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n^eiùew FEDERAL RESERVE BANK April 1956 OF SAN FRANCISCO Review of Business Conditions..............42 Postwar Developments in Personal S a v i n g ............................................... 43 District Crop Production P la n s ..............47 Series E Bonds A n n iv e r s a ry ................. 51 ;W OF c o n o m ic BUSINESS CONDITIONS activity in the nation continued al most unchanged in March, but portents of a E renewed rise appeared in a number of areas. In dustrial production and nonagricultural employ m ent slipped a bit and new construction rose only slightly from the January-February level. However, a record volume of construction con tract awards and a strong recovery in retail sales which continued into early April added to the potential pressures already present in a period of practically full employment and substantially full use of productive capacity. These develop ments were accompanied by a strong demand for funds in the money and capital markets, a re covery of farm prices, and further price increases for industrial commodities. Consideration of the over-all situation led to a rise in the discount rates of Federal Reserve Banks in mid-April. In the Twelfth District activity appeared even more vigorous. Prelim inary data suggest a con tinued rise in employment and output in March, expanding construction activity, and rising re tail sales. To some extent weather restrained the expansion in March, but reports indicate a more rapid rise in early April. Credit demands in the District, as measured by bank lending, have risen much more rapidly than in the nation. D ur ing the first quarter, borrowing at weekly report ing member banks in the District accounted for almost one-third of the rise in loans nationally. This is a much greater increase than would be expected from the proportion of loans of all weekly reporting banks held in the District, which is 19 percent. District employment gains w idespread Employment in the District rose in M arch at a rate about one-third of that recorded in Feb ruary, according to preliminary reports. (Final February figures, unadjusted for seasonal varia tion, indicated a sharp upsw ing: the number of people at work increased 0.6 percent, a substan tial gain for a one-month period.) Severe weather in some parts of the District, particu larly the Pacific Northwest, restrained employ ment growth. Increases in construction, lumber, food processing, and transportation employment 42 in Oregon and W ashington were smaller than expected seasonally. Generally, however, nonagricultural jobs rose more than seasonally, with most m ajor industry groups reporting moderate gains after seasonal adjustment. The rise in total manufacturing em ployment was below the average for the m ajor nonfarm segments. Better than average increases were reported for construction, trade, finance, and government on a District-wide basis. A num ber of manufacturing industries reported good gains, including the aircraft, ordnance, metals, and chemical lines. Two developments in the automobile industry, one with immediate impact and one with longerrun implications, attracted considerable atten tion. The first large layoff of the year, affecting 1,400 out of 5,400 workers at a plant in Los A n geles, was announced in late March. E arly in April General M otors announced the selection of a site at Sunnyvale, California, in the vicinity of San Jose, for a m ajor assembly plant. Construction outlook continues strong M arch authorizations for new construction in the Twelfth District were almost equal to last year's record volume. Residential units author ized fell almost 20 percent below the M arch 1955 number, but the dollar volume dropped only about 10 percent. However, the decline in the dollar value of residential authorizations was al most fully offset by increases in nonresidential building. Allowing for the more severe weather this M arch than last, this record is quite fav orable. Recent announcements of new plants and ex pansions also point to continued vigor in the building industry. In addition to the General M otors plant mentioned earlier, announcements of expansion in steel highlight future prospects. Kaiser Steel Corporation plans expenditures of $113 million for finishing facilities which will in crease the Fontana mill's finished product ca pacity about 50 percent. Columbia-Geneva Steel Division of United States Steel had previously announced plans to expand its Pittsburg, Cali fornia works into a fully integrated operation. MONTHLY REVIEW April 1956 District retail sales increased Retail sales in the District appear to have risen in M arch after seasonal adjustment. The season ally adjusted M arch index of department store sales was 128, a rise of 4 points over February. Prelim inary reports on automobile sales, how ever, suggest that new car sales rose less than seasonally and were below last year’s very high volume. Used cars, on the other hand, seemed to be moving briskly. E aster sales at department stores were at about the same level as last year. In view of the earlier E aster date and severe weather in parts of the District this is an impressive record, but there was considerable divergency among areas. Sales in the Los Angeles area declined substan tially from a year ago, and weakness was also ap parent in Portland, Spokane, and Salt Lake City. Increases over last year were reported for the metropolitan areas of San Diego, San FranciscoOakland, Seattle, and Tacoma. Bank loans rise sharply In M arch and early April loans by Twelfth District weekly reporting member banks turned up sharply. Lending by banks in this District had declined slightly after the turn of the year and increased substantially in