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T W E L F T H F E DE R AL R E SE R VE D I S T R I C T FEDERAL RESERVE BANK OF SAN December 1956 FRANCISCO Monetary Policy in a Boom Period. . . 150 1956 in R eview ..................................... 155 Industrial Growth in the Twelfth District........................... 158 MONETARY POLICY . . . IN A B O O M PERIOD of terms have been used to charac A number terize the present state of the economy— inflation, prosperity, full employment, boom. All of these are useful and reasonably descriptive, but perhaps the last one is the most meaningful. “Inflation,” in the sense of a general tendency towards rising prices, has been present during the past 18 months or so but on a much more moderate scale than during the early postwar period or even the Korean W ar period. The present situation is basically very different from that of 1946-48 or that of 1950-51. The terms “prosperity” and “full employment” (reason ably full, that is, since there is always a certain minimum amount of unemployment) are appli cable to the present situation, but they have been applicable during most of the past decade and a half. During the past year or two, however, the economic picture has changed in a way that pre sents difficulties for monetary policy and that seems to call for a special term. The word that economists and the lay public alike have fre quently used for a situation like the present is “boom.” The nature of boom s An economic boom is the usual last phase of a m ajor upswing of the business cycle. History shows that those long periods of sustained pros perity which have ended in sharp depressions have been characterized by an element of over exuberance in their last phases. Not having ex perienced serious economic difficulties for a long time, people become unduly optimistic and imagine that prosperity will continue indefinite ly. Although past business depressions are not entirely forgotten, it is widely believed that this time things are different. The over-confidence of businessmen, investors, bankers, government officials, and others may lead them to take actions which they would not take under normal condi tions and which may not be in either their own Digitized for 150 FRASER personal interest or the general interest of the nation. The average boom has a number of typical eco nomic characteristics. Corporate stocks and real estate become the objects of widespread specu lation and their prices soar. Private indebtedness rises sharply. New investment increases at an exceptionally rapid pace. A t the same time, people become less prudent about the kinds of investment they make. During the booms of the nineteenth century, for instance, railroad lines and entire towns were built in uninhabited areas where there was no need for them. During the 1920,s, according to studies made by the N a tional Bureau of Economic Research, the quality of foreign bonds and urban mortgages sold to the public tended to deteriorate as the boom pro gressed; and many people still have sad mem ories of the unsound ventures they engaged in then. A rise in the general price level is a com mon but not universal characteristic of boom pe riods ; it did not occur during the late 1920's. H istory also indicates that economic booms typically end in speculative crashes and that these are followed by business depressions. W hy this occurs is not completely understood—in deed, what causes the business cycle as a whole is still the great unsolved problem of economics. But we do know something about how this oc curs. If new investment proceeds too rapidly, productive capacity will outrun for a time the ability or desire of the public to purchase all the goods that can be produced. If new business enterprises are basically unsound, this fact may be concealed for a while but sooner or later it becomes apparent to even the most optimistic. If speculative prices rise to heights where they are obviously excessive, many speculators will try to sell and a crash occurs. If business firms and individuals borrow too much, they will reach the point eventually where they can borrow no more and this stimulus to sales will disappear. December 1956 MONTHLY REVIEW Usually, these factors will make themselves felt at about the same time, each one inducing an other, so that the effects are cumulative. If this occurs, people will be thrown out of work, busi ness enterprises go bankrupt, expenditures are generally curtailed, and the economy tailspins into a depression. A re crashes and depressions inevitable? O r is it possible, as many persons have maintained recently, that our economy can continue to grow steadily with only occasional minor setbacks such as we had in 1949 and 1954? Have “rolling ad justm ents” made cumulative downturns obso lete? Unfortunately, these questions cannot yet be answered definitely, but a great many econ omists are not convinced that the business cycle as we have known it in the past has been perm a nently eliminated. No doubt, we have made much progress in our understanding of and ability to deal with depressions when they occur. But it may also be true that the growing size, complex ity, and wealth of our nation make the potential difficulties even more serious than heretofore. Moreover, it seems doubtful that counter-cyclical measures can be put into effect quickly enough to prevent at least a moderately serious depres sion from developing. W hat seems reasonably certain, at any rate, is that the more a boom is allowed to get out of hand—that is, the higher prices go, the more widespread speculation becomes, the higher debt is allowed to pile up, the worse becomes the lack of balance between investment and consumption, the more normal standards of