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F E D E R A L R E S E R V E B A N K O F S A N F R A N C IS C O M O N T H L Y R E V I E IN W THIS I SSUE Consumers and Their T a x e s . . . 239 Lumber: Out on a Limb? . . . . . 248 I l*• Ih\ys §m Vj v u d i I DECEMBER 1964 1 91 4 FIFTIETH ANNIVERSARY 1964 Consumers and their Taxes . . . Congress m ay be in the mood to reduce excise taxes, but state legislatures p ro bably will be in a different mood. Lumber: Out on a Limb? . . . Beset by competition from other producers and other building m aterials, the W estern lumber industry fights back. December 1964 MONTHLY REVIEW Consumers and Their Taxes I N every recent year, the Secretary of the Treasury has appeared before the H ouse Ways and M eans Com m ittee to request the extension of the “K orean” excise taxes, and Congress— after m ore-or-less perfunctory de bate— has agreed to grant one m ore year’s extension. B ut C apitol H ill perhaps has seen the last of th a t particular ritual; for 1965, a com pletely new script may have to be written. In view of President Johnson’s statem ent be fore th e steelw orkers’ convention (“N ext year we are going to cut excise taxes” ) and in view of Treasury Secretary D illon’s subsequent de scription of the levies th at were ripe for reduc tion, the taxpayer may well look forw ard to some low ering of excise rate schedules in the forthcom ing C ongressional session. If the F ederal tax-collector has his way, reductions will be forthcom ing on some but not all categories of “ sin” taxes; on the other hand, revenues may continue to rise for some of the m ore notable levies of th at type, such as those on liquor and tobacco. M oreover, in 37 of the 50 states, tax collectors will continue to rely on an increasing take from similar taxes to offset the rising costs of state and m unicipal finance. B ut w hatever the fate of the proposed 1965 legislation, the current dis cussion serves to draw fresh attention to a type of levy th a t has been frequently de nounced, yet greatly productive, since the birth of the R epublic. Direct vs. indirect F ederal excises and state sales taxes come under the heading of “ indirect” consum ption taxes, as opposed to the “direct” taxes levied on individual or corporate income. C onsum p tion taxes are paid by the consum er in the price of the com m odities th a t he purchases; they vary with consum er expenditures, in con trast to income taxes, which vary with receipts during a definite period of time. S ale s and ex cise t a x revenues grow rapidly, especially at state level Billions of Dollars Source: Department of Commerce A lthough relatively less im portant now than, say, at the turn of the century, consum p tion taxes currently bring in one-fifth of com bined federal-state-local governm ental reve nues and rank second in im portance only to the personal incom e tax. In other countries consum ption taxes have played an even more im portant role. A nd in other periods of his tory, their im portance has been felt fa r o u t side the fiscal field— witness the com motion aroused w hen G eorge III taxed tea and when George W ashington taxed whiskey. (Yet, in the p ast century, the tax rate on distilled spirits has risen from $0.20 to $10.50 per gallon, w ithout revolutionary consequences.) A t present, about two-fifths of the total F ederal take from excise taxes comes from sum ptuary (liquor-tobacco-gam bling) taxes. A nother two-fifths of the excise total comes from auto and gasoline taxes, including those earm arked for the Highway Trust Fund. The rem aining one-fifth consists prim arily of “lux ury” taxes— on jewelry, furs, T V sets, tele phone calls, air travel— which are the prim e 239 FEDERAL RESERVE BANK targets for reduction in the proposed legisla tion. T he Federal G overnm ent has never m ade use of a general sales tax, although it has been strongly advocated during the Civil W ar, the G reat D epression, W orld W ar II, and again in m ore recent years. State governm ents, on the other hand, becam e strongly attracted to this type of revenue-producer during the G reat D epression — 25 states adopted such a tax during the 1933-35 period alone — so that it now ranks as the m ajor single source of revenue in m any jurisdictions. T he states, of course, have also adopted the same panoply of specific excises th at are levied at the F ed eral level, while a few m unicipalities have followed the states into the field of general sales taxation. T he F ederal G overnm ent’s perennial reli ance on consum ption and other indirect taxes, and the state governm ents’ adoption of such taxes during the D epression, gave these levies a predom inant position in the nation’s tax structure even as late as W orld W ar II. The w ar, how ever, m arked a turning point; the share of all indirect taxes in the natio n ’s tax structure dropped from 71 to 31 percent b e tw een 1939 and 1943. D uring th at period, the personal incom e tax was transform ed into a mass tax with exem ptions so low as to in clude the vast m ajority of households in the tax base, while corporate tax rates were raised to very high levels, especially after the im po sition of an excess-profits tax. 240 Since the low point reached in W orld W ar II, indirect taxes have increased in relative im portance. Congress low ered both income and excise tax rates after W orld W ar II, in creased them again during the K orean W ar, and low ered them again after that conflict. B ut the states have consistently m oved in the direction of heavier sales taxation, and that factor— along w ith the reduction in Federal income taxes in several recent years — has helped cause the shift in the relative im por OF SAN FRANCISCO tance of the two types of levies. F ro m 31 p e r cent in 1943, indirect taxes subsequently have risen to 35 percent of total tax revenues in 1951 and 43 percent in 1962— and probably to 44 percent in the current fiscal year. (T h e totals include prim arily excise and sales taxes, bu t property taxes and