February. The up swing between the end of February and the first week in April brought total loans outstanding to a level 3 percent above that at the end of 1955. M ost of the $300 million increase in the first 14 weeks of the year resulted from unusually heavy borrowings by commercial and industrial business and a sharp rise in real estate loans. Commercial, industrial, and agricultural loans increased by $95 million between December 28, 1955 and April 4,1956. In the comparable period a year ago they declined about $40 million. More than half the rise centered in loans which the banks report by industry classification (prim a rily larger loans). Except for the food industry, all manufacturing lines increased their borrow ing. Public utilities increased their borrowings more than any other m ajor category. Food man ufacturers and commodity dealers reduced their borrowing by much smaller amounts than they did a year ago, thereby failing to provide as much seasonal offset as might be expected to increases in other lines. Sales finance companies, which were stepping up their borrowing a year ago, have made net repayments so far this year. To finance the increase in lending and com pensate for the normal seasonal loss in non-Government demand deposits, weekly reporting banks in this District have reduced their hold ings of United States Government obligations and other securities by almost $600 million so far this year. Redeposits in weekly reporting banks by the United States Treasury of more than $100 million in funds obtained during the tax collection period also provided funds to finance the loan expansion and deposit drain. Pressures on banks were so great, however, that despite continued borrowing from this bank, re serves declined by $100 million in excess of the drop in reserve requirements resulting from the deposit loss. Postw ar Developments in Personal Sa vin g u r in g the 1954-55 revival and boom in busi ness activity, the proportion of their aggre D gate incomes which individuals saved dropped to 5.9 percent from a late-1953 high of 8.4 per cent, then rose, in the last quarter of 1955, to 7 percent. Changes such as these in the saving ratio attract considerable attention from ana lysts of economic developments. One reason is that this ratio is often viewed as one indicator of consumer attitudes toward spending ; changes in these attitudes have important effects on eco nomic activity. Another reason is that this ratio indicates the proportion of consumer income that is available to finance investment. Savers finance investment in many ways. They can finance it directly: examples are an individ ual using his savings to make a down payment on a house, a business using its retained earnings to purchase new equipment, an individual buy ing securities of firms or governments. They can 43 FEDERAL RESERVE BANK OF SAN F R A N C IS C O C hart 1 RATIO OF PERSONAL SAVI NG TO PERSONAL D I S POS AB L E I NC OME Source: U nited States D epartm ent of Commerce. finance it indirectly, by making their savings available to financial intermediaries such as banks, insurance companies, and savings and loan associations which in turn lend funds to firms planning expansion and to people plan ning to build or buy houses. Saving in the form of increasing cash holdings does not finance in vestment, but, like the other types of saving, it frees resources for use in producing investment goods. Because saving, in the sense of refraining from consumption, is essential for the accumulation of capital goods, the relationship of planned saving to planned investment is crucial. W hen plans to save exceed plans to invest, economic activity tends to be depressed; when planned investment exceeds planned saving, economic activity tends to ex pand; when plans for both are in balance, the economy tends to remain stable. The flow of saving in our economy can come from three main sources: corporations, govern m ent (when receipts exceed expenditures), and individuals. Individuals are the most im portant of the th re e ; personal saving has accounted for somewhat more than half of gross national sav ing in the past ten years. The remainder of this article will discuss trends in personal saving since W orld W ar II, the forms which this sav ing has taken, and the relationship of personal saving to personal tangible investment. 44 Personal saving is volatile Consumer saving is typically volatile. Con sumers make decisions to consume, invest, and save based on changing needs, income, and ex pectations. Most frequently, however, consum ers focus their attention on spending decisions. Consequently, saving plans have a substantial de gree of flexibility except for those savings which are based on a contract, such as savings in life insurance. A sharp upswing in consumption such as followed W orld W ar II or the outbreak of hostilities in Korea is promptly reflected in a de cline in the proportion of personal income which is saved. Chart 1 shows the ratio of personal saving to personal disposable income (both adjusted for seasonal variation) by quarters from 1946 through 1955. The most evident factor is the er ratic nature of the ratio. To some extent the sharp variations may be due to statistical prob lems. Furtherm ore, since saving is a small re sidual relative to total personal disposable in come, a relatively small or even statistically in significant percentage change in consumer spending or total income can cause a large and apparently significant percentage change in sav ing. However, independent estimates of personal saving all confirm the indication that the savingincome ratio is subject to considerable variation. It is interesting to note the behavior of saving in two postwar periods of recession. In the 194849 