prudence are weak ened—the greater is the likelihood that the boom will come to a sudden and disastrous end. The chances for prolonging a period of prosperity would seem to be best if the economy can be kept growing at a fairly steady pace, avoiding infla tion, undue speculation, and other boom-period excesses. W here we stand today W hether or not the current period is basically similar to those great booms of the past that have ended in crashes and depressions is a question that each observer must answer for himself. But certainly many typical boom-period phe nomena are present in the economy today. Among them the following may be particularly noted. (1) A fter several years of relative sta bility, the wholesale price index has risen more than 5 percent in the past year and a half. ( 2 ) Stock prices reached record levels in August, at which time they were nearly twice as high as three years ago and not far from the highest levels in history when measured relative to earn ings and dividends. Similarly, urban real estate prices have shown a substantial increase in re cent years, as home buyers are painfully aware. (3) Total bank loans outstanding, after rising 16.5 percent during 1955, increased another 7.8 percent during the first 11 months of 1956. (4) Business expenditures on new plant and equip ment, which had amounted to $26.8 billion in 1954 and $28.7 billion in 1955, have been esti mated at $35 billion for 1956 and at an annual rate of $38 billion for the first quarter of 1957. (5) Possibly the most significant evidence of boom conditions is the optimism that prevails concerning the future of business. This opti mism is reflected, for instance, in numerous pub lished forecasts of uninterrupted growth for the economy, in frequent assertions that the business cycle has been ironed out, and in the apparently widespread belief that “it can’t happen again.” While some persons take a more cautious view of our economic future, they seem to be a mi nority at present. Economic forecasting has not yet reached the point where it is possible to predict confidently when the rising phase of the business cycle will give way to a downturn. Economists have tried to develop forecasting tools by studying past cycles and have found that there is a good deal of similarity among them. Thus, there is a fair ly typical pattern of behavior around the upper turning point in the cycle, in the sense that cer tain sectors of the economy are usually affected quickly and others later .1 1 See Geoffrey H. Moore, Statistical Indicators of Cyclical Revivals and Recessions, Occasional Paper 31 (New York: National Bureau of Economic Research, 1950). 151 FEDERAL RESERVE BANK OF SAN FRANCISCO Unfortunately, no actual cycle is ever exactly like the typical one, since the latter is an average of many real ones. Consequently, interpretation of the data is always difficult. F or instance, the decline since February in the total value of building contracts awarded (on a seasonally ad justed basis) and the rise during the past year or so in the liabilities of business failures have been unfavorable signs at the present time, since these are typical precursors of a general down tu rn in business conditions. But other typical precursors, such as wholesale prices, new busi ness incorporations, new orders for durable goods, length of the work-week, and stock prices have either been improving or fluctuating irreg ularly in recent months. About all that can be said at the present time, therefore, is that the evidence can be interpreted in different ways. M onetary policy as an anti-cyclical weapon The problem of how to smooth out the business cycle has probably received more attention from economists during the past quarter of a century than any other. Many different monetary, fiscal, and other sorts of measures have been proposed. H ere we are interested only in those of a mone tary nature, which, after having been somewhat out of fashion during the depression, are now en joying a revival of popularity. In part this is due to the fact that monetary measures are not very effective after a depression is under way, since, while they can make money easier to obtain, they cannot force anyone to borrow more or to spend more if he is reluctant to do so. On the other hand, during an inflation it is always possible to restrict spending by tightening up sufficiently on the money supply. Consequently, it is generally agreed that the chief contribution monetary policy can make to the smoothing out of the busi ness cycle is to help restrain inflationary pres sures and boom-period excesses. A flexible monetary policy will also contribute directly to smoothing out the cycle by permitting demands which were postponed during the more feverish days of the boom to be met with bank credit as other demands became less intensive. As is well known, the Federal Reserve System has taken a number of steps during the past two 152 years to keep speculative and inflationary ten dencies in check. Early in 1955, when it seemed that the stock market was developing an un healthy speculative fervor, m argin requirements for the purchase of stock were increased twice. The rediscount rate has been raised six times since April 1955. Open market operations have been employed in such a way as to adapt the sup ply of credit to short-run changes in demand, while at the same time bank reserves have been kept from increasing as rapidly and persistently as the demand for bank loans,' so that credit con ditions gradually tightened. The basic objective of these over-all monetary measures has been to restrain the use of bank credit for spending and thereby help to hold down the level of total expenditures to the level of total available supplies. If the