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JUj^ntkhi TWELFTH FEDERAL RESERVE FEDERAL RESERVE DISTRICT BANK OF SAN FRANCISCO Monetary Policy in a Recession Period . 54 Member Bank Earnings in 1957 . . . . 59 Review of Business Conditions...........66 MONETARY POLICY has been evident for some months now that the long postwar boom has been inter rupted again, and that the American economy has once more entered the recession phase of the business cycle. Declining output in many fields, rising unemployment, reduction of the average workweek, lower corporate profits, a drop in sales, and many other indexes attest to the worsening of economic conditions since late last summer. Cyclical economic fluctuations may be at tributed largely to variations in the nation’s total flow of expenditures, since in a free en terprise economy like ours it is primarily spending which determines what is produced, given the economy’s productive resources. It is buying by individuals, business firms, and government units that moves goods off the shelves and out of the warehouses, and there by leads to the production of new goods. Although most spending is done out of cur rent income, an important part of it is done out of borrowed or saved funds. Individuals, firms, and governments can all spend more than their current income by borrowing; by saving, they can spend less. Hence, because of changes in the rates of borrowing and sav ing, marked fluctuations in spending can oc cur and the total demand for goods and serv ices can at any time either exceed or fall short of the total value of current output. The at tempt by businessmen to adjust their rates of output to such changes in demand results in those fluctuations in production, employment, and prices that we commonly call the business cycle. While the process of creating and extin guishing debt thus leads to a good deal of economic instability, it also provides the monetary authorities with a means of influencT I 1Although this article is concerned with the economic situation as it presently exists, it may be useful to compare it with a prior article on monetary policy written during the boom and published in this Review, December 1956, pp. 150-154. 54 IN A R E C E S S I O N PERIOD' ing the general level of economic activity. Through its influence over the supply of bank credit and hence over borrowing and lending, a central bank can affect that portion of total demand which depends on or is related to borrowed funds. During a boom, for instance, when the public as a whole is trying to spend too much, the Federal Reserve System will normally attempt to discourage borrowing— and hence spending out of borrowed funds— by making such funds more difficult and costly to obtain. During a business recession, on the other hand, it will attempt to stimulate bor rowing and spending by making credit cheaper and more plentiful. Thus, whereas an infla tionary boom calls for a restrictive credit or “tight money” policy, a period of business re cession calls for an “easy money” policy. To ease credit conditions, the Federal Re serve System can make use of any or all of the three traditional instruments of monetary policy: open market operations, changes in reserve requirements, and changes in the dis count rate. All three of these have been em ployed during the past half year. The expression “open market operations” refers to the buying and selling of United States Government securities in the money market (that is, from or to securities dealers). The Federal Reserve System, taken as a whole, possesses a portfolio of such securities now valued at more than $23 billion, and it may at any time sell part of these or buy more. When it buys securities, its payments for these purchases put newly creatcd funds into cir culation. These funds are normally deposited in various banks, which can use them as addi tions to their reserves. Such reserves must be held by member banks of the System in the form of balances at their Reserve Banks amounting to certain specified proportions of their demand and time deposits. When the April 1958 MONTHLY banks receive additional reserves, they are able to hold a larger volume of deposits and hence expand their loans and/or investments. Conversely, sales of securities by the System take funds out of circulation, which reduces bank reserves and compels the banks (if their deposits were up to the limits permitted by their reserves) to curtail their loans and/or investments. There are a number of other factors that affect bank reserves, too, such as movements of hand-to-hand currency into and out of the banks, gold purchases or sales by the Treasury, and changes in various types of deposits at the Federal Reserve Banks. Consequently, the System is not able to con trol precisely the total volume of bank reserves through its open market operations. Never theless, this is a sufficiently flexible and effec tive monetary instrument so that it can do so within fairly close limits. During the last three months of 1957, the Federal Reserve System provided the econ omy with more than $1 billion in additional funds through purchases of United States Government securities. Most of this was to enable the banks to meet the normally in creased demand for hand-to-hand currency at that time of the year, but part of it was intend ed to provide them with additional reserves and thereby to ease the credit situation. Dur ing January of this year, approximately the same amount of money— $1 billion— was ab sorbed by the System through net sales of se curities. This was done not to tighten the credit situation again but to offset in part the normal post-Christmas return flow of cur rency to the banks, which amounted to more than $1.3 billion during January. Since such returned currency is credited to the reserve accounts of the banks in the same way as funds obtained from open market operations, the net result of these two factors during Jan uary was to provide the banks with several hundred million dollars in additional reserves. REVIEW More recently the System has made use of its authority to change reserve requirements, that is, the minimum ratios of reserves to de posits which member banks are required to maintain. These were reduced one-half per centage point about the end of February 1958, and another one-half point near the end of March. Again in April they were reduced so that required reserve ratios now stand at 18 percent of demand deposits for central reserve city banks (those in downtown New York and Chicago), 16Vi percent for reserve city banks (those in 48 other specified large cities), 11 percent for the country banks (all other mem ber banks), and at 5 percent of time deposits for banks in all three groups. Approximately $1.5 billion in reserves was released to the banks by the three recent reductions. These released reserves can serve as the basis for an increase of several billion dollars in total loans or investments, and thus in deposits of the banking system. The third instrument of monetary policy, changes in the discount rate, is probably the one which receives the most attention from the public although it is not necessarily the most important of the three. The discount rate is the interest rate charged by a Federal Reserve Bank to its member banks when the latter borrow from it. Such borrowing is nor mally done for short periods when the banks unexpectedly find themselves short of re serves. A reduction in the discount rate makes it cheaper for banks to obtain additional re serves in case