decline of business, the saving ratio fell off substantially. A small decline in personal dispos able income was accompanied by a sharper drop in saving. During much of the period consumers tended to expand their consumption at the ex pense of saving. The still pressing demand cre ated by wartime backlogs was an im portant fac tor in that period. As a contrast we may look at the 1953-54 re cession. Income was well maintained or even in creasing throughout the period. Saving rose rel ative to income in the early stages of the reces sion and slipped slightly in the phase preceding the general upswing in activity. In general, the saving level was much better maintained than in 1948-49. The decline in the saving ratio toward the end of the recession, as consumption rose more rapidly than income, indicates the impor April 1956 MONTHLY REVIEW tance of aggressive consumer decisions in the re covery. Saying a higher proportion of personal income in recent years About 65 percent of postwar personal saving took place in the period from 1951 through 1955. During these years saving barely fell below 6 per cent of disposable income in any quarter and ex ceeded 9 percent in one quarter. F o r the period as a whole, saving averaged 7 percent. On the other hand, the saving ratio in the period from 1946 through 1950 was usually much lower. From a high of more than 10 percent of income in the first quarter of 1946, saving fell almost to the vanishing point in m id-1947 and was fre quently below 5 percent. The average for those years was 5 percent. Consumption rose very sharply in the early postwar years, even expanding in several quar ters when income fell. Demands were intense after W orld W ar I I ; consumers had a large vol ume of liquid assets, frequently favorable ex pectations, and easy access to credit. The saving ratio declined to levels much lower than fore casters of depression had anticipated. Consumer spending was thus a more strongly expansionary force in the early postwar period than in the last five years as a whole. Liquid saving and consumer debt important factors in saving fluctuation Personal saving, as shown in the national in come accounts prepared quarterly by the De partm ent of Commerce, is simply the amount by which the disposable income of individuals ex ceeds their expenditures for consumption. In or der to demonstrate the forms which this saving takes — how much of it goes into each of va rious channels such as cash holdings, housing, insurance, and liquidation of debt—the Securi ties and Exchange Commission makes yearly es timates of personal saving by components, based on a balance sheet for the personal sector.1 1The SEC estimate is usually not identical in amount with the De partm ent of Commerce figure, owing to various statistical inade quacies. An “ errors and omissions” item is therefore included in the SEC estimate in order to reconcile it with the D epartm ent of Com merce estimate. All available saving estimates are subject to error, and the “ errors and omissions” figure is not an adequate measure of the degree of error. The data presented in this article should therefore be read as being suggestive of trends rather than as pre cise measures. C hart 2 C OM P OSITIO N OF P E R S O N A L SAVING BILLIO N S IS CASH S SECUR ITIES PRIVATE INSURANCE 8 PENSIONS 1 I INCREASE IN CONSUMER O EBT E Q U ITY IN REAL ESTATE E Q U ITY IN NONCORPORATE ENTERPRISES ERRORS a OMISSIONS TO TA L PERSONAL SAVING 1946 THROUGH 1950 I -3 0 0 *30 I | 1951 THROUGH 1955 ♦6 0 490 *\Z0 Source: United States Departm ent of Commerce. Chart 2 shows these estimates of changes in personal saving and its components for the two periods 1946 through 1950 and 1951 through 1955. The chart does not explicitly show esti mates of changes in mortgage debt and debt of unincorporated businesses and farms. Instead, changes in these liabilities are netted against changes in the corresponding assets (respec tively, one- to four-family nonfarm dwellings and assets of noncorporate business including farm s) so that personal saving in these forms is shown as the change in net equity. Saving in the form of accumulation of cash (currency and deposits), Government and pri vate securities, and savings and loan association shares accounts for more than 70 percent of total personal saving in the postwar period. Chart 2 illustrates the much larger accumulation of these more or less liquid assets in the period 1951-55 compared with the prior five years. Furtherm ore, a somewhat larger proportion of total personal saving, 75 percent in 1951-55 com pared with 69 percent in 1946-50, was in the form of cash and securities. The personal sector tended to accumulate these liquid claims against the rest of the economy at a more rapid rate in recent years than in the early postwar years. The rate at which persons accumulate liquid claims has been very unstable, however, and its variations account for a large part of the erratic swings in saving noted earlier. It is not surpris 45 FEDERAL RESERVE BANK OF SAN F R A N C IS C O ing that saving in the form of money or assets readily convertible into money should be un stable. Consumers' decisions to change personal consumption or investment in tangible assets in evitably have an immediate impact on their liquid savings. A nother element which has contributed to the instability of saving is consumer debt—the financ ing of consumption from borrowed funds rather than out of income. As the personal sector ex pands its consumer debt, net saving is reduced. Though dissaving by means of borrowing for consumption has not been as erratic as liquid saving, it has varied rather sharply in a number of postwar years. Large changes in consumer debt have been evident in years when consumers have been increasing