public tries to buy more than can be produced, either of certain types of goods or of goods in general, prices will rise. To the extent that such buying is done with funds borrowed from the banks—and, of course, a considerable part of it is — restricting bank loans can operate to hold down the level of spend ing and therefore the rise in prices. Some complaints have been voiced recently to the effect that monetary policy has been exces sively restrictive. It has been argued that credit may be tightened up so much that business will be seriously hampered and the economy may be thrown into a depression. It will be desirable, therefore, to consider how restrictive our mone tary policies actually have been and what effects this has had. Any notion that the volume of bank credit has actually been reduced because of the actions of the Federal Reserve System is quite incorrect. Total loans of all commercial banks increased by 7.8 percent during the first 1 1 months of 1956, as compared with 13.9 percent during the same period of 1955. W hat has happened, therefore, is that after an abnormally large increase in bank lending during 1955 the rate of increase has been slowed somewhat. This is what one would ex pect and what sound monetary policy would dic tate in view of the fact that the rate of growth of real output has also slowed down. This deceler December 1956 MONTHLY REVIEW ation has been due partly to the July steel strike, partly to some slackening of demand for auto mobiles and certain other goods, but mainly to the fact that 1956 was not a year of recovery from recession with substantial unused resources that could be put back to work, as was the case in 1955. There are at least three main types of expend iture that normally depend on bank credit to an im portant degree: home purchases, instal ment buying, and inventory accumulation. In addition, when long-term funds are scarce, as at present, bank credit is used to a considerable extent in interim financing of plant and equip ment expenditures. It will be worthwhile to ex amine these different types of spending, insofar as the data permit, to see how they have been affected by restrictions on bank lending. Outstanding real estate loans by commercial banks increased 8.2 per cent during the first 1 1 months of 1956, as compared with 12.5 percent during the same period of 1955. Although total construction activity has been even higher this year than last, residential nonfarm construction has sagged. Even more serious than this has been the pronounced and fairly steady decline in new housing starts since the beginning of 1955. It is difficult to say how much of this decline is due to the shortage of mortgage funds and how much to higher construction costs or saturation of the housing market, but undoubtedly the former factor has been of some importance. However, the drop in residential construction has not re sulted in much unemployment of resources since other types of construction have taken up most of the slack. Total outstanding consumer credit extended by all commercial banks increased about 10.6 percent during the first eleven months of 1956, as compared with 19.3 percent during the same pe riod of 1955. The increase in 1956, although smaller than the previous year’s record increase, was thus considerable. The outstanding amount of every m ajor type of consumer credit, includ ing automobile loans, was larger in late 1956 than a year earlier. It seems fairly clear, therefore, that consumer purchases have not been greatly restricted by lack of credit. The fact that sales of automobiles and certain other types of consumer goods eased off last spring was more likely due to a temporary decline in demand. No separate data are available giving the amount of bank credit extended for inventory accumulation, for plant and equipment expend itures, and for other types of business spending. However, total business loans by commercial banks increased by 13.3 percent during the first 11 months of 1956, as compared with about 20 percent in the corresponding period of 1955. Considering that last summer’s steel strike prob ably held down bank lending somewhat and that the 1955 increase was much the largest on rec ord, it seems clear that, taken as a whole, busi ness has been far from starved for credit during the past year. This view is confirmed by the very rapid in crease in business expenditures on new plant and equipment and by the continued rise in inven tories. New plant and equipment expenditures by business have been estimated at $35 billion during 1956 as compared with $28.7 billion dur ing 1955. Inventories in manufacturing and trade rose $4.9 billion during the first ten months of 1956 as compared with $4.0 billion (seasonally adjusted figures) during the corresponding pe riod of 1955. Not all of such expenditures are financed by bank credit, of course—indeed, the larger part of them are not. Nevertheless, bank credit has been used to finance an important and probably increasing part of such expenditure. The conclusions that emerge from this brief survey are, first, that the high cost and limited availability of credit this year have probably re stricted expenditures to only a small extent, ex cept probably for new housing; and, second, that whatever restriction has occurred has been desir able (and desired) in that it has helped to reduce the inflationary pressures somewhat. There is little evidence that credit has been “excessively” restricted. The increase in the money supply If one considers only the quantity of money (demand deposits adjusted plus currency out side banks), it is possible to make a superficially 153 FEDERAL RESERVE BANK OF SAN FRANCISCO plausible case for the argum ent that monetary restrictions have