several m inor levies are also included.) Rising rates, rising revenues In dollar term s, indirect consum ption taxes have increased consistently over the years. F o r one reason, the long-term tren d in in comes and sales has been upw ard; fo r an other, the long-term tren d in tax rates has also risen, despite the occasional reductions in excise rates. Sum ptuary expenditures have long been a favorite target of the Federal tax collector; not only has the distilled-spirits rate increased from $0.20 to $10.50 p er gallon over the past century, bu t the cigarette-tax rate has risen from $1.50 to $4.00 p e r thousand over the sam e period. B ut a sim ilar tren d has also been evident in non-sum ptuary areas. T he tax rate on passenger cars rose from 3 percent to 10 percent of m anufacturer’s sale price betw een 1917 and 1951, and the rate on telephone calls rose irregularly from 6 percent to 10 percent betw een 1941 and 1954. A t the state level, the up tren d in sales tax rates has been very strong, especially in the last several years. R ate increases took place in about one-half of the sales-tax states during the last decade; consequently, the m edian tax rate has now risen from 2 to 3 percent, and the to p rate has reached 5 percent. E ven so, resistance to rate increases is now increasingly evident; in 1964, only tw o ou t of nine state legislatures th at considered rate increases acted favorably on such proposals. Substantial revenue gains have been re corded in recent years on the strength of an expanding tax base as well as the rising level of tax rates. Thus, betw een 1959 and 1963, December 1964 MONTHLY REVIEW S a le s ta x e s used in cre a sin g ly to meet revenue needs of Western state governments . . . excises account for relatively small share of Federal revenues FEDERAL EXCISE TA XES S T A T E SALES T A X E S Millions of Dollars Porcont of Totol 0 20 ------ 1 O th e r U .S . ^ M I.......... revenues from Federal excise taxes rose from $11.4 to $13,8 billion, while revenues from state sales taxes jum ped from $8.5 to $11.8 billion. A nd, as already indicated, the share of such indirect consum ption taxes in the total tax structure also rose. W estern states recorded significant gains in these categories in the sam e period. Between fiscal 1959 and fiscal 1963, California in creased its contribution to F ederal excise taxes from $712 to $908 million, and other D istrict states increased their Federal excisetax contribution from $122 to $168 million. M eanw hile, C alifornia increased its own salestax revenues from $1,150 to $1,479 million, and other D istrict states increased their take from such taxes from $654 to $890 million. F ederal rates naturally are uniform through out the country, but individual states vary widely in the extent to which they rely on state sales taxes for revenue. T he nine D istrict states all im pose selective sales taxes, bu t three (O regon, Idaho, and A laska) do not have a general sales tax. T hose three states thus obtain less th an one-third of their state revenues from sales taxes, w hereas other D is trict states rely m uch m ore heavily on th at P*rcont of Total 40 60 0 20 1---------------- 1----------------1---------------- 1----------------1----------------'---------------- H ii i type of levy. U tah and C alifornia obtain sub stantially m ore than one-half— and A rizona, N evada, Hawaii, and W ashington obtain twothirds o r m ore— of their state revenues from that source. Stimulus to growth? B ut how m uch of a tax burden should the consum er shoulder in the form of excise and sales taxes? T he question m ay seem unrealis tic to harassed legislators, beset as they are by the need to find funds fo r a rapidly expanding package of public facilities and public serv ices; to econom ists, however, especially those concerned with international com parisons of econom ic growth, the question has become quite im portant in recent years. T he data show th a t this country puts far less reliance on excise and sales taxes than do other industrial nations. In one recent year (1 9 6 1 ), excises and sales accounted for only 21 percent of the U. S. tax yield, as opposed to 30 percent for West G erm any, 33 percent fo r G reat B ritain, 36 percent for France, and 43 percent for Italy. These d ata have become involved in a m ajor argum ent about economic grow th; to wit, th at a tax structure built 1 FEDERAL RESERVE B A N K OF S A N F R A N C I S C O Consum ption ta x e s play greater role in foreign tax systems than in U. S, Percent of Tax Yield (1961) 0 10 20 l .. i E X C IS E S ' l------- 1 30 ' 1-------- 1--------1 40 I and excise taxes. In this situation, then, it would be wise to analyze the general effects of consum ption taxes before considering ex cise taxes specifically. Sa le s The regressive tax Source: Department of the Treasury around indirect consum ption taxes tends to stim ulate econom ic growth — investment spending in particular. T h at argum ent could now be attacked, however, in view of the re cent growth in the nation with the smallest burden on consum ption and the slowdown in the nations with the heaviest such burdens. (Yet, on the other hand, the continuation of the upswing in this country during 1964 has been accom panied by a reduction in direct incom e taxes and a consequent increase in the relative burden of indirect consum ption taxes.) 