their consumption by more than their increase in income. Saving through private insurance, an impor tant sector as is apparent from Chart 2, is exceed ingly stable compared with either of the forego ing components. Saving in this form is usually based on a contract and is subject to much less variation than the more discretionary forms of asset accumulation. There has been a moderate but steady growth of contractual saving in the postwar period as expanding income has been devoted in part to increasing insurance coverage. Equities in noncorporate business decline It should be noted that developments in per sonal saving reflect the decisions of individuals as farm ers and owners of nonincorporated busi nesses as well as their behavior as consumers. Equities in noncorporate business, including farms, have declined in the postwar period ac cording to estimates by the Department of Com merce. This reflects in part the fact that farm in vestment has generally been smaller than depre ciation allowances. Available data also suggest that noncorporate nonfarm business owners may have made withdrawals from their enterprises in excess of net earnings. Such decreases in equity, like increases in debt, constitute dissav ing. However, the possibility should not be dis missed that the substantial difficulties involved in identifying, measuring, and valuing personal assets devoted to noncorporate business may have led to a statistical bias in the estimates of this segment of personal saving. 46 C hart 3 20 NET CHANGES IN C LA I MS OF THE PERSONAL SECTOR 0 IN C R EA SE IN CLAIMS | | D E C R E A SE IN CLAIMS 0 1947 1949 1951 1953 1955 Source: U nited States Departm ent of Commerce. Note: The estimates used in this chart are those of the Securities and Exchange Commission, not including the “ errors and omissions” item used to reconcile this saving estimate with that of the D epart ment of Commerce. For the period covered, the average annual dif ference between these two estimates is about $2 billion. Though small relative to total saving, the equity of individuals in residential real estate is an important segment. Housing and noncorpo rate business (including farm s) represent the principal forms of tangible investment by indi viduals. (Automobiles and other consumer d u r ables are classified as consumption goods rather than as tangible investment.) Gross investment in new housing by consumers has been a m ajor form of consumer investment, less than 10 per cent smaller than accumulation of cash and se curities. Consumer purchases of new homes have been a highly im portant element in the de mand for tangible investment by the economy as a whole. Simultaneously, however, consumers dissaved in an amount constituting a high pro portion of their gross investment in housing by increasing their mortgage debt. N et saving in the form of equities in nonbusiness nonfarm real estate has therefore been held to a relatively small amount, and the effect of the high ratio of debt financing intensified upward pressure not only on economic activity but on prices as well in a number of years. Investment by the noncorporate sector e xcee d e d personal saving during half of the postwar years Among the three m ajor sectors of the economy — personal, corporate, and government — the MONTHLY REVIEW April 1956 personal sector has been the most important source of saving during the postwar years; it accounted for somewhat more than half of gross national saving for the ten years 1946-55. H ow ever, during half of the postwar years, individ uals spent more on consumption and investment goods than they received in income after ta x e s; in other words, their tangible investment ex ceeded their saving during half of these years. This difference between saving and investment is reflected in the decrease in net claims shown in Chart 3. Net claims of the personal sector con sist of individuals’ holdings of currency, de posits, securities, and insurance, less consumer, mortgage, and unincorporated business (includ ing farm ) debt. Chart 3 also indicates that, except for 1955, the past five years have been marked by an ex cess of personal saving over personal investment. Thus, on balance, the personal sector from 1951 through 1954 made funds available— directly or through financial intermediaries—to the nonper sonal sectors of the economy, thereby accumu lating claims against those sectors. In contrast, the private noncorporate sector absorbed funds from the other sectors of the economy, on bal ance, during the years 1947 through 1950. Two im portant facts stand out from this an alysis of personal saving in the postwar period. F irst is the strong shift to greater saving in more recent years. Second is the apparently greater saving than investment in the personal sector from 1951 through 1954, compared with greater investment than saving in the first part of the postwar period. Immediately after W orld W ar II, the personal sector tended to generate strong inflationary forces. High consumption and investment rela tive to income constituted one aspect of this process. Debt played a much larger part in financ ing personal tangible investment than did con sumer saving so that the personal sector was a net borrower of funds. Such borrowing, since it creates a demand for new money or increases the turnover of existing funds, played a strong role in building up inflationary pressures. From 1951 through 1954, however, the per sonal sector saved more than it invested, thus freeing funds for use by the rest of the economy. This process acted as an offset to the growing demand for funds by government and business in most years since 1950 and probably contrib uted to the relatively stable price behavior which appears after 1950. The reversal of