been excessive. During the first 11 months of 1956 the money supply increased only by about 1.2 percent, as compared with a 2.5 percent increase during the corresponding period of 1955 (seasonally adjusted data), and an average annual increase of 2.6 percent during the four complete years, 1952-55. Because of the less rapid rise in the money supply this year and also because it has failed to keep pace with the rise in output, it has been suggested by some that the money supply has not been allowed to increase as fast as it should. This argument, however, ignores the fact that the total amount of spending that occurs depends not only on the volume of money in circulation but also on the rapidity of use of the money sup ply or the velocity of circulation. It is obvious that the more often the average dollar changes hands, the more work it can do in a year. Since 1954, this rate of use or turnover of the money supply has been steadily rising, reflecting the fact that business firms and individuals are holding fewer idle balances and are putting their funds to work more quickly. Thus, the income velocity of circulation (which is measured approximately by dividing the gross national product by the total money supply) increased from an annual rate of 2.99 in the third quarter of 1955 to 3.09 in the third quarter of 1956. This represents an increase in velocity of 3.2 percent, which should be considered along with the increase in the money supply of about 1 percent during the same period in analyzing the over-all monetary picture. The operation of these two factors has not only facilitated an increase in the real out put of goods and services but also made possible a noticeable rise in the general price level. Because of the importance of the velocity of circulation, it is impossible to say whether the money supply is increasing too rapidly or not rapidly enough simply by comparing its rate of increase with that of past years or with the in crease in production or other economic variables. This question must be answered, rather, by ob serving whether the price level is rising or falling and whether business activity is booming or de pressed. In short, the real test of the yeast is what it does to the bread. On this score it would 154 certainly not seem that the rise in the money supply during recent months has been insuffi cient, particularly in view of the rising tendency of prices. It is perhaps not surprising that some who have been squeezed by the tight credit situation should have difficulty understanding the need for such measures. The inconvenience to them is al ways clear and present; the danger to the econ omy is always distant and uncertain. Each pro ducer knows that he could step up production or capital expansion if only he could obtain more credit but fails to realize that, when resources are fully utilized, he can do this only by bidding scarce resources away from others, thereby rais ing prices but not adding to total output. W hile the individual producer may see the problem only from his own special point of view, it is, of course, the obligation of the monetary authorities to consider it from the viewpoint of the economy as a whole. Effective monetary pol icy thus requires that long-range and general ob jectives take precedence over short-range and special ones. Needless to say, the monetary authorities also remain constantly alert to the danger that credit may be tightened up too much. There is always the possibility that a boom may prove to be basically different from preceding ones and therefore require different treatment. There are also the possibilities of misreading the evidence and exaggerating the strength of the boom or of failing to detect quickly changes in economic trends. W hile these possibilities exist and should be kept in mind, this article has indicated that so far there seems no reason to believe that any of them have materialized. Restraining boom-period excesses and pre venting depressions is not, of course, the exclu sive responsibility of monetary policy. Fiscal policy and other types of government measures also have im portant roles to play, and it is essen tial that all of these measures be properly co ordinated. This raises difficult problems that cannot be discussed here, but it may be stated simply that monetary policy is likely to be more effective if supported by the appropriate fiscal policy and other measures than if left to carry the ball alone. December 1956 MONTHLY REVIEW 1956 In Review in national business activity in the closing months of 1956 insured that employ ment, income, and production would reach new yearly highs. The rate of growth during the year did not match that of 1955, however. Since 1956 began with the economy operating at a high level of activity, increases in the production of some basic nonagricultural commodities and many manufactured goods were limited to those made possible by additions to capacity during the year. Employment gains were restricted largely to labor force growth since the pool of unemployed persons was at a fairly low level even at the start of the year. Consequently, when business firms, consumers, and state and local governments in creased their demands for goods and services, considerable upward pressure was placed on prices. The changes in demand that sustained peak levels of economic activity in 1956 are somewhat different from those which brought a recovery and then a full-scale boom in 1955. Consumer spending for new residential housing and auto mobiles was substantially reduced in 1956. In fact, total expenditures for consumer durables declined during the year. The drop-off in con sumer outlays for new automobiles was only partly offset by moderate increases in spending for