242 T he debate over the optim um mix of indi rect and direct taxes highlights the growing concern of legislators over the economic effects of tax legislation. T hat concern, dem onstrated in the incom e-tax debates of the past two years as well as in the current discussion of excises, suggests that legislators are increasingly moti vated by the desire to write tax bills that will expand the overall econom y and not simply expand tax revenues. U nfortunately, the ag gregate im pact is difficult to assess, partly be cause of the sometimes differing effects of general sales and specific excise taxes, and partly because of the strong possibility that diverse state and Federal tax policies will gen erate opposite trends in revenues from sales First, consider the extent to which indirect consum ption taxes distribute the tax burden among individuals— their equity effects. Judg ments about the equity of alternative tax m easures depend, after all, on w hether they result in equal burdens being borne by tax payers in generally sim ilar circum stances and on w hether they result in a socially acceptable pattern of differences in burden among tax payers with different levels of income. W ith indirect levies such as sales and excise taxes, the initial im pact is felt by business en terprises; tax receipts are collected from busi nesses but the tax burdens are then expected to be shifted. They m ay be shifted forw ard to consum ers through price adjustm ents for a firm’s products, or they m ay be shifted back wards to individuals who derive their incomes from the firm by adjustm ents in their wages or other income. Generally, however, em pirical studies of the tax burden are based on the assum ption th at consum ers bear the burden of such taxes, with the burden distributed among individuals in relation to consum er expendi tures on taxed items. One such study, published by the Tax Foundation’s George A. B ishop in the N a tional Tax Journal (M arch 1 9 6 1 ), suggests a strongly regressive nature for both sales and excise taxes, with such taxes taking a sm aller proportion of income as incomes rise. O n the basis of 1958 data, Bishop argues that con sum ption taxes account for 8.8 percent of total income for families in the under-$2,000 bracket, but that they account for only 6.6 percent of income for families in the $6-8,000 bracket and 3.9 percent of incom e for those m aking $15,000 or over. O n the other hand, the burden of other taxes in those same in December 1964 MONTHLY REVIEW com e categories is highly progressive— 12.2 percent, 15.0 percent, and 30.5 percent, re spectively. Some observers would question w hether the burden of consum ption taxes can be esti m ated so precisely; others would go further and question w hether such taxes are in fact regressive, in view of the existence of exem p tions which reduce the burden on the pocketbooks of the poor. B ut when broad adjust m ents are made through exem ptions, they are likely to operate im precisely am ong particular taxpayers. F o r instance, the exem ption of hom e-consum ed food under a retail sales tax and the taxation of restaurant meals are de signed to reduce the regressive nature of con sum ption taxes— b u t non-taxed food served at form al dinners in upper-incom e households may be classified as a luxury, w hereas taxed food consum ed by poor individuals in cheap restaurants m ust be considered a necessity. Thus, tax-base adjustm ents designed to lessen apparent average regressiveness may actually increase the degree of regressiveness for some groups of consum ers. A nother criticism of these em pirical studies suggests th a t they exaggerate regressiveness (especially in the lowest-incom e b rack ets), since they relate current consum ption taxes to current incom e levels in determ ining effec tive tax rates. The lowest incom e classes, after all, generally tend to be dissavers, spending m ore on consum ption than their current in come; therefore, a tax burden allocated on this basis has a high effective rate with respect to the current year’s income. C onsistent average dissaving in the lowest incom e classes m ay be partially explained on grounds th a t m any persons rem ain only tem po rarily in these classes and th at they thus con sume and pay sales taxes on the basis of income obtained o r to be obtained in other years. It could be argued, therefore, th a t the sales-tax burden should be m easured by relating aver age expenditures and average income for each R e g ressive consum ption ta x e s take large share of lower incomes Source: George A. Bishop, “ The Tax Burden by Income Class, 1958,” N ational T ax Journal, March 1961 spending unit over a period of years — in which case the burden m ight tu rn out to be less regressive than indicated in the studies m ade to date. Stabilization and growth O n balance, m ost observers would agree th a t the distribution of individual incom e-tax burdens can be m easured with m uch m ore certainty than can the m easurem ent of consum ption-tax burdens. Yet, m ost observers would also agree— albeit with some reserva tions— th at consum ption taxes tend to be re gressive in nature. Given this tendency, con sum ption taxes have certain im plications for the policy goals of stabilization and growth. First, there is the im pact on the level of consum ption. C om pared with the personal incom e tax, the tax b u rden of consum ption taxes is distributed m ore regressively, so th at taxes paid by low er-incom e groups are re flected more largely in reduced consum ption than are taxes paid by higher-incom e groups. F o r that reason, and also because consum p tion taxes favor saving m ore than consum p tion, the consum ption im pact of sales and excise taxes tends to be higher than the im pact of incom e taxes. 