this pattern in 1955 reinforced the upswing in economic ac tivity and may have been responsible, to some extent, for the rise in industrial prices in the latter part of the year. In the second half of 1955 there appears to have been a new rise in per sonal saving. If this rise continues and is not ac companied by a rise in personal tangible invest ment, it may help to offset some of the pressures currently being generated by the record level of business investment in new plant and equipment and by the continued high level of spending by Federal, state and local governments. District Crop Production Plans farmers intend to devote fewer acres to the production of field crops in 1956 than they did in 1955, according to the prospective planting report recently issued by the Depart ment of Agriculture. The report indicated that national acreage also was expected to decline. Acreage alloted to production of fresh vegetables in the District is expected to be about the same as in 1955, while District farmers plan an ex pansion in processing vegetable acreage. Each year, prior to planting time, the D epart ment of Agriculture publishes estimates of the is t r ic t D acreage that will be planted to 16 m ajor spring field crops. These estimates are based upon re ports from farmers as to their crop production plans for the forthcoming crop season and are provided by the Department of Agriculture as guides for individual farmers in making final production plans. In addition to the 16 crops covered in the planting intentions report, the Department of Agriculture issued a national acreage estimate covering 59 field crops. This estimate also points to a reduction in field crop acreage this year. If 47 FEDERAL RESERVE BANK OF SAN F R A N C IS C O this expectation is realized, the planted acreage of these crops will be the smallest since 1942. No D istrict estimate is available for these crops at this time. T he influence of these early planting estimates may be overshadowed by changes in agricultural legislation in the ultimate planting decisions of farmers. The early estimates of prospective plantings in 1956 undoubtedly would be differ ent if subsequent modifications in agricultural legislation had then been known by farmers. W ith continuing uncertainty as to the farm pro gram, substantial modification in planting in tentions may be expected to show up in subse quent reports. Along with acreage, moisture supplies re ceived during the winter will affect the volume of field crop production in the District. The sup plies received during this past winter were gen erally heavier than usual except in the southern section of the District. Rain was extremely heavy in some sections, causing flood damage to agricultural land in northern California and southern Oregon. Adequate supplies of water for irrigation purposes seem assured except in southern U tah where the runoff from the snow pack is expected to be below normal. Although there are some uncertainties con cerning the price support program that will be in effect for field crops in 1956, acreage controls and marketing quotas will probably continue in effect for the D istrict’s two principal food grain crops. These controls were accepted by wheat growers beginning with the 1954 crop, and by rice growers beginning with last year’s crop. As a result, District growers have devoted more acreage to the production of other types of field crops. The extent of the shift among the crops specified in Table 1 is indicated in Chart 1. Since 1953 more than 3 million acres of District wheat and rice acreage has been diverted to other field crops, principally feed grains. Little reduction in a crea g e planned for fo o d grains Despite mounting stocks of wheat, District farmers plan to plant more acreage to this crop than they did last year. On the other hand, a substantial reduction in rice acreage is in pros pect. These acreage shifts by District farmers are similar to those of the nation’s farmers. The expansion of wheat acreage in the Dis trict is expected to come from increased plant ings of spring wheat, whereas the rise in wheat acreage nationally is expected to stem primarily from larger plantings of winter wheat. Contrib uting to the anticipated increase in District spring wheat acreage was the freeze damage to fall planted wheat, particularly in Oregon but T able 1 C ro p A c r e a g e a s I n d ic a te d b y F a r m e r s o n M a r c h T w e lf t h D is tr ic t a n d U n ite d S ta te s 1, 1956 Indicated acreage -----------1956----------- Twelfth District B arley .................. B eans, d ry edible C orn ....................... F la x s e e d ................ H a y , a l l ................ O ats ....................... Peas, dry field . . P o tato es, all1 . . . P o tato es, early P o tato es, late . R ice ....................... R ye2 ....................... S o r g h u m s .............. Sw eet p o tato es . . S u g ar b e ets . . . . . W h ea t, a l l ............ W h ea t, sp rin g . W h ea t, w inter2 United States (in thousands of acres) 1 4 ,7 7 3 4 ,3 9 0 479 1 ,5 3 5 430 7 8 ,6 8 6 53 5 ,4 6 5 6 ,3 8 1 7 4 ,3 0 5 4 6 ,0 6 3 1 ,5 4 4 377 339 386 1 ,3 9 4 233 67 319 1 ,0 6 5 289 1 ,5 9 7 257 4 ,6 4 6 3 93 2 4 ,1 9 8 32 3 13 334 829 5 7 ,7 8 7 5 ,0 8 3 942 1 2 ,5 8 4 4 ,1 4 1 4 5 ,2 0 3 2 0 ,3 7 1 3 1 1 ,9 7 8 Percent change from 1955--------- x Twelfth United District States ,--------- 1956 — — — — + + + — — + — — + 3.6 8 .6 11 .4 1 5.9 3.3 3.6 1 6.9 0.3 1 0.7 1.9 1 4 .0 0.4 4 .5 + ’ + + — — 2.5 0 .4 5.7 0 .8 1.3 — 8.3 — 7.5 — 3.6 + 5.3 + 0 .4 — 4.1 + 16 .0 — 4 .0 — 9 .0 — 2 .8 — 13.3 — 7.7 + 0 .4 — 11.3 + 3.9 + 1.6 + 0 .9 + 1.8 — 1.7 Percent change r - 1956 from 1945-54 average-^ Twelfth District United States + 3 7 .0 — 4 .0 + 8 5 .3 — 5 3 .5 + 5.5 + 0 .7 + 5.9 + 7 .2 — 9.5 + 1 1.5 — 9.1 — 2 0 .4 + 1 0 9 .0 + 1 8 .2 + 2 .5 — 2 2 .2 — 3 7 .8 — 1 7 .4 + 2 .0 + 2 6 .1 — 8 .4 — 7 .2 + 2 5 .1 + 0 .6 + 4 .0 + 2 .2 — 2 5 .0 — 3 2 .3 — 2 1 .5 — 15 .7 + 2 7 .9 + 6 8 .2 — 3 0 .7 — 2.1 — 2 0 .2 — 2 8 .2 — 4 7 .7 — 1.5 *For United States, this includes potatoes in “ interm ediate” states in addition to those in “ early” and “ late” states. 