of need. This may induce them to lend more freely and/or to reduce the in terest rates they charge their own customers. For instance, on occasion there has been a very close timing relationship between changes in the discount rate by the Reserve Banks and changes by commercial banks in the prime rate (the interest rate charged the largest and best customers). However, the common belief that movements of all short-term interest rates 55 FEDERAL RESERVE B A N K or of bank loan rates alone correspond closely to movements of the discount rate is quite mis taken. The latter is only one of many factors influencing the former. Interest rates are de termined by all of the factors that affect the demand for and supply of particular types of credit. Although the direct effects of changes in the discount rate are not as significant as many persons suppose, the psychological effects are sometimes very important. Last November, for instance, the Federal Reserve Banks re duced the discount rate from V/z to 3 percent. This action was widely interpreted as repre senting a shift from the previous so-called “tight money” policy to an “easy money” policy. Anticipating that this would result in lower interest rates generally and hence higher prices for bonds and other fixed-interest secu rities, investors rushed to buy the latter. As a result, the prices of such securities rose sharply and interest rates plummeted during the suc ceeding two months. The sharpness of this reaction at a time when the banks’ reserve po sitions were not changing much was an indi cation of the sensitivity of the credit markets to Federal Reserve actions, at least under cer tain conditions. Further cuts in the discount rate this year have brought it down to 13A per cent. These reductions have had much less effect than that of November since they mere ly indicated continuance of the credit easing policy rather than any reversal of policy. The net effect of these various types of credit easing action taken by the Federal Re serve System during the past half year has been to lower the general pattern of interest rates and to ease the banks’ reserve positions. The tightness or ease of the latter may be measured by comparing the banks’ excess of reserves over and above the amount required as backing against their deposits with the amount they have borrowed from the Federal Reserve Banks. If the excess reserves are 56 OF SA N FRAN CISCO greater than the borrowings, the banks are said to have “free reserves.” If the borrowings are greater than the excess reserves, the banks are said to operate on “net borrowed re serves.” Last summer, the banks were operat ing on net borrowed reserves which often ran well over one-half billion dollars. By March of this year, their reserve situation had eased to the point where they had free reserves of about one-half billion dollars. There has thus been a net change of roughly one billion dol lars in their reserve position. Easier credit e n c o u ra ge s b o rro w in g an d sp e n d in g in v a rio u s w a y s To what extent and in what ways does a more plentiful supply of cheap credit stimu late borrowing and hence spending? This is a difficult question and one to which the an swers are far from certain. But we may get some clues to them by considering a few spe cific types of borrowing and seeing how easy credit conditions have affected or might affect these. The most immediate effect probably is on bank lending. During a period of tight money, banks not only charge higher interest rates but also ration the limited supply of credit. They do this in various ways: by raising their credit standards, by not taking on new custo mers, by filling only part of their customers’ credit demands, etc. If credit is later made more plentiful, the banks are enabled to fill these previously unsatisfied demands. Of course, some of the latter disappear during a business recession, when some prospective borrowers change their minds about wanting credit, but they do not all disappear imme diately. In addition to being able to meet part of these previously unsatisfied demands for credit, the banks can stimulate additional de mand by lowering the interest rates they charge, since there are always some “mar ginal” customers who are undecided whether April 1958 MONTHLY or not to borrow and who can be influenced favorably by a reduction in the cost. One type of bank credit of particular im portance is loans to business firms for the pur pose of carrying inventories. Total business inventories have amounted to nearly $90 bil lion recently, and a large part of these un doubtedly were purchased with bank credit. During the past six months or longer, most firms have been trying to reduce the size of their inventories, partly because these had grown too large in many cases, partly because a leveling off or decline in sales (either actual or anticipated) had reduced the need for stocks, and partly because high interest rates had increased the cost of holding such stocks. Indeed, in its early stages at least the current business recession was mainly an inventory adjustment of the sort that our economy goes through every few years. Such adjustments probably cannot be prevented once invento ries are considered to be excessive, but the pressure for liquidation can be lightened by a drop in interest rates, since this will reduce the cost of holding stocks. This should also hasten the day when businessmen will decide that they have cut their inventories far enough and that they can now afford to start placing new orders for goods. Despite the recent easing of credit restric tions, total bank loans increased somewhat less during the last two months of 1957 and decreased somewhat more during the first two months of 1958 than in the corresponding period of the two previous years. This is to be expected, since during a business recession many individuals and firms are reluctant to borrow in order to make purchases, and many of them repay bank loans, e.g., by cutting down on their inventories. This does not indi cate that credit easing has had no effect; bank loans would undoubtedly have dropped even further if tight credit restrictions had re mained in effect. REVIEW Although the banks’ total loans have de clined recently, there has been an appreciable rise in their investments since last summer— that is, in their holdings of Government and other securities. This has been made possible both by the easing of reserve conditions and by the decline in loans. The purchase of se curities by the banking system gives rise to deposits just as does the making of loans, and consequently the total volume of demand or checking deposits (which make up the bulk of the money supply) has not declined during the past six months and has even increased slightly (on a seasonally adjusted basis) dur ing the first two months of this year. When banks buy securities directly from the Government, they provide the latter with funds to cover its deficits. Indirectly, there fore, they contribute to the total volume of spending of the economy, just as when they make loans to individuals or firms. If the banks buy Government securities from private parties instead, they furnish the previous hold ers with liquid funds and thereby increase the total liquidity of the economy. Part of these additional funds will probably be used to re pay bank loans, but some part of them will either be spent immediately or held in readi ness to be spent when opportunities arise. Thus, credit easing has a stimulating effect on spending, not