243 FEDERAL RESERVE BANK W hat, then, is the significance for economic policy of this consum ption-tax effect? Prince ton Professor R ichard A . M usgrave, writing in the H ouse Ways and M eans C om m ittee’s “Excise Tax C om pendium ,” concludes, “The im plication is bad (fo r full em ploym ent po l icy) if we think of high consum ption as a condition needed to provide for an adequate level of aggregate dem and. The im plication is good (fo r growth policy) if we assume th at the necessary level of dem and will be fo rth com ing anyhow, and view reduced consum p tion as an opportunity to release resources for increased use in capital form ation.” In addition, there is the im pact on the level of investm ent. C om pared with the corporate profits tax, consum ption taxes may have widely different results, depending on w hat ever assum ption is m ade concerning the shortrun shiftability of the profits-tax burden. If the burden of that tax is not shifted, then the substitution of excise o r sales for profits taxes clearly w ould raise the net relative to gross profits m argins, and would thereby increase the internal flow of funds. Again, in Professor M usgrave’s w ords, “As far as aggregate de m and effects are concerned, this would im prove m atters to the extent th at the gain in investm ent exceeded the loss in consum ption —a result which is possible but by no m eans certain. As far as growth effects are concerned, substitution of capital form ation for con sum ption would be a gain, but could hardly be sustained in the longer run w ithout a sup porting rise in consum er dem and.” Check consumption, spur investment 244 O n balance, as fa r as grow th effects are concerned, indirect consum ption taxes are generally assum ed to be m ore favorable than direct taxes on income. C onsum ption taxes tend to influence private decisionm aking away from spending and tow ard saving, w hereas in come taxes fall on both spending and saving. Therefore, a switch from incom e to consum p OF SAN FRANCISCO tion taxes would tend to increase the p ro p en sity to save of households and business firms. B ut the general econom ic environm ent w ould determ ine w hether increased saving would also produce increased investm ent and real growth. If, fo r exam ple, a higher proportion of income were saved u n d er conditions of less-than-full em ploym ent, w ithout any con com itant stim ulation of investm ent, then total spending and total income w ould tend to fall; the reduction in incom e thus could offset the increase in the saving rate, producing a sm al ler am ount of absolute saving. O n the other hand, the larger volum e of savings w ould tend to produce lower levels of interest rates, and these would be beneficial to investm ent. T he question, then, is w hether investm ent spend ing would increase sufficiently to offset the initial decline in consum ption spending. Also on balance, as fa r as stabilization ef fects are concerned, consum ption taxes are generally assum ed to be less effective th an incom e taxes. C orporation profits taxes and progressive personal incom e taxes both tend to produce a m ore-than-proportionate in crease of revenues during boom s and a m ore-than-proportionate decrease of revenues during recessions; they are thus excellent autom atic stabilizers, autom atically increas ing the F ederal budget’s w ithdraw al of private purchasing pow er on the upswing and reduc ing the withdraw al of purchasing pow er on the downswing. (O f course, the relative stability of personal incom e during recessions is a m ore im portant stabilizing fa c to r.) O n the other hand, consum ption taxes tend to be w eaker autom atic stabilizers, prim arily because of the short-term stability of consum er spending patterns. But, of course, any overall prescrip tion, which applies to consum ption taxes in a general sense and to sales taxes in particular, m ay not be specific enough fo r the excises which are now the m ain subject of conversa tion am ong tax collectors and taxpayers. December 1964 MONTHLY REVIEW Reasons for reduction W hat criteria should then be used to de term ine which Federal excises should be re tained, reduced, o r rem oved? T he question is of some im portance, since such taxes are scheduled to bring in $14,5 billion in the present fiscal year, and Treasury officials would prefer not to see a reduction of m ore than $4 billion in that total. B ut Congress has already received m any answers to the ques tion. The H ouse Ways and M eans Com m ittee has conducted extended hearings on several different occasions— m ost recently this past sum m er, w hen a num ber of m anufacturers, retailers, and interested citizens spun out 1,266 pages of testim ony on the subject. These hearings were supplem ented by discus sions with 11 fiscal experts, w ho helped the com m ittee deal with its thorny task of dis m antling p art (b u t not all) of the excise-tax structure. In the context of a fiscal policy designed to stim ulate econom ic activity through the ex pansion of consum ption spending, the ex perts’ broad advice to reduce consum ption taxes (as sum m arized above) would appear to be applicable. But because of the great diversity of excise taxes and the need to set priorities for reduction, the experts also p ro vided m ore specific criteria. In particular, Illinois’ Professor John F. D ue set up several priorities. In his view, priority for repeal should go to those excises which fall prim arily on business costs, o r which significantly dis to rt consum ption patterns w ithout justifica tion, o r which create an inequitable pattern of burden distribution, o r which create enforce m ent problem s o r provide negligible revenue. C onsider the application to business p u r chases. Excise taxes are designed to distribute the burden of taxation in relation to consum p tion spending, b ut this justification is lost if the taxes apply prim arily to business purchases, such as office and business m achines. W hen this situation occurs, the final distribution of tax burden will be haphazard, the selection of production techniques will be distorted, and the m odernization of industry will tend to be retarded. Next, consider the distortion of consum p tion patterns. In purchases of this type— fur coats, fo r exam ple— consum ers are encour aged to spend a relatively larg er am ount on untaxed goods, from which no tax revenue is obtained, and yet the consum er is worse off, in the sense th at his p attern of preferences has been distorted by the differential tax im pact on the prices of some goods in relation to the prices of other goods. “ Sin” taxes on liquor and cigarettes m ay possibly be justified on grounds that consum ption would be excessive in term s of national welfare if they were not taxed, bu t this argum ent cannot be advanced for m ost other excises. (N ot incidentally, liquor and cigarette excises are excellent rev enue producers, because of the inelastic de m and for those products.) 