2 Based on December 1 estimates. Source: United States D epartm ent of Agriculture, Agricultural M arketing Service, Crop Production, M arch 16, 1956. 48 MONTHLY REVIEW April 1956 C hart 1 D I S T R I B U T I O N OF A C R E A G E AMO NG S P E C I F I E D CROPS TW ELFTH D ISTR IC T 1953 AND 1956 1953 1956 FOOD GRAINS 28% 39% o ÆL 33% Varied a crea g e changes anticipated for other field crops FEE D GRAINS 24% 31% HAY 30% OTHER Ä IT H T T h t it 1M B 7% 8% Source: United States D epartm ent of Agriculture, Agricultural M ar keting Service, Crop Production. also to some extent in W ashington. Spring wheat is an alternative crop for winter wheat in this area and, with the freeze damage to the win ter wheat crop, farmers plan to reseed a portion of this acreage to spring wheat. The reduction in District1 rice acreage ex pected this year is the second annual decline in acreage following grower acceptance of acreage controls beginning with the 1955 crop. The 47 thousand acre reduction planned for 1956 seems substantial but is not as large as the cut in acre age from 1954 to 1955. W ith the anticipated re duction this year, District rice acreage has been cut almost in half since 1954 with a total reduc tion of 227 thousand acres. Sch ed u led cut in feed grain acreage The immediate response of District farmers to acreage controls on wheat in 1954 was to in crease substantially the acreage devoted to the production of feed grains. W ith the addition of more stringent controls on wheat acreage and the use of acreage controls on rice in 1955, feed grain acreage continued to expand last year. This year the reduction of food grain acreage in the D istrict is expected to be small and confined 1 Commercial production of rice in the D istrict is confined to the state of California. to rice which is produced only in California. From past experience a further rise in feed grain acreage could be expected to accompany the de cline in food grain acreage. However, District farmers plan to reduce their feed grain acreage. California feed grain acreage is expected to be slightly larger than in 1955 but the gain is not as great as the decrease in rice acreage. F or the District as a whole acreage reductions are sched uled for barley and corn and increases are indi cated for grain sorghums and oats. Among the other field crops included in the March 1 report, District farmers plan sizable in creases in acreage for hay and dry field peas, moderate increases for sugar beets and reduc tions for dry beans and flaxseed. The reduction in flaxseed acreage is a continuation of a down ward trend in acreage for this crop. Of all crops included in the M arch 1 report, more acreage is devoted to the production of hay than any other individual crop. Small percent age changes in hay acreage, therefore, represent acreage changes of considerable magnitude. Forty percent of the 200 thousand acre increase in hay acreage anticipated in the District is ex pected to occur in California. This comparatively large rise in California hay acreage undoubtedly stems from more stringent acreage controls on rice and is expected to come solely through in creased acreage for grain hay production as con trasted to alfalfa and prairie hay. The sizable in crease in grain hay acreage may partially ex plain why little increase in feed grain acreage resulted from the additional acreage controls on rice. The increase in D istrict dry field pea acreage is confined to a fairly limited area in eastern W ashington and northern Idaho. This crop plays an im portant part in the crop production pattern in this predominantly wheat-producing area. This year farmers in these two states in tend to increase their plantings of wheat as well as of dry edible peas. These larger plantings will evidently be made possible by cutting barley acreage. W ith the increasing livestock population in the District, pasture conditions in addition to feed 49 FEDERAL RESERVE BANK OF SAN F R A N C IS C O grain production take on added significance. Dis trict pastures on April 1 were generally in some what better condition than on the same date a year ago but were below average conditions dur ing the ten-year period 1945-54. In spite of ample winter moisture, pasture improvement in California was held back because of dry weather in M arch, and cool weather has impeded the growth of pastures in W ashington. Little change in vegetable acreage In addition to estimates of field crop acreage, District planting indications are available for a number of truck crops intended for fresh and processing markets. Extensive acreage changes from a year ago are in prospect for individual fresh vegetables, but the change in total acreage apparently will be small. A rise in plantings of winter vegetables was indicated by early estimates, with lettuce ac counting for the bulk of the increase. O ther win ter vegetables, except carrots, were also ex pected to show a rise in acreage. In the last few years certain crops have gained in the favor of District producers of winter vegetables. In com parison to the average acreage during the 194954 period, more acres are planned for such crops as lettuce and celery while the popularity of car rot, spinach, and cauliflower production has de clined noticeably. Tending to offset the increase over last year in plantings of winter vegetables is the prospec tive decline in spring vegetable