only if the banks make more loans but even if they merely buy Govern ment securities. Corporations and state and local govern ments finance a considerable part of their capital expansion programs out of borrowed funds, usually by issuing bonds. Such bond is sues are particularly sensitive to changes in interest rates because the interest has to be paid over a period of many years and because some Government units are subject to legal or political limitations ca the interest rates they can pay. The recent policy of monetary restraint was intended in part to encourage 57 FEDERAL RESERVE BANK postponement of some of these security offer ings, which were supporting an unparalleled capital boom and thereby contributing to the inflationary pressures. As a result, some bond issues that had been announced during 1956 and 1957 were withdrawn because of the high interest rates that would have had to be paid on them, and probably others that were con templated were never announced for the same reason. Although many local government projects were too urgent to be deferred, others, which were dependent upon revenues, such as certain toll roads, could be and were post poned for a time. During recent months, however, as a result of the sharp drop in interest rates, some of these bond issues have been dusted off and sold to the public, and the proceeds used to undertake expansion programs or public im provements that had previously been post poned. This has been particularly true of state and local government issues. Such offer ings to raise new capital were at record levels during January and February of this year, and for the entire first quarter totalled nearly $2.3 billion, as compared with $1.8 and $1.5 bil lion in the first quarters of 1957 and 1956, respectively. Corporate security offerings (mostly bonds but including some stocks) are estimated at $3.2 billion for the first quarter of this year, down from the record $3.5 bil lion issued during the same period of last year but considerably larger than any other quarter of 1956 or 1957. It is known that the reduced level of interest rates played an important part in the timing of a number of the recent offerings. Mortgage credit is another type that is par ticularly sensitive to changes in interest rates, because of legal limitations on certain types of mortgages and because such loans are usually made for lengthy periods. Interest rates on alternative investments above the fixed maximum rates on mortgages guaranteed 58 OF S A N FRAN C ISCO by the Veterans Administration and the Fed eral Housing Administration undoubtedly held down somewhat the volume of residential construction during the boom of 1955-57. Since last summer, however, there has been a drop in the rates on conventional mort gages, and a reduction in the discounts at which VA and FHA mortgages have been selling. Partly as a result of the reduced cost and increased availability of credit, applica tions for FHA loans during the first three months of this year were at a rate consider ably higher than during the same period of last year. Other types of credit extension similarly tend to be stimulated by a general reduction of interest rates. It may be that the effects on any particular type of credit are likely to be only modest, since it is primarily the mar ginal borrowers-—those who are not quite de cided whether or not to borrow—-who are affected. Nevertheless, modest increases in many different types of credit can add up to a substantial over-all increase and have a sig nificant effect on total spending. M o n e ta r y m e asu re s not an econom ic cure-all Useful as they can be if properly employed, monetary measures are not a cure-all for our economic ills. They cannot alone maintain a fully prosperous economy. Lower interest rates will not entirely prevent cutbacks in in ventories if these have become excessive, nor will they prevent a reduction in new capital expenditures if businessmen become worried about the future. Once it becomes apparent that the boom is at an unsustainable level, and general economic conditions start to worsen, it is almost inevitable that inventory liquida tion and other adjustments will continue for some time. Nevertheless, a prompt and vigorous easing of credit conditions can do much to moderate April 1958 MONTHLY a recession. It can, first of all, insure that the supply of bank credit is adequate to meet all legitimate demands for it and thereby avoid adding to deflationary pressures through credit restrictions. Secondly, by lowering in terest rates it can attract marginal or unde cided borrowers. Thirdly, lower interest rates can also attract after a time those potential borrowers whose spending proj ects are postponable within limits (for in stance, home buyers or business firms plan ning capital improvements) and who, because they take a long-run view of economic trends, try to do their borrowing when interest rates are low. Finally, credit easing can set the stage for an early recovery by insuring that whenever business begins to improve it will not be hampered by unavailability or high cost of funds. Because credit easing alone is not able to prevent or to cure the cyclical fluctuations of our economy, it needs to be supplemented by the proper fiscal policies and possibly by other types of measures. This may involve changes in taxes, expenditures, or other elements of Government policy. Whatever fiscal measures are taken, it is important that they be adapted to the particular situation being dealt with— REVIEW since each business recession differs from its predecessors— and that they be properly co ordinated with the monetary measures taken so that they all pull in the same direction. Even monetary and fiscal measures com bined may not be immediately effective in bringing a business recession to an end. They require some time to make their effects fully felt and there are large sectors of the economy which, as a rule, are fairly insensitive to their influence. At the same time, care must be taken to insure that monetary or other anti recession measures do not overshoot the mark and make more difficult the control of infla tion once a recovery movement gets under way. Too much should not be expected of these measures, or else disappointment with their actual accomplishments may lead to complete rejection and a search for panaceas. Used properly, both monetary and fiscal meas ures can do a great deal to moderate and shorten business recessions and, in general, to help contain economic fluctuations within tolerable limits. This is as much as can be expected of them in an enterprise economy, where individuals and business firms have a large measure of freedom to make their own decisions and their own mistakes. M e m b e r Bank Earnings in 1 9 5 7 earnings of member banks in the Twelfth District for 1957 increased by the same percentage over 1956 as they did in 1956 over the previous year. This single statement conceals as much in formation as it conveys, for significant changes in the structure of bank assets and in earnings from these assets took place during 1957. Member banks, which had been selling se curities in order to expand their loan port o ta l T folios in 1955 and 1956, now began to ac quire securities. An important factor affecting net current bank earnings was the sharp rise in expenses due principally to increased interest payments on time deposits. Table 1 summa rizes the changes in the composite earnings statement for District member banks. Total operating earnings of District mem ber banks were up $123 million over 1956, but earnings on loans accounted for a smaller 59 FEDERAL RESERVE B A N K OF S A N FRAN C ISCO T able 1 fraction of this increase. EARNINGS AND EXPENSES OF TWELFTH DISTRICT E arn in g s on loans in M E M B E R BANKS, 1 9 5 5 - 5 7 creased by $80 million in 1957 compared to a gain (in millions of dollars) Percent Change of $104 million in 1956. 