245 FEDERAL RESERVE BANK T hen again, consider the extent of inequity in the b urden distribution. Some excises may affect com m odities for which individual pref erences vary widely, in which case the tax burden will vary substantially (an d unjustifi ably) on the basis of such preferences, while other excises m ay place an especially heavy burden on the lowest income groups. H ouse hold appliances are an exam ple of this last category. These are not conclusive argum ents against any specific tax in light of the progres sive elem ents in the overall tax system, b u t they do create a problem insofar as regres siveness is considered undesirable. Finally, consider the questions of enforce m ent and of negligible revenue. F o r one thing, adm inistrative effort is diverted from m ore im portant tasks w hen the tax authorities oper ate taxes which yield only a few million dol lars a year. F o r another thing, effective adm in istration is difficult when the delineation of taxable and nontaxable com m odities is u n clear, o r when a large num ber of firms con duct innum erable small transactions, espe cially w hen only some of those transactions are taxable. Cosm etic and toilet preparations are a prim e exam ple of this category. (O n the other hand, some excise taxes have a regula tory purpose o r are earm arked for special program s.) Targets for reduction 246 In the light of these and other criteria, Professor D ue proposes several obvious items for repeal, at a revenue loss of about $483 million. In particular, levies on business m a chines and lubricating oils prim arily affect business costs; levies on costum e jewelry and cosm etics are difficult to adm inister and probably regressive in nature; and those on m atches and ballpoint pens involve only neg ligible revenue. O n the sam e basis, a strong case for repeal could be m ade for a group of excises which now yield about $634 million annually. Excises on household appliances and refrigera OF SAN FRANCISCO tors tend to have a regressive effect; excises on issuance and transfer of securities, although hoary with tradition and regulatory in p u r pose, have long since outlived th eir useful ness; and levies on light bulbs, luggage, m usical instrum ents, and sporting goods ham p er socially useful activities, while levies on furs, playing cards, night clubs, horseracing, and bowling alleys are objectionable on other grounds, no m atter how well they m ay ham per “sin.” Also, according to Professor D ue, a case for repeal could be m ade for excises on radios, T V sets, auto parts, and cam eras— items which now yield ab o u t $550 million annually. If all the taxes listed here were earm arked for repeal, T reasury revenues w ould fall by about $1.7 billion in the current fiscal year. B ut the tax structure w ould still include some very productive excises, such as those on gasoline (for the H ighw ay T rust F u n d ), tele phone calls, autom obiles, and especially liquor and cigarettes. W ill these taxes be retained while other excises are being wiped off the books? H ere, a problem arises; as Treasury Secretary D illon noted w hen he raised the question of excise cuts recently, the A dm inis tration m ay have less trouble in getting the proposed reductions through C ongress than in resisting C ongressional pressure to add to the list. After the tax cut Assuming, at any rate, th a t Congress legis lates the $4-billion “m axim um ” reduction proposed by the A dm inistration, how much stimulus to consum er spending could be ex pected from this action? Sales d ata in the afterm ath of the 1954 and 1964 tax reduc tions m ay provide some clues on this point. In 1954, im m ediately after excises on elec trical appliances were reduced from 10 to 5 percent, m anufacturing firms and m ail order houses reduced prices on large appliances by an average of about 5 percent; thereupon, in the following year expenditures on appliances December 1964 MONTHLY REVIEW increased about 16 percent, as com pared with a 1-percent increase in 1954. (O f course, in creased incomes as well as reduced taxes con tributed substantially to this increase.) In 1964, a 6-percent gain in disposable income in the first three quarters of the year was p a r alleled by a m ore-than 6-percent gain in con sum er spending— an increase which was sub stantial for all types of goods and services. In both tax-cut years, significant reductions in taxes were reflected in significant increases in consum er spending, although those tax re ductions were prim arily general incom e-tax reductions rath er than specific cuts in excises. Yet, even if 1964’s happy expansionary ex perience with tax cuts is not repeated in the wake of any future cut in F ederal excises, m any analysts would still consider it w orth while for the Federal governm ent to de-em phasize consum ption taxes, especially in view of the state governm ents’ increasing reliance on such levies. A fter all, m oney m ust be found to pay for the functions traditionally p er form ed by those governm ents — functions which are increasingly expensive because of growing population, increasing urbanization, m igration from areas of relatively low public services to areas of higher levels, m ounting autom obile traffic, desires for im proved education-health-hospital program s, and insist ence on increased quantity and quality of governm ent services in line with improved standards of living. Various sources of increased revenue may become available to the states, including auto m atic and unconditional grants to state coffers out of Federal revenues. In addition, substan tially increased collections m ay be sought through new tax enactm ents, higher tax rates, and im proved tax adm inistration. B ut much expert opinion favors allowing the states m ore leeway to increase their use of con sum ption taxes. This approach is typified by the A dvisory Com m ission o n Intergovern m ental R