7.6 5.2 3.1 3.5 .7 2.8 6.0 2.8 4.6 12.5 .8 - 1.0 5.0 - 3.8 2.9 - .3 11 .l 6.8 1.9 - .7 .8 .2 7.5 15.0 2.7 -1.3 18.3 7.8 2.4 3.9 - 4.5 3.6 .5 - 3.2 1.6 9.7 13.3 10.9 12.3 15.1 26.7 15.7 17.2 6.8 10.1 16.4 16.1 20.4 5.8 9.6 2.6 2.8 2.5 8.9 6.5 2.3 5.7 1.9 - 1.6 1.4 4.7 27.5 20.1 35.8 40.3 25.4 41.6 28.6 34.7 13.2 15.1 50.6 52 .2 54.9 6 .9 4.0 2.2 1.0 13.7 3.4 36.4 J..7 11.5 10.2 28.9 90.0 -7.3 42.5 265.4 4,6 17.3 64.7 63.1 40.5 22.2 Total Non -SMSA's 7.0 2.6 2.1 2.9 15.1 3.9 31.1 16.2 Total District 6.9 3.4 2.1 1.2 14.3 3.6 33.8 19.3 NOTE : Data pertain to standard metropolitan statist ical areas as defined in the County and City Data Book, 1967, U. S. Department of Commerce. Pottawattamie County, Iowa, is not included in the Omaha SMSA . Prior to 1963, data were not available showing deposit categories other than IPC. Both IPC time deposits and time deposits of states and political subdivisions are primarily certificates of deposit. SUMMARY Commercial banks in the Tenth District experienced more rapid growth in total deposits than banks across the Nation during the 194968 period. J n the 1960's, District banks recorded higher rates of deposit expansion than during the 1950's, due largely to a more rapid 16 growth of time and savings deposits. This growth was associated with increased competition for funds, upward movements in deposit interest rates, and with shifts by depositors into time deposits (CD's) and away from savings accounts and, to a lesser extent, demand deposits. These adjustments were in keeping with trends across the Nation. Federal Reserve Bank of Kansas City
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