1956-57 w 1955 1956r The average level of total 546.7 650.6 731.1 + 12.4 loans outstanding stood Earnings on loans Interest and dividends on $733 million higher for 152.7 162.0 + 6.1 160.0 Government securities 1957 than for 1956, but 43.9 51.4 + 17.1 42.5 Other securities the total at the year’s end Service charges on deposit 74.6 89.2 + 19.6 66.3 accounts was only $565 m illion 32.7 + 10.1 29.7 25.7 higher than the year be Trust Department earnings + 18.5 49.4 41.7 41.9 fore; $371 million of the Other earnings year’s increase over 1956 1,116.0 + 12.4 993.1 883.1 Total earnings was registered in the third 311.6 + 8.5 287.2 258.0 Salaries and w ages quarter of 1957. As the Interest on time deposits + 57.4 163.7 257.6 148.1 dem and fo r loans d e Other expenses 189.4 177.1 155.5 + 6.9 clined, other sources of + 20.8 758.6 561.6 628.0 Total expenses bank incom e assum ed 357.4 - 2.1 365.1 321.5 greater relative im por Net current earnings tance. Higher returns on Net recoveries and profits (— losses)1 United States securities - 28.2 - 17.1 - 25.9 On securities an d o th e r s e c u ritie s - 35.7 - 26.3 - 25.3 On loans (which are chiefly munic 3.7 6.3 3.4 Others ipal issues) led banks to net recoveries and purchase them especially Total - 49.7 - 67.6 profits - 54.5 during Novem ber and Net profits before income December of 1957. How 307.7 + 3.4 267.0 297.5 taxes ever, the banks’ average 141.5 118.4 133.6 + 5.9 Taxes on net income holdings of United States 166.2 + 1.3 164.0 148.6 securities for the year Net profits after taxes 90.0 96.2 + 6.9 85.0 w ere $85 m illion less Cash dividends declared than in 1956. Then, too, Undistributed profits - 5.4 74.0 70.0 63.6 the returns from service r Revised. c h a r g e s on d e p o s its p Preliminary. 1 Including transfers to (— ) and from ( + ) valuation reserves. brought earnings from this source up to $89 mil Securities a ssu m e g re a te r im p ortan ce lion, an increase of 19.6 percent over 1956. in structure of b a n k a sse ts This was primarily due to a faster rate of turn over of demand deposits, and to higher serv Table 2 tells the tale of the growth of mem ice charges on deposit account transactions ber banks’ earning assets in 1957. Total loans imposed by some banks. and investments increased by nearly twice the 60 April 1958 MONTHLY REVIEW 1956 increment. In 1956 the growth of bank of the Treasury refunding operations of the loans was partially offset by bank sales of se fourth quarter of 1957, member banks added curities, since loans offered a higher return. substantially to their holdings of certificates of indebtedness, exchanging maturing notes However, in 1957 banks began to purchase securities to supplement their earnings on and bonds for the offered certificates. Treas loans and the base of total bank earnings was ury issues in refinancing operations carried on broadened. in the second half of the year bore rates up to 4 percent, making these a very attractive in Business loans accounted for nearly twothirds of the total expansion of loans during vestment. Rates on new issues of Treasury bills provided a striking illustration, rising to 1957. All other types of loans, except real es tate loans, expanded during the year. Mort 3.66 percent in mid-October, and thereafter gages which were guaranteed by the Govern declining rapidly. The increase in the average ment and carried lower interest rates fixed by rate of return on Government securities from law were at a disadvantage in a money market 2.27 percent in 1956 to 2.53 percent in 1957 in which prevailing inter T able 2 est costs reached the high P R I N C I P A L R E S O U R C E AND L I A B I L I T Y IT E M S OF est point in a generation. A L L M E M B E R B A N K S IN T H E T W E L F T H D I S T R I C T Unlike 1956, farmers in 1 9 56 AND 1957 creased their debt to Dis (in millions of dollars) trict member banks and agricultural loans were up Dec. 31r Dec. 31Dollar Percent 7 p ercen t from 1956. 1957 1956 Change Change Loans to individuals grew Loans and investments 20,949 21,938 + 989 4.7 + at a slightly more rapid Loans and discounts net 12,616 13,181 + 565 4.5 rate than in 1956 chiefly + Commercial and due to an increase in re 4,630 4,996 industrial loans + 366 7.9 + tail automobile instalment Agricultural loans 448 481 6.9 + 31 + loans outstanding. — Real estate loans 4,859 4,830 29 0.6 In 1957 Twelfth Dis 2,310 7.4 Loans to individuals 2,480 + 170 + trict members banks dem U. S. Government onstrated a renewed in 6,453 + 167 obligations 6,620 2.6 + tere st in U nited States 387 — Treasury bills 396 9 2.3 G overnm ent securities, Treasury certificates adding $331 million to of indebtedness 124 602 + 478 + 385.5 their holdings in the sec Treasury notes 1,323 1,127 — 196 1.5 ond half of 1957, with the U. S. bonds 4,611 4,502 109 2.4 major part of the aquisi1,879 2,137 Other securities + 258 + 13.7 tion concentrated in the Total assets 26,512 27,760 + 1,248 4.7 + last two months of the Dem and deposits 14,818 — 14,692 126 0.9 year. At the same time Time deposits 9,427 10,681 + 1,254 13.3 + banks continued to ac Total deposits 24,246 25,374 4.7 + 1,128 + quire other securities, al 1,675 1,765 + 90 + Capital accounts 5.4 though in somewhat small r Revised. er amounts. As a result p Preliminary. — 61 FEDERAL RESERVE BANK testifies to the growing desirability of these issues. A v e r a g e return on lo a n s rises Since income from loans increased more, proportionally, comparing 1957 with 1956, than did the amount of loans outstanding, it is clearly implied that higher interest rates contributed heavily to the record earnings on loans. The over-all rate of return on outstand ing loans jumped from 5.47 percent in 1956 to 5.72 percent in 1957. The higher rates which predominated did not apply to all loans outstanding, since many or most of these loans were contracted in earlier periods. Inter est rates rose on the average of one full per centage point between mid-1955-—the begin ning of a boom— and the end of 1957. As loans reached maturity they were replaced in banks’ portfolios by new loans bearing higher rates of interest. A quarterly survey of selected short-term business loans shows an average rise from 4.65 percent in December 1956, to 5.13 percent in December 1957. Business loans generally carry a lower rate of interest than other types of loans, but the change in the market rate for business loans is usually symptomatic of changes in the interest rate structure for other types of loans. E a rn in g s on securities clim b a s h o ld in gs a n d rate s on securities rise While United States Government securities still supplied the greatest part of earnings on investments, earnings on other types of secu rities advanced substantially over 1956. Dis trict member banks made net purchases of municipal and corporate securities in every quarter of 1957 except the first. Flotations of corporates and municipals were larger in 1957 than in 1956 and carried higher rates than in the previous year. Greater holdings of these securities and higher yields accounted for a 17 percent gain in earnings from this resource. 