elations, which contends th a t “The states are bound, not by federal law, bu t by tradition and circum stance, to rely heavily on property and consum ption taxation and they cannot be expected to shift this reliance sub stantially in the foreseeable fu tu re.” Calvinism and two sisters Accordingly, the nation’s tax structure m ay continue to show an increasing shift to w ard indirect consum ption taxes, even as Congress hacks away at the tangle of Federal excises, because of the states’ ever-expanding utilization of sales taxes. (F o r example, a C alifornia Senate com m ittee is now consider ing a proposal to increase consum ption taxes by $311 million next y ear.) Yet, w hatever the trend, controversies are bound to continue regarding the regressiveness of such taxes and their im plications fo r full em ploym ent and econom ic growth. In the m idst of those controversies, few ob servers are likely to go so fa r in their denun ciation of consum ption taxes as that econom ist-turned-m oralist, the late H enry Simons: “ The only cogent defense of them rests on the C alvinist prem ise th a t p o o r consum ers of the object in question are obviously dam ned for the next life and m ay properly be prepared now for their fate, by carrying w hat would oth erwise be tax burdens of the elect.” M ost ob servers are m ore likely to agree with that m oralist-turned-tax colector, W illiam G lad stone, who insisted a century ago th at direct incom e taxes and indirect consum ption taxes should be viewed as equally attractive sisters, both of whom should be pursued — not too ardently, bu t rath er with p ro p er and appro priate grace. 247 FEDERAL RESERVE B A N K OF SAN FRANCISCO Lumber: Out on a Limb? T he W e s t long has been the dom inant lum ber-producing region in the nation. N ow here in the w orld is there concentrated on such a relatively small area of forest land such a rich reservoir of old-grow th tim ber. Y et, despite its w ealth in raw m aterial and its strong production record, the W estern lum ber industry has faced a num ber of severe chal lenges over the last decade. Beset by strong and growing com petition from other p roduc ers (foreign and dom estic) and from other building m aterials (w ood and no n -w o o d ), the industry has seen prices fall, em ploym ent de cline, and hundreds of small mills go out of business. B ut current efforts to im prove lum b er’s position— along with the tren d tow ard greater integration with the pulp and p ap er and plyw ood industries— offer hope th at the W estern forest products com plex will yet reach new heights of production and profit. (T he lum ber industry, the sector em phasized in the following discussion, is com posed of those firms engaged in converting logs into rough and finished lum ber.) From Maine to Puget Sound 248 The birth of the W estern lum ber industry cam e on the heels of the E astern industry’s decline. Lum bering grew up with the country, naturally reaching its first peaks of activity in the populous colonies along the A tlantic C oast (particularly M aine) and then spread ing inw ard as settlem ents m oved back from the coastline. By 1870, the L ake States (w ith M ichigan in the forefront) replaced the N ortheast as the leading producing region. Y et, by the tu rn of the century, G reat L akes lum berm en had alm ost depleted the stands in th at region and had begun search ing for new forest reserves. T he Southern states constituted the next obvious target for developm ent, but lum berm en also began to turn tow ard the vast frontiers of virgin tim ber in the Pacific N orthw est. O f course, they had heard about big stands of tim ber th a t would cut 300,000 feet to the tree, bu t they h ad set them aside as bunkhouse m yths. B ut one look was sufficient to dispel the myths, and soon the lum bering families whose nam es h ad be com e fam ous in M aine and in the Saginaw and on the u p p er M ississippi were establish ing saw and planing mills on Puget Sound, in G ray’s H arbor, and along the C olum bia river. T he Census of 1910 impressively dem on strated the rising im portance of both the South and the W est. B ut while the South’s relative position has since declined, the W est has achieved a position of dom inance. Tw elfth D istrict states, which accounted for 17 p er cent of a record national production of 45 billion b o ard feet in 1910, raised their share to 55 percent of total production of 33 billion board feet in 1962. (T h e W estern industry is a softwoods industry; in fact, D istrict states accounted for over 68 percent of the n ation’s softwoods production in 1962.) The relative positions of the m ajor p ro d u c ing states shifted after the region’s rise to prom inence. In 1938, O regon moved ahead of W ashington to becom e the n ation’s leading producer; today, it accounts fo r nearly onefourth of the industry’s total output. C alifor nia surpassed W ashington during the 1940’s to becom e the second highest producer, and it presently accounts for about 15 percent of national production. W ashington’s outp u t has declined drastically over the p ast quartercentury, so th at it now supplies only 11 p er cent of the national total. Idaho, m eanw hile, has m oved steadily up to fourth position, with about 5 percent of the total. Timber and more timber T he D istrict’s dom inant position, no t only as a producer of lum ber bu t as a producer of other forest products as well, is based o n its great reservoir of virgin tim ber. A lthough the region em braces only 17 percent, o r som e December 1964 MONTHLY REVIEW 87,250 acres, of total U. S. com m ercial for est land, it holds 55 percent of the nation’s total footage of sawtim ber. The heaviest p art of this stand is located in O regon and W ash ington, which in themselves contain 35 p er cent of the nation’s saw tim ber— prim arily in the D ouglas fir region west of the Cascade M ountains and the ponderosa pine region east of the Cascades. This heavy density of saw tim ber is attribut able to the