household durables. Consumers continued to increase expenditures for nondurables and serv ices over the year, although a larger proportion of the 1956 gain was accounted for by increas ing prices than in 1955. The shift in consumer demand toward a larger volume of purchases of nondurable goods and services, which involve less reliance on time payments, led to a notice able slowdown in the rate of growth of new in stalment credit. Moreover, consumers chose to increase their rate of saving during the year. A dvances l Business spending rises W hile consumer expenditures for durable goods declined, business spending on plant and equipment jumped sharply, from $29 billion in 1955 to about $35 billion in 1956. This large in crease proved especially stimulating to the na tion’s heavy construction industry and to other industries manufacturing machinery, building materials, and fabricated metals. Another item of business spending that is usually highly vola tile, additions to inventories, was smaller in 1956 than in 1955. Government demand for goods and services rose in 1956 as state and local governments in creased spending for educational purposes and highway construction. Expenditures by the Fed eral Government showed little change. The net effect of Federal Government fiscal operations, in fact, appears to have been mildly deflationary during the year as cash receipts from the public exceeded payments thereto. In 1955, receipts and payments to the public were nearly equal. The increase in the total value of product from 1955 to 1956— an increase which preliminary es timates place at about $ 2 1 billion—is smaller than the 1954-55 gain of $30 billion. Moreover, only about half of the rise in 1956 represents an increase in actual physical output of goods and services. The remainder resulted from price in creases. In 1955, price increases played a lesser role in the growth of gross national product. Dem and for credit outruns supply The demand for credit persistently grew more rapidly than the supply during 1956. In response to conditions in the money markets, discount rates were raised during the year at the various Federal Reserve banks. The limited availability of credit caused some potential borrowers to do without funds, thereby limiting somewhat the demand for goods. Even so, according to prelim inary estimates, total loans outstanding at all commercial banks in the United States rose about $6 billion from December 31, 1955 to November 28, 1956. Loans to business firms to finance ex pansion plans and additions to inventories ac counted for a substantial part of the gain. Smaller increases occurred in real estate loans and con sumer loans, while other categories either showed minor increases or declines. Commercial bank holdings of United States Government securities were reduced by about $3.5 billion in the first 11 months of 1956. In the same period, the money supply rose by about 1 percent, or only half as 155 FEDERAL RESERVE BANK OF SAN FRANCISCO much as in the corresponding months of 1955. The increase in the velocity, or rate of use, of the money supply, however, was substantially larger than during 1955. District business activity outpaces national rise Twelfth District developments in 1956 gener ally paralleled those in the nation. W hile de tailed estimates of consumer, business, and gov ernment spending within the District are not available, scattered sources of information sug gest that business activity in the Twelfth Dis trict expanded at a greater rate than in the United States in 1956, as has been the case in most years since 1950. Production indexes computed for the District are far less comprehensive than those for the na tion, but it is nevertheless clear that the District output of goods and services increased more rapidly than in the country as a whole. Substan tial increases in the District’s labor force were made possible by a reduction in the average level of unemployment and by a sizable migration into the District, particularly into Arizona and Cali fornia. Building permits issued for the construc tion of factories and commercial buildings through the first eight months of 1956 indicate that the growth in capacity of District indus tries proceeded at a rate substantially above that for the nation. Total nonfarm employment in the District rose by more than 5 percent during 1956 as compared w ith a national gain of a little more than 2 per cent. Reflecting enlarged levels of demand, em ployment expanded by 5 percent or more in man ufacturing, construction, trade, finance, and gov ernment. M ore moderate gains were registered in mining and in the transportation, communi cation, and public utilities category. In the Dis trict, as in the nation, gains in total nonfarm em ployment during 1956 did not match those that occurred in 1955. Durable g oods m anufacturing boom s in the Twelfth District Employment in nondurable manufacturing rose by 3 percent, but increased activity in dur able goods accounted for most of the 6 percent gain in manufacturing employment in the 156 Twelfth District in 1956. The most significant employment changes occurred in aircraft and parts and in ordnance. In fact, 50 percent of the total rise in m anufacturing employment oc curred in these industries. W hile the entire out put of ordnance plants is for defense purposes, about 30 percent of the nation’s backlog of or ders for complete aircraft in September 1956 was for nonmilitary customers. The increase in activity in aircraft and ordnance, added to the record volume of heavy construction and in creased business demands for durable equip ment, enlarged the demand for the products of District metal and machinery industries, which had employment gains of 5 and 16 percent, re