62 OF S A N FRAN CISCO Service charges on deposit accounts, the third ranking source of commercial bank in come after loans and Government securities, contributed over $89 million to the earnings of District member banks in 1957. The rate at which demand deposit accounts were uti lized, i.e., debits to demand deposits, was 7 percent greater than in 1956, although total demand deposits decreased by about 1 per cent during the year. This factor, in combina tion with increased service charges on deposit accounts, led to an increase of almost 20 per cent in this source of income over 1956. Banks continued to receive income from activities ancillary to their traditional banking operations. Other earnings, a category which covers rentals on safe deposit boxes and real estate, interest earned on time deposits at other banks, and income from the title and foreign departments of the bank, rose by more than 18 percent in 1957 in contrast to a de cline of one-half of one percent in 1956. Earn ings from trust departments afforded nearly $33 million in income to banks, up 10 per cent from a year earlier. B a n k e x p e n se s se t n e w records While bank earnings reached a record high in 1957, the costs of banking operations also explored new heights. Indeed, so rapidly did bank expenses rise, that net current earnings, or the spread between total operating earn ings and expenses, fell off 2 percent from the preceding year. The greatest source of ex pense to banks in 1957 sprang from much larger interest payments on time deposits. In order to attract savings deposits, many Dis trict commercial banks increased the rate paid on such accounts by a full percentage point at the beginning of 1957. Higher rates proved sufficiently attractive to increase time deposits at District member banks $ 1Va billion by the end of the year. Due to the combination of higher rates paid and a larger amount of time April 1958 MONTHLY REVIEW C hart 1 EARNI NGS AND E X P E N S E S OF M E M B E R BANKS Profits afte r ta x e s in crease d o n ly slig h tly Although earnings were cut into quite deeply by rising operating expenses in 1957, loss offsets and transfers to reserves de clined more th an onefourth from 1956. Revers ing the downward trend of the two previous years, securities prices recovered and rose markedly in No vember and December. Losses, charge-olfs, and transfers to valuation re serves, all connected with securities transactions, went from $40 million in 1956 to $25 million in 1957. At the same time, 1955 1956 1957 1955 1956 195? the offsetting items of recoveries, profits, and Note: The Earnings categories are as follows: A. All other; B. Charges on deposit accounts; C. Interest and dividends on other securities; D. Interest on United States Governments; transfers from valuation E. Earnings on loans. T he Expenses categories are: A. All other; B. Interest on time deposits; C. Wages and salaries. reserves changed from deposits, interest paid on these deposits in $12 million in 1956 to $8 million in 1957, cutting the offset to net current earnings to creased more than 57 percent over 1956. The ratio of interest cost to total time deposits rose $17 million in 1957 where it had been $28 million in 1956. from 1.77 percent in 1956 to 2.39 percent in 1957. Other funds available to banks also Since loans at District member banks grew proved to be more expensive than they had by only about one-third of the 1956 increase, been in 1956. The discount rates on borrow valuation reserves in 1957 did not grow as ings from the Federal Reserve went to 3 Vz much as in 1956. Losses, charge-offs, and percent in August 1957, the highest rate in transfers to valuation reserves on loans were the postwar period. The costs of borrowing $9 million less in 1957 than they were in from other banks increased in similar fashion. 1956. Recoveries and transfers from valua (Chart 1) tion reserves increased slightly in 1957 over Other expenses of operation increased, but the preceding year. at a more moderate rate than in 1956. Wages Losses from charge-offs and transfers to and salaries paid by District member banks reserves made for a smaller deduction from rose 8 percent in 1957. The cost of keeping up net bank revenues in 1957, and consequently banking offices, i.e., occupancy, maintenance, taxes took a somewhat larger slice than they utilities, and supplies, rose by only a little more did in 1956. Taxes on net income amounted than half of the 1956 increase. to $141.5 million, or 46 percent of net in- 63 FEDERAL RESERVE B AN K T able 3 R A T IO TO C A P IT A L A C C O U N T S AND R A T E S O F R E T U R N ON EA R N IN G A S S E T S — T W E L F T H D IS T R IC T M E M B E R B A N K S , 1 9 5 5 -5 7 R atios to cap ital accounts N et current e a r n in g s A ll b a n k s 1 3 la rge st O th e r 1955 1356 1957 22.1 2 2 .5 2 0 .7 2 2 .8 2 3 .0 2 1 .6 2 0 .9 21.1 1 9 .9 1 0 .2 1 0 .6 8 .7 1 0 .2 1 0 .6 8 .4 9 .7 9 .7 9 .7 5.5 5.4 5 .9 5 .5 5 .4 6 .0 5 .7 5 .6 6 .0 2.1 2.1 2.1 2 .3 2 .3 2 .3 2 .5 2 .5 2 .5 N et profits after taxes A ll b a n k s 1 3 la rg e st O th e r Jtes of return on Loan s A ll b a n k s 1 3 la rg e st O th e r G o v e rn m e n t securities A ll b a n k s 1 3 la rge st O th e r OF S A N FRAN C ISCO Conversely, additions to undivided profits de clined from $74 million in 1956 to $70 mil lion in 1957. District b a n k profits fa ll b ehind n ation Comparisons of preliminary data on earn ings for District member banks and for mem ber banks in the nation show that the marked increase in operating expenses of District banks was not matched by member banks out side the District. While total expenses of Dis trict member banks rose by almost 21 percent, total expenses of member banks in the nation went up less than 15 percent. The explana tion probably lies in the fact that interest pay ments on time deposits have been consistently higher in the District than in the rest of the nation, particularly since the maximum rate paid on such deposits increased to 3 percent. N ote: Capital accounts, loans, and Government securities items on which ratios are based are averages of Call Report data on M arch 4, 1957, June 6, 1957, and October 11, 1957. come, compared with 44.9 percent of profits in 1956. In terms of dollar amounts, profits after taxes of District member banks were slightly greater than $166 million, surpassing the record year of 1956 by 1.3 percent and establishing a new mark. It should not be inferred, however, that stockholders received a greater return on their invested capital merely because net profits of banks increased. Capital accounts increased by $89 million in 1957 while net profits made a gain of only $2 million. On the basis of the rate of return to invested capital, banking was a less profitable undertaking in 1957 than in the two previous years. Table 3 shows that the ratios of net current earnings and profits after taxes to capital accounts declined by about 2 percent and one-half of one percent respectively. Cash dividends declared in 1957 amounted to $96.2 million, an increase of $6.2 million over 1956. This represented a disbursement of 57.9 percent of profits after taxes as divi dends compared with 54 percent in 1956. 