concentration of old-growth tim ber in D istrict states. T he m am m oth size of W est ern trees, in turn, helps the regional industry utilize larger sawmills and m ore m odern equipm ent than are in operation elsewhere. In 1962, about 72 percent of W estern produc tion was supplied by 373 mills, each produc ing 15 million board feet o r m ore. In the E ast, a sim ilar percentage of output was supplied by 30,300 mills, each producing less than 5 mil lion board feet annually. On the other hand, a substantial p art of the D istrict’s saw tim ber is not immediately available for conversion into forest products because of forest m anagem ent policies. A l m ost 60 percent of the forest area is owned and m anaged by the Federal G overnm ent, about 5 percent by state and local jurisdic tions, and m ost of the rem ainder by com m er cial forest interests. M uch of the publicly owned tim berland is operated on a “sustainedyield” basis, in which the annual allowable harvest and sale of tim ber is lim ited to an am ount roughly equivalent to the annual growth. Thus, a m ore o r less even flow of tim ber is available for m arketing from public lands each year. W est d om in ates lum ber in du stry/ despite recent production decline B illron i of B o a rd F««t O thtr U.S. Othor D istric t Source: Department of Commerce b er industry registered trem endous gains in production— gains which contrasted m arkedly with the one-fifth decline in national produc tion during th at period. B ut D istrict produc tion later began to tap er off; in fact, despite the record level achieved in 1959, annual Dis trict output in the last half-decade has failed to exceed the 18-billion board feet average recorded in the preceding five-year period. This perform ance, and declining outp u t else where, depressed national outp u t by 10 p er cent over the decade, to 34 billion board feet in 1963. (L u m b er output and consum p tion both increased in 1964, bu t still rem ained below m ost earlier postw ar peaks.) Problems in Bunyan Land This disappointing production record has reflected postw ar developm ents in the residen tial construction field. Housing, after all, n o r mally accounts for 40 percent of lum ber con sum ption, while other construction accounts for alm ost as great a share of the total. O n the basis of that resource foundation, W estern lum berm en have am assed a substan tial record of grow th, but their record none theless has m asked a num ber of problem s that have arisen in the last decade. D uring the first fifty years of its history, the D istrict Ium- As construction rose in the early postw ar period to m eet the pent-up housing dem and, the num ber of nonfarm starts rose to 1.4 mil lion in 1950— 50 percent above the peak rate attained in the 1920’s— and lum ber consum p tion rose correspondingly. B ut in 1963, w hen 249 FEDERAL RESERVE B A N K OF S A N F R A N C I S C O U. S. lum ber in d u stry fails to gain from growth in housing demand B illio n s of Board Foot of dom estically-produced lum ber has been even m ore severe th an the decline in total con sum ption because of the rising portion of the m arket supplied by foreign (m ostly C an a dian) producers. O ver the last dozen years, im ports have risen steadily from 5 to 16 p er cent of the m arket, and consum ption of do mestic lum ber in 1963 consequently was 14 percent below the 1950 level and 10 percent less than in 1959. Prices meanwhile have reflected these dow nw ard pressures; in 1963, the wholesale price index for lum ber stood 3 percent below its 1951 level and 6 percent below the 1959 figure. New housing, new materials Thousands of Units Source: National Lumbermen’s Association; Department of Com merce (old series) 250 housing starts rose to a new peak of 1.6 m il lion, lum ber consum ption rem ained below all its earlier postw ar peaks. P a rt of the explanation for this sluggish ness lies in the changing character of the housing m arket. In particular, the quantity of lum ber consum ed at a given level of con struction has been declining because of the increasing im portance of m ulti-fam ily dwell ing units— which utilize only about one-third as m uch lum ber p er unit as single-family dwellings— and because of the increasing use of substitute m aterials for lum ber. To aggravate the situation, the decline in consum ption T he extensive displacem ent of lum ber by substitute m aterials undoubtedly has becom e a crucial problem . Plyw ood, hard b o ard , p articleboard, insulation board, and certain p ap er boards— along with non-w ood products such as m etals, plastics, and brick— com pete with softw ood in m any of its im portant uses. The contrast betw een the trend in lum ber pro d u c tion and the trend in these oth er sheet m ate rials dram atically illustrates the changing product mix. W hile lum ber production de clined 9 percent betw een 1950 and 1963, softwood plywood shot up by an explosive 272 percent, hard b o ard by 157 percent, and insulating board by 23 percent. L um ber has declined in the forest products mix despite an im provem ent in its price posi tion relative to all of its m ajor com petitors except plywood. Substantial production in creases and consequent dow nw ard price pres sures have been evident in the plyw ood indus try— and have contributed to plyw ood’s in roads into lum ber’s traditional m arkets. This price situation, how ever, has been unique. Prices of construction m aterials generally have m oved upw ard; such com peting m ate rials as structural steel, brick, P o rtlan d ce m ent, building board, gypsum products, and m etal sash all have risen relative to lum ber. Obviously, then, raw m aterial prices alone MONTHLY REVIEW December 1964 cannot fully explain lum ber’s displacem ent. C om parative costs of installation also have been an im portant consideration. M ost not ably, lum ber has found it difficult to com pete in view of the labor savings m ade possible by plywood, gypsum board, sheet rock, and other sheet m aterials for wall sheathing