spectively. Most of the growth in employment in the machinery industry was centered in firms producing electronic equipment. O ther durable goods industries registered more moderate in creases. A decline in the production of Douglas fir and western pine, engendered by the nation wide drop-off in residential housing construc tion, led to a 5 percent reduction in employment in lumber and wood products. In nondurable manufacturing, employment rose 4 percent in food and kindred products and over 6 percent in printing and publishing. Most other nondurable goods industries registered more moderate gains. Textile and apparel manu facturing reported an employment decline of nearly 2 percent from year-ago levels. A record year in construction New construction activity in the District, based upon the value of building permits author ized, rose to a new high level in 1956. Through October the increase over the first ten months of 1955 amounted to 4 percent, smaller than the gain from 1954 to 1955 but larger than the in crease in the nation during 1956. A n increase of approximately 40 percent in the value of nonresidential permits more than offset a 15 percent decline in the value of residential authorizations. W hile residential construction has dipped further in the District than in the nation, gains regis tered in nonresidential categories greatly exceed those in the United States. Perm its issued in the District for the construction of industrial and December 1956 MONTHLY REVIEW public utility buildings show the largest in creases—more than 100 percent over 1956 levels. M ajor heavy construction contracts awarded during 1956 in the District included a $113 mil lion steel mill at Fontana, California, a $40 mil lion auto assembly plant in Los Angeles, a $45 million railroad trestle in Utah, a $44 million aluminum reduction plant in Oregon, a number of public utilities projects that totaled about $225 million, and a considerable quantity of commer cial buildings, community buildings, and high way projects. The decline in residential construction during 1956, in spite of high and rising levels of em ployment and personal disposable income, is at tributed to a number of factors. In addition to the decreased availability of mortgage credit, it is generally believed that there may have been some decline in the basic demand for housing. Some District areas reported larger than usual inventories of unsold houses during 1956. Since the rate of new family formation has been de clining in recent years, the demand for new houses has become more dependent on the growth of existing families who need bigger and better quarters. Many of these families have chosen to expand and modernize existing quar ters rather than purchase a new house, since costs connected with building a new home, espe cially the cost of land, have risen. Furtherm ore, suburban areas now make new housing develop ments bear a larger share of the cost of install ing new utilities and are increasingly restricting the number of units that may be built on a given land area. Retail sales show m arked changes from 7955 Consumer spending at retail establishments in the District (based upon data for stores oper ating from one to ten outlets) in the first nine months of the year rose by 5.5 percent over the same period a year ago. Prelim inary indications are that sales during the fourth quarter con tinued at a level slightly higher than in the same quarter in 1955. A t District department stores, cumulative sales for the year through November were 3 percent above sales for a comparable pe riod a year earlier. The increase in consumer expenditures in the District was not distributed evenly. Sales of es tablishments selling food, general merchandise, drugs, gasoline, and lumber and hardware show gains ranging from 12 to 22 percent. Sales of eating and drinking establishments and apparel stores rose by about 6 percent. On the other hand, District consumers chose to reduce ex penditures for durable goods. Furniture and ap pliance sales registered a gain of nearly 5 per cent, but sales of automotive establishments were down more than 9 percent in dollar value. Reg istrations of new automobiles in California through November dropped nearly 18 percent from a comparable period in 1955. Bank credit expands with advances in business activity Demands for bank credit remained strong throughout 1956, in line with the rise in business activity. Total loans outstanding at weekly re porting member banks in leading cities in the District increased $1.3 billion in the twelve month period ending December 7,1956, the same amount as in the year ending December 1, 1955. Slightly more than half of the rise in loans during 1956 was accounted for by commercial and industrial firms. Large borrowings were made during the year by firms manufacturing lumber, metal, petroleum, and food and liquor products. Borrowings of wholesalers, retailers, and other commercial and industrial firms in creased significantly also. A large decrease in indebtedness was reported for sales finance com panies, largely because of the reduction in auto mobile sales. Public utilities and transportation firms, as well as textile and apparel manufac turers, reduced borrowings during the year. Real estate loans, reflecting the high level of new construction activity, show a rise in 1956 of about the same amount as during the com parable period in 1955. “O ther” loans—a cate gory that includes loans to consumers— re corded a gain only one-third as great as in 1955, in line with the slowdown in the sale of con sumer durables. Loans for purchasing and car rying securities, the smallest category, increased slightly during the past year. 157
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