64 T able 4 P E R C E N T C H A N G E S IN S E L E C T E D E A R N IN G S AND E X P E N S E IT E M S O F T W E L F T H D IST R IC T M EM BER BANKS BY S IZ E G RO U PS, 1 9 5 6 - 5 7 13 Banks Largest Banks Other Banks + 1 2 .4 + 1 2 .9 + 1 0 .0 + + All E a r n in g s on lo a n s Interest a n d d iv id e n d s on G o ve rn m e n t securities O th e r securities 6.1 + 17.1 5 .5 + 7 .9 + 1 6 .8 + 1 8 .4 Service c h a rg e s on d e p o sit accounts + 1 9 .6 + 1 8 .7 + 2 2 .7 Trust d e p a rtm e n t e a r n in g s + 10.1 + 1 0 .4 + + 1 2 .4 + 1 2 .7 + 1 0 .9 + + Total e a rn in g s S a la rie s a n d w a g e s + Interest on time d ep o sits + 5 7 .4 + 5 9 .5 + 4 7 .2 + 1 6 .2 Total exp e n se s 8.5 8.2 8 .7 9 .5 + 2 0 .8 + 2 2 .0 N et current e a rn in g s - 2.1 - 2 .7 + Profits before taxes + 3 .4 - 0 .5 + 2 4 .2 0 .6 T a xes on net incom e + 5 .9 + 2 .6 + 2 3 .3 N et profits after taxes + 1.3 - 2 .9 + 2 4 .8 C a sh d iv id e n d s declared + 6 .9 + 5 .9 + 16.1 N ote: Figures presented in this table for the 13 largest banks are not entirely comparable, particularly for components of total earnings and expenses, because during 1957 a number of smaller banks went out of existence, some of which were consolidated with banks in the 13 largest group. Adjustments for this factor would probably have little effect on the 13 largest figures but might mean significant changes in the figures for the other banks. April 1958 MONTHLY Consequently, while net current earnings of member banks in the United States showed a gain of 6 percent over 1956, net current earn ings in the District fell off 2 percent from 1956. The increase in earnings on loans was about equal for member banks both in the District and in the nation. Net losses, chargeoffs, and transfers to reserves were about the same for the District as for the nation. Although net current earnings of District banks declined from 1956, net profits before taxes rose relatively more in the District than in the nation. This may be accounted for by the greater charge-offs for losses and transfers to reserves that took place for member banks in the nation for 1956 and which did not de cline in similar proportion in 1957. Thus, net profits before taxes for District banks in creased by almost twice the percentage of that for banks in the United States in 1957. How ever, taxes rose by a greater proportion for District banks so that the increase in profits after taxes was about the same for both groups. Net current earnings and profits after taxes, relative to capital accounts, continued to run somewhat higher for the District, as did the rate of return on loans. The increase in cash dividends declared was lower for the Dis trict: 7 percent as compared with 10 percent for member banks in the nation. REVIEW O u tlo o k for 1 9 5 8 On the basis of the developments of the fourth quarter of 1957 and the first quarter of 1958, certain tentative conclusions may be drawn with regard to the prospects of the banking community in the remainder of 1958. Interest rates have fallen from the high levels reached in late 1957 in one of the most abrupt declines in history. Not only may banks earn a lower rate of return on new loans, but the demand for loans may be less strong than in 1957, and the total amount of loans outstand ing on which interest is being earned may be smaller. On the other hand, interest paid by banks is at a high level and changes in this rate typically lag changes in earnings. During the contraction of the business cycle banks customarily buy securities as a source of earnings. If proposals for tax cuts and in creased federal spending become law, the Treasury will incur a fair sized deficit. It may be expected that commercial banks will pur chase a major portion of new Treasury issues. The rates on new issues of United States Gov ernment securities have been trending down ward in recent months, so that banks will earn a poorer return on these securities than they did in 1957. In the absence of unforeseen developments, this combination of factors would spell a decline in the net profit of mem ber banks. 65 FEDERAL RESERVE B AN K OF SA N FRAN C ISCO Review of Business Conditions data for March indicate less than the usual seasonal improvement in business conditions. Assessment of develop ments is complicated by the unduly severe weather in many parts of the nation, but re cent evidence on plant and equipment spend ing, total business sales, inventories, and manufacturers’ new orders point to continued weakness. The few encouraging bits of data are scattered: an upswing in orders for ma chine tools, pumps, and turbines, and an appearance of optimism among purchasing agents. re lim in a ry P E m p lo y m e n t increase le ss th an se a so n a l Total employment rose 300,000 between February and March to 62.3 million, or about 2.5 percent less than a year ago. The increase was about 200,000 less than usually expected at this time of year. The failure of employ ment to show the usual seasonal gain is due in some degree to adverse weather which has limited expansion of agricultural and con struction activity and has restrained activity at retail stores. Unemployment, in contrast to the normal seasonal pattern, rose slightly in March, and the seasonally adjusted number at 4.8 million was 200,000 higher than in Feb ruary. Unemployment reached 7.0 percent of the labor force, after allowing for seasonal fluctuations. This was the highest monthly rate since 1949. A large part of the decline in nonagricultural employment from a year ago, about 70 percent, was concentrated in dur able goods manufacturing lines. Construction and transportation also recorded larger than average declines. The only significant gains from a year ago were reported in finance, services, and Government. (56 Construction activity still h igh in d o lla r v o lu m e The dollar volume of construction “putin-place” rose seasonally from February to March, establishing a new first quarter record of $9.7 billion. The Commerce and Labor Departments, agencies gathering these data, expressed the opinion that the increase in dol lar volume over the last year was less than the rise in construction costs. Contract awards through February offer further evidence that physical volume of activity has been slipping. Total construction awards dropped 10 per cent from January and February of 1957. R e ta il sa le s a p p e a r to suffer fro m a d v e rse w e a th e r February retail sales fell about 3 percent from January after seasonal adjustment, and in many areas declines in some weeks were clearly related to unfavorable weather. March figures did not show any improvement, again because of the weather factors. Total retail sales in March were off 1 percent from Feb ruary and 2 percent from a year ago. The weeks in which declines were recorded appear to be largely associated with severe storms. Automobile sales, after an improvement at the end of February which carried through the first ten days of March, fell from a daily aver age of 13,500 in the first ten days of the month to 13,000 in the second ten days, but recov ered and reached a daily average of 15,500 in the last ten days of the month. Sales, how ever, were still well below a year ago. P lan t a n d e q u ip m e n t sp e n d in g e stim a te s revised d o w n w a rd A measure of the current situation not af fected by weather is the estimate of plant and equipment spending for 1958. Businessmen April 1958 MONTHLY are now reported planning to spend 13 per cent less for new plant and equipment in 1958, whereas a few months ago the estimate was only 7 percent below last year’s peak. Figures released in mid-March by the Depart ment of Commerce and the Securities and Ex change Commission have reduced the esti mates for the fourth quarter of 1957 and the first quarter of this year by more than 3 per cent from the previous estimate. Plant and equipment spending in the first