acreage. W hereas the winter lettuce acreage was slated to increase, a drop in acreage is planned for the spring let tuce crop. Reduced acreage is also in prospect for carrots, cauliflower, onions, peas, broccoli, and cantaloupes. A sizable rise is in prospect for watermelons but few other crops are expected to show increases in acreage. Behind a small over all increase in straw berry acreage lies a drastic shift within the D istrict in the production of this crop. Historically the Pacific Northwest has been considered the m ajor producer of this product, but acreage in California has been expanding rapidly in recent years. Damage from freezing during this past winter drastically reduced straw berry acreage in W ashington. The rise in acreage planned by California farm ers is suffi- 50 T able 2 P r o s p e c t iv e P l a n t i n g s o f S e l e c t e d T r u c k C r o p s f o r F r e s h a n d P r o c e s s in g M a r k e t s T w e l f t h D is t r ic t Percent change ,---------1956 from-------- v Indicated 1949-54 F re s h acreage 1955 average * W in te r (1955-56) . . . . , 319,620 + 3 — 33 550 + 10 B r o c c o li....................... Cabbage ....................... 5,000 +28 + 2 — 40 7,600 — 17 — 77 230 + 10 + 10 Celery ......................... 4,260 + 13 L e ttu c e ...................... . 51,800 + 8 + *13 — 16 Spinach ....................... 2,200 — 3 T o tal (7 w in te r ) ... 71,640 + 9 S pring (1956) * A sparagus ................ .. 88,570 + 9 +29 — 1 B roccoli ..................... . 12,300 C a b b a g e ...................... 3,200 + 7 + 11 — 1 C antaloupe ..............., 29,000 + 2 —>25 2,200 — 35 C a r r o t s ........................ — 24 — 26 Cauliflower .............. 5,300 Celery ....................... +24 2,900 + 4 — 4 — 6 L e ttu c e ..................... , 41,300 — 45 3,450 O n i o n s ........................ — 12 — 44 3,900 — 13 — 33 Spinach ..................... 280 — 7 Straw berries ............ 41,880 + 2 +26 +29 5,000 + 2 8,700 W aterm elon ............ + 21 + 5 T o tal (14 spring) . 247,980 — 2 + 4 Processing Snap beans .................. . 16,500 — 4 +491 Sw eet c o r n .................. . 45,600 + 34 + 81 + 8 +251 G reen peas .................. . 183,400 8,900 +201 + 11 , 151,600 + 23 + 341 T o tal (5 processing) . 406,000 + 271 + 15 *Less than 0.5 percent. 1 For processing vegetables the percent change is measured from a ten-year average 1945-54. Source: United States D epartm ent of Agriculture, Agricultural M ar keting Service, Vegetable-Processing and Vegetable-Fresh M arket. April 20 and previous releases. cient to offset this decline, however, and to cause a slight increase in District straw berry acreage. D istrict acreage devoted to the production of snap beans, sweet corn, green peas, spinach, and tomatoes for processing is usually as great as that used to produce fresh winter and spring vege tables, and in 1956 it is expected to be greater. Estimates of processing tomato acreage indicate that District farmers plan a sizable increase for this crop. If they had followed the planting guides issued by the Departm ent of Agriculture, a de cline would have been indicated. Except for snap beans, more acreage will probably be devoted to the production of other m ajor processing vege tables as well. The expansion of the vegetable processing industry has prompted a considerable increase in District vegetable acreage for proc essing since the 1945-54 period, particularly for those vegetables suitable for freezing such as snap beans and green peas. MONTHLY REVIEW April 1956 FIFTEENTH ANNIVERSARY OF UNITED STATES SERIES E SAVINGS BONDS The United States Treasury Department is currently celebrating “Fifteen Years of M aking Dreams Come T ru e”— the fifteenth anniversary of the Series E Savings Bond, which was first issued in May 1941. Along with the anniversary observation the Treasury plans an intensified campaign to sell more of these bonds. The Series E program is beneficial both to the persons who buy Savings Bonds and to the national economy. The program is of particular value as a weapon against inflation in times of Government deficits, such as occurred during W orld W ar I I ; in addition, it has continuing value as part of the longrange effort of the Treasury to widen the ownership of the national debt. To the individual saver, Savings Bonds offer an investment that is as safe as America and highly liquid, for they can be cashed easily and are not subject to market fluctuations in value. Furtherm ore, they carry a return which com pares favorably with other instruments of similar safety and liquidity. The Series E Bonds now being sold earn 3 percent per annum on the purchase price if held to maturity, which is 9 years and 8 months from the purchase date. After m aturity the bonds earn 3 percent per annum, compounded semi annually, for 10 years more. Until maturity, the yield increases with the length of time the bond is held, but even if it is held a relatively short time the yield is considerable. F or example, a bond need be held only 2 years to yield 2 percent, and at 5 years the yield is 2*4 percent. These features make Savings Bonds a desirable medium for many types of investors. F or the large investor, they are useful as a contingency reserve and as a hedge against other more risky investments. F or the small investor, they are an ideal way to save for emergencies and for specified goals such as sending children through school, buying a home, or providing retirement income. Through the cooperation of employers and banks, savers may con veniently set aside a portion of their income in Savings Bonds each month by using the Payroll Savings or Bond-A-M onth plans. 