three months of 1958, therefore, was more than 6 percent below the 1957 average, and second quarter spending is expected to be off by 12 percent. The decline from the 1957 level during the second half of this year will be more than 15 percent. A new report released by the Department of Commerce indicates that the drop in new projects, 30 percent, is much greater than the anticipated decline in total capital spending by manufacturing firms, 17 percent. Public utilities, the only other line covered in the report, also intend to start a lower dollar vol ume of projects this year than in 1957. The anticipated effect of the decline in new proj ects is a much sharper drop in orders for equipment than that suggested by the figures on total spending and a smaller backlog of projects at the start of 1959 than at the be ginning of this year. M a n u fa c tu re rs’ sale s, n e w orders, and b a c k lo g s continue to slide Another set of indicators which do not ap pear very susceptible to changes in weather are manufacturers’sales and orders. Manufac turers’ sales have dropped 16 percent in the 13 months ending in February. New orders have fallen by 20 percent in the past 15 months, while unfilled orders have declined by 24 percent in 14 months. Manufacturers’ sales and new orders have already fallen farther than they did in the previous two re REVIEW cessions; unfilled orders, on the other hand, have not fallen as far or for such a long period as in these prior declines. February figures for new orders are off by only a small amount, $200 million, but monthly figures are erratic and subject to substantial revision. In ve n to rie s— still too h ig h ? The most recent seasonally adjusted data for inventories indicate that despite reduction at a rate of $2.7 billion in the fourth quarter of 1957, inventories are still generally high relative to sales, and in a number of lines stocks have increased absolutely with pro duction cuts smaller than declines in sales. Business inventories, after seasonal adjust ment in February, had declined $2.0 billion since their peak last summer, and cuts by manufacturers accounted for $1.7 billion or almost 90 percent of the total drop. Yet in February manufacturers’ stocks were a little over twice monthly sales, the highest ratio at any time in the postwar period, and well above the high ratios of the 1948-49 and 1953-54 recessions. Manufacturers of durables have almost all been successful in cutting stocks on hand since last September. The onset of inventory reduc tion, however, lagged behind the drop in sales by two months, and sales have fallen more than inventories. Inventories are particularly heavy relative to sales in the machinery indus tries and transportation equipment. Despite reduced buying of raw materials by metal fab ricators, their inventory-sales ratio has risen substantially since last summer. At the end of February stocks were equal to almost 2Vi times monthly sales. Thus far, durables manu facturers have confined their cuts primarily to purchased goods and goods in process. Fin ished goods inventories remain at the same level as last October. Only a small increase in the inventory-sales ratio for nondurables has been recorded since the decline in sales set in 67 FEDERAL RESERVE BANK last summer; but in paper, chemicals, and petroleum there is serious difficulty in bring ing stocks into line. Prices still risin g While the downturn in business activity is unmistakable, consumer and wholesale prices continue to rise. Conditions affecting the sup ply of agricultural commodities, weather, and the phase of the cattle cycle have been im portant in forcing prices up. In March, for example, prices received by farmers rose 4 percent, the sharpest monthly increase in seven years. Higher quotations for meat ani mals were the most important factor, rein forced by increases in prices of potatoes, fruits, and eggs. A broad list of other farm commodities also contributed small amounts to the sharp rise in over-all farm prices. The Consumer Price Index rose 0.2 percent in February, primarily in response to higher food prices, and again in March for the same reason. Wholesale prices for March, estimated on a preliminary basis at 119.6, rose 0.7 per cent from February, or the largest monthly increase in 15 months. All but a very small part of the rise is attributable to farm and food prices. Prices of industrial goods remained firm during March, but cracks began to ap pear in the price front in late March. Among other price cuts an announcement by Alu minium Ltd. of Canada that it was reducing the price of aluminum 2 cents per pound was followed by domestic producers with a similar cut effective April 1. Reports of unannounced price concessions for some types of durable manufactures are also becoming more nu merous. Tw elfth District output slips Over-all business activity in the Twelfth District continued to decline in February and early March, although the extent of the de 68 OF SA N FRAN C ISCO cline was moderate when compared with other parts of the nation. Pacific Coast factory out put during February, as indicated by manhours worked at production lines, fell 1 per cent after adjustment for seasonal factors, or about the same as during December and January. Almost all manufacturing industries recorded lower manpower usage during the month, although the important food process ing group showed a gain of 2 percent and the lumber and wood products group was un changed. The few current measures of actual physi cal output which are available showed mixed developments. Ingot steel production in the Western District (including Colorado) dur ing February was slightly higher than in Janu ary after adjustment to reflect the smaller number of working days. The weekly operat ing rates of Western steel producers during March averaged about 7 percent higher than the February rate. Although there has been a slight improvement in demand for some types of steel, it appears that some of the strength in February and March production came from the buildup of semi-finished steel stocks by one major steel producer prior to an anticipated April shutdown for plant reor ganization. Further cutbacks in production were reported at the Pacific Northwest plants of a major aluminum firm, to become effec tive in early April. An additional reduction is scheduled for the end of the month. Redwood lumber production fell contraseasonally in February, after having exceeded its year-ago level in January. The severe rains in California during the month contributed to the decline, but the inflow of new orders was also down. Production of Douglas fir and Western pine was below year-ago levels in February and March, and the gap between present and year-ago levels tended to widen over the two-month period. For the first time April 1958 MONTHLY in five years, the usual seasonal rise in Doug las fir lumber prices was absent this February and March. Douglas fir plywood production fell off for several weeks in March as some plants closed following the late February price cut to $64 per thousand square feet. The lower price was a sharp stimulant to the in flow of new orders, and by late March pro duction had rebounded to a new high. The increase in orders encouraged producers to raise their prices back to the mid-January level of $72, however, and by late March the weekly inflow of new orders had fallen to the early February level. E m ploym e nt slip s in District Employment at non-farm establishments in the Twelfth District declined in February at about the same rate as in late 1957, after hav ing shown primarily seasonal movements in January. Manufacturing employment fell by about one-half of one percent in February. This was the seventh consecutive month of decline, and as in most previous months it was centered among durable goods manufac turing firms. Mining employment has fallen by more than 9 percent in the Twelfth District over the past year, compared with a drop na tionally of about 5 percent. After having held up well in January, District employment in both contract construction and wholesale and REVIEW retail trade declined sharply in February. The losses occurred primarily in California, where the moderate strength shown by construction employment during the previous six months suggests that part of the decline may be attrib uted to the severe rains during the month. Continuation of the rains during most of March and into early April undoubtedly had further adverse effect on construction activity. U n e m p lo ym e n t records som e se a so n a l im p ro ve m e n t The unfavorable business developments in California during February were reflected in higher unemployment, although other Twelfth District states reported approximately the usual seasonal movements. In California, in sured unemployment has risen to more than twice the level of February 1957, while the average for the Twelfth District as a whole was about 80 percent higher. In early March, most District states began to show the usual seasonal downturn in insured unemployment, although California and Arizona still re mained at the late February level. However, the extent of the improvement is difficult to gauge because of the increasing exhaustion of unemployment benefits. The rate of over-all unemployment on the Pacific Coast was 5.6 percent of the labor force in February, the highest rate since before the Korean War. 69 FEDERAL RESERVE BANK OF S A N FRANCISCO BUSINESS INDEXES — TWELFTH DISTRICT* ( 1 9 4 7 -4 9 a v e ra g e = 100) Total nonagri cultural employ ment Industrial production (physical volume)* Year and month Lumber Petroleum* Refined Crude Lead* Cement Copper* Electric power 1929 1933 1939 1949 1950 1951 1952 1953 1954 1955 1956 1957 95 40 71 100 113 113 116 118 116 124 116 106 87 52 67 99 98 106 107 109 106 106 105 101 78 50 63 103 103 112 116 122 119 122 129 132 54 27 56 100 112 128 124 130 132 145 156 149 165 72 93 101 109 89 87 77 71 75 79 77 105 17 80 93 113 115 113 111 101 118 129 126 29 26 40 108 119 136 144 161 172 192 210 224 1957 February M arch April M ay June July A ugust Septem ber O ctober N ovem ber D ecem ber 113 114 110 108 109 103 104 101 101 102 99 102 101 101 101 101 101 101 102 101 101 101 130 132 132 138 131 133 137 135 132 131 124 127 140 154 157 152 162 160 169 161 146 139 87 88 82 83 78 69 75 75 76 63 62 137 133 135 126 130 113 115 127 126 125 125 211 221 228 229 239 238 233 217 223 222r 216r 1958 Jan u a ry Feb ru ary 87 97 100 97 122 114 135 62 r 64 123r 126 Total mf’g employ ment Car loadings (num ber)* Dep’t store sales (value)* Waterborne foreign trade3* 1 Retail food prices S, 4 Exports Imports ' 99 103 112 118 121 120 127 134 138 ' '55 97 105 120 130 137 134 143 152 157 102 52 77 94 98 100 100 100 96 104 104 96 30 18 31 98 107 112 120 122 122 132 141 141 64 42 47 100 100 113 115 113 113 112 114 118 190 110 163 85 91 186 171 140 131 164 195 124 72 95 121 137 157 200 308 260 308 443 138 138 138 138 139 138 138 138 138 137 137 158 158 158 158 159 159 158 156 155 152 151 96 100 103 99 100 94 97 93 84 95 93 141 146 137 141 148 141 144 141 134 139 139 117 116 117 117 118 118 119 119 119 118 119 269 267 298 283 252 188 210 173 199 210 417 489 534 698 511 770 572 607 684 582 137 136 150 149 94 86 132 135 121 121 BANKING AND CREDIT STATISTICS — TWELFTH DISTRICT ( a m o u n ts in m illio n s o f d o lla r s ) Member bank reserves and related Items Condition Items of all member banks* Year and month Loan 8 and discounts U.S. G ov’t securities Demand deposits adjusted7 Total time deposits 2,239 1,486 1,967 7,093 7,866 8,839 9,220 9,418 11,124 12,613 13,178 495 720 1,450 6,415 6,463 6,619 6,639 7,942 7,239 6,452 6,619 1,234 951 1,983 9,254 9,937 10,520 10,515 11,196 11,864 12,169 11,870 1,790 1,609 2,267 6,302 6,777 7,502 7,997 8,699 9,120 9,424 10,679 Ju ly August Septem ber O ctober N ovem ber D ecember 12,576 12,649 12,694 12,911 12,912 12,945 13,178 13,064 13,185 13,178 6,177 6,520 6,315 6,249 6,319 6,313 6,293 6,433 6,357 6,619 11,129 11,622 11,210 11,310 11,407 11,329 11,561 11,570 11,770 11,870 9,794 9,839 9,995 10,155 10,188 10,220 10,301 10,417 10,304 10,679 1958 Jan u ary Feb ru ary M arch 13,106 13,002 12,860 6,573 6,884 7,075 11,601 11,305 13,512 10,992 11,183 1929 1933 1939 1950 1951 1952 1953 1954 1955 1956 1957 1957 M arch April M ay June Bank rates on short-term business loans* Factors affecting reserves: Reserve bank credit* _ — 3.35 3.66 3.95 4.14 4.09 4.10 4.50 4.97 4.74 + + + + + + — — 4.81 + — 5.21 5.13 10,761 4.95 + + + — 4- Commer cial18 Treasury* 34 2 2 39 21 7 14 2 38 52 31 0 - 110 - 192 -1 ,1 4 1 -1 ,5 8 2 -1 ,9 1 2 -3 ,0 7 3 -2 ,4 4 8 -2 ,6 8 5 -3 ,2 5 9 -4 ,1 6 4 + + + +1 +1 +2 +3 +2 +2 +3 +3 23 150 245 198 983 265 158 328 757 274 903 37 35 56 29 49 50 109 76 14 18 - 170 445 261 374 426 145 434 322 298 454 + + + + + + + + + + 170 430 209 402 320 292 480 159 447 480 16 12 62 - 258 427 180 + + + 180 298 253 M oney In circu lation* _ — + + + + + — — — + + + + — — + — — + + Reserves11 Bank debits Index 31 cities*-1* (1947-49 = 100)* 6 18 31 14 189 132 39 30 100 96 83 175 185 584 2,026 2,269 2,514 2,551 2,505 2,530 2,6.54 2,686 42 18 30 115 132 140 150 154 172 189 203 9 31 54 20 6 39 30 8 37 23 2,495 2,560 2,526 2,483 2,457 2,592 2,581 2,517 2,652 2,686 200 202 200 203 205 197 204 200 202 217 137 17 11 2,662 2,520 2,530 203 198 211 1 A djusted for seasonal variation, except where indicated. Except for d epartm ent store statistics, all indexes are based upon d a ta from outside sources, as follows: lum ber, C alifornia Redwood A ssociation and U.S. B ureau of the C ensus; petroleum , cem ent, copper, and lead, U.S. B ureau of M ines; electric power, Federal Power Commission; nonagricultural and m anufacturing em ploym ent, U.S. B ureau of L abor S tatistics and cooperating s ta te agencies; re ta il food prices, U.S. B ureau of L abor S tatistics; carloadings, various railroads and railroad associations; and foreign trade, U.S. B ureau of the Census. * D aily average. * N o t ad ju sted for seasonal variation. 4 Los Angeles, San Francisco, and S eattle indexes combined. ‘ Com m ercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and W ashington custom s d istricts; s tartin g w ith Ju ly 1950, “ spe cial category” exports are excluded because of security reasons. • A nnual figures are as of end of year, m onthly figures as of la st W ednesday in m onth. 7D em and deposits, excluding in terbank and U.S. G ov’t deposits, less cash item s in process of collection. M onthly d a ta p a rtly esti m ated. ■ Average rates on loans m ade in five m ajor cities. • Changes from end of previous m onth or year. 10 M inus sign indicates flow of funds o u t of th e D istrict in th e case of commercial operations, and excess of receipts over disbursem ents in the case of T reasury operations. u E n d of y ear and end of m onth figures. u D ebits to to tal deposits except interbank prior to 1942. D ebits to dem and deposit* exoept U.S. G overnm ent an d in terb an k deposits from 1942. t>— Prelim inary. r— Revised. 70
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