51 FEDERAL RESERVE BANK OF SAN F R A N C IS C O B U S IN E S S IN D E X E S — T W E L F T H D IST R IC T ! (1947-49 average=100) to ta l nonagri T o ta l C a r D e p ’t Retail m f ’g loadings c u ltu ra l to o a sales E le c t r ic e m p lo y e m p lo y ( n u m prices 3» 4 C o ppe r3 power b e r)2 m ent (v a lu e )2 m ent W a te rb o rn e foreign tra de3«6 In d u s tria l p ro d u c tio n (p h y s ic a l v o lu m e )2 Year and m o n th Lum ber 1929 1933 1939 1947 1948 1949 1950 1951 1952 1953 1954 1955 95 40 71 97 104 100 113 113 116 118 112 122 87 52 67 100 101 99 98 106 107 109 106 106 78 50 63 98 100 103 103 112 116 122 119 122 54 27 56 96 104 100 112 128 124 130 133 145 165 72 93 94 105 101 109 89 86 74 70 73 105 17 80 106 101 93 113 115 112 111 101 117 29 26 40 90 101 108 119 136 144 161 172 192 1955 Feb ru ary M arch A pril M ay June Ju ly A ugust Septem ber O ctober N ovem ber Decem ber 136 123 121 120 122 119 123 118 116 110 123 105 106 106 106 106 106 106 106 105 106 106 122 120 118 115 120 128 127 132 129 123 120 131 137 149 155 153 157 160 159 155 128 130 79 83 77 78 75 71 67 70 72 67 63 130 131 127 131 130 40 91 128 131 128 119 1956 Jan u a ry F eb ru ary 129 125 106 106 130 128 135 70r 73 134 129 P e tro le u m 3 C ru d e R efin e d C e m e n t Lead3 E x p o r ts Im p o r ts ‘ 99 102 99 103 112 118 121 120 125 ’ '¿5 100 102 97 105 120 130 137 134 141 102 52 77 106 100 94 97 100 101 100 96 104 30 18 31 99 104 98 105 109 114 115 113 122 64 42 47 96 103 100 100 113 115 113 113 112 190 110 163 129 86 85 91 186 171 140 131 164 124 72 95 81 98 121 137 157 200 308 260 179 188 191 189 200 191 196 196 197 206 198 123 124 124 125 125 125 126 126 126 128 128 138 139 140 140 142 141 142 141 142 145 146 99 103 105 110 111 99 106 107 104 98 98 118 118 120 118 118 123 122 126 126 125 123 112 112 113 113 112 113 111 112 112 112 112 184 163 149 162 152 171 189 174 152 143 164 263 240 290 280 299 368 349 363 348 325 199 203 133 134 146 146 107 99 130r 124 112 111 B A N K IN G A N D C REDIT ST A T IST IC S— T W EL FT H D ISTRIC T (amounts in millions of dollars) M e m b e r ba nk reserves and related ite m s C o n d itio n ite m s of all m e m b e r banks8 Year an d m o n th U .S . Loans G o v ’t and d is c o u n ts s e c u ritie s D em and T o ta l deposits t im e a d ju ste d 7 deposits 1929 1933 1939 1947 1948 1949 1950 1951 1952 1953 1954 1955 2,239 1,486 1,967 5,358 6,032 5,925 7,093 7,866 8,839 9,220 9,418 11,124 495 720 1,450 7,247 6,366 7,016 6,415 6,463 6,619 6,639 7,942 7,239 1,234 951 1,983 8,922 8,655 8,536 9,254 9,937 10,520 10,515 11,196 11,864 1,790 1,609 2,267 6,006 6,087 6,255 6,302 6,777 7,502 7,997 8,699 9,120 1955 M arch A pril M ay June Ju ly A ugust Septem ber O ctober N ovem ber D ecem ber 9,696 9,657 9,810 10,102 10,191 10,392 10,559 10,665 10,931 11,115 7,390 7,756 7,690 7,446 7,557 7,407 7,375 7,487 7,238 7,298 10,733 11,060 10,951 11,023 11,212 11,163 11,312 11,465 11,665 11,876 8,837 8,833 8,885 9,026 8,995 9,021 9,054 9,067 9,005 9,084 1956 J an u a ry F eb ru ary M arch 11,193 11,323 11,476 7,143 6,819 6,713 11,794 11,233 11,112 9,070 9,095 9,103 Bank rates on short-term business loans8 Factors affecting reserves: Reserve ba nk c re d it9 — + 3.20 3.35 3.66 3.95 4.14 4.09 4.10 3.98 + + + + + + + + — 3.99 + + 4.17 + 4.25 + + + 4.34 + 34 2 2 302 17 13 39 21 7 14 2 38 C o m m e r c ia l'« T re a s u ry M o n e y in c irc u la tio n 9 Bank debits Index 31 cities3» 12 Reserves11 (1947-49= 100)2 0 - 110 - 192 - 510 + 472 - 930 -1 ,1 4 1 -1 ,5 8 2 -1 ,9 1 2 -3 ,0 7 3 -2 ,4 4 8 -2 ,6 8 5 + 23 + 150 + 245 + 698 - 482 b 378 -1,198 -1,983 -2,265 -3,158 -2,328 -2,757 + + + + + 6 18 31 206 209 65 14 189 132 39 30 100 175 185 584 2,202 2,420 1,924 2,026 2,269 2,514 2,551 2,505 2,530 42 18 30 95 103 102 115 132 140 150 168 172 10 60 55 27 10 23 17 43 46 8 - 401 306 51 449 193 253 148 245 81 434 + + + + + + + + + + 362 261 195 429 217 200 276 174 205 417 + + 4+ + + + + 1 15 50 35 9 8 18 15 18 17 2,418 2,432 2,176 2,439 2,495 2,415 2,541 2,417 2,575 2,530 177 165 170 178 166 177 173 171 181 183 84 87 71 - 322 76 178 + + + 136 95 188 + 99 7 35 2,554 2,488 2,516 188 179 183 1 A djusted for seasonal variation, except where indicated. Except for departm ent store statistics, all indexes are based upon d a ta from outside sources, as follows: lum ber, N ational L um ber M anufacturers Association and U.S. B ureau of the Census; petroleum , cem ent, copper, and lead, U.S. B ureau of M ines; electric power, Federal Pow er Commission; nonagricultural and m anufacturing em ploym ent, U.S. B ureau of Labor Statistics and cooperating state agencies; retail food prices, U.S. B ureau of Labor Statistics; carloadings, various railroads and railroad associations; and foreign trade, U.S. B ureau of th e Census. 2 D aily average. 8 N ot adjusted for seasonal variation. 4 Los Angeles, San Francisco, and S eattle indexes combined. 6 C om m ercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and W ashington cus tom s districts; startin g w ith Ju ly 1950, “ special category” exports are excluded because of security reasons. 6 A nnual figures are as of end of year, m onthly figures as of last W ednesday in m onth. 7 D em and deposits, excluding interbank and U.S. G ov’t deposits, less cash item s in process of collection. M onthly d a ta p a rtly estim ated. 8 A verage rates on loans m ade in five m ajor cities. 9 C hanges from end of previous m onth or year. 10 M inus sign indicates flow of funds out of the D istrict in the case of commercial operations, and excess of receipts over dis bursem ents in th e case of T reasury operations. 11 E nd of year and end of m onth figures. 12 D ebits to to ta l deposits except in terb an k prior to 1942. D ebits to dem and deposits except U.S. G overnm ent and in terb an k deposits from 1942. p— P relim inary. r— R evised. 52
@FedFRASER