and sub flooring. N on-cost considerations have also played an im portant p a rt in lum ber’s competitive problem s. O ther industries have tended to de velop stronger program s in the fields of re search, developm ent, trade prom otion, and m arketing. F o r one reason, lum ber is fa r less concentrated than any other m ajor industry — its tw enty largest firms account for a sm all er share of total shipm ents than the top four in each of the other m ajor industrial categories — and thus it encounters difficulties in m ar shaling resources fo r developm ental and p ro m otional w ork. F o r the sam e reason, lum ber enterprises are com m only in no position to m aintain largescale research facilities. A bout half of the re search undertaken today in lum ber and lum b er products is financed by a handful of large firms, and m ost of the rem ainder is spent by associations and the Federal G overnm ent. Firm s engaged in producing plywood, pulp and paper, and various building boards have a m uch stronger record in research and de velopm ent and in trad e prom otion, largely because of the very large size of a num ber of corporations in those com peting fields. Canada rules the waves Rising im ports pose perhaps an even great er problem for the industry today. L um ber im ports expanded five-fold betw een 1947 and 1963, and now account fo r alm ost 16 percent of the U. S. m arket. C anada has accounted for m ore than 95 percent of total im ports over the past decade; the rem ainder, almost entirely pine, has com e from M exico and South A m erica. In recent years, this country has taken at least three-fourths of C an ad a’s lum ber ex ports. Since 1959, in fact, C anada has sold m ore south of the b o rder than in its own hom e m arket. M ost of these shipm ents have been com m on construction grades of spruce, D oug las fir, and hem lock from the coastal and in- Lum ber usag e lag s d espite im provem ent in price position relative to most competing materials . . . plywood usage zooms as price declines lnd«x, 1950 = 100 Sources: Department lnde», 1950 = 100 of Labor; Department of Commerce; National Lumbermen’s Association 251 FEDERAL RESERVE B A N K OF S A N F R A N C I S C O terior regions of B ritish Colum bia, which in effect are northern extensions of producing regions lying in the U nited States. F o r the m ost part, B ritish C olum bia producers are as favorably located with respect to U. S. m a r kets as are their com petitors in the Pacific N orthw est. O ne segm ent of the C anadian trade has grown extrem ely rapidly— w aterborne ship m ents from B ritish C olum bia to the A tlantic Coast. These im ports com pete directly with w ater shipm ents from W est C oast mills. A decade ago, about three-quarters of this trade originated in W ashington, Oregon, and C ali fornia, and about one-quarter in British C o lum bia; by 1963, these proportions were al m ost reversed. This significant turnab o u t can be traced to several cost disadvantages faced by D istrict mills: first, substantially higher costs of loading and w ater transport; second, higher stum page prices as a result of a com plex tim ber-supply situation existing here; and third, a m arketing disadvantage resulting from the devaluation of the C anadian dollar. Jones Act and devaluation A m ajor cost differential has developed on w aterborne cargo shipm ents. U nder provi sions of the M erchant M arine A ct of 1920 — the Jones A ct—intercoastal shipm ents of U. S. lum ber m ust move in A m erican flag vessels. C anadian lum ber, on the other hand, m ay be shipped to this country in foreign-flag vessels—and, since 1957, charter rates paid by C anadians have been some $5.50 to $12.00 low er p e r thousand b o ard feet than the conference rate established by dom estic carriers. M oreover, loading charges for lum ber at Pacific N orthw est ports have recently run about $3.00 p e r thousand board feet higher th an at B ritish C olum bia ports. 25 2 D om estic mills have also been ham pered by the considerable prem ium which they m ust pay for public saw tim ber. T he supply of available public saw tim ber in this country is less th an half th a t in B ritish C olum bia; in addi tion, this supply is inelastic in th a t it is lim ited basically to the allowable cut and thus fails to respond to higher offered prices. D em and for public saw tim ber m eanw hile has risen rap idly, partly as a result of dim inished private supplies and partly as a result of non-lum ber utilization by other forest industries. N ot sur prisingly, then, dom estic mills pay an average of $23 p e r thousand b o ard feet of stum page, while mills in B ritish C olum bia pay only onethird this am ount. T he devaluation of th e C anadian dollar has also stim ulated lum ber shipm ents into this country. The C anadian exchange rate, which declined from $1.04 to $0.95 betw een 1959 and early 1962, was eventually pegged at $0,925 in M ay 1962. This devaluation has m eant a substantial drop in th e price of C ana dian lum ber— a reduction of about $7 p er thousand b o ard feet of lum ber, in term s of A m erican dollars. Declining industry? In sum, the housing m arket has shifted and dom estic lum ber has been increasingly displaced by com petitive m aterials and C ana dian im ports. C onsequently, the lum ber in dustry’s position in the W estern econom y has suffered a substantial decline. Between 1929 and 1947, fo r exam ple, value added by saw mills and planing mills m ore th an doubled in dollar term s, bu t the industry’s share of total m anufacturing value added still declined from 17 to 12 percent. T hen, in the postw ar period, the industry’s position declined even m ore; in 1962, lum ber accounted fo r only 3 p er cent of value added in m anufacturing. A sim ilar decline has occurred in term s of em ploym ent. Between 1929 and 1962, the num ber of production w orkers in W estern sawmills and planing mills dropped steadily from 129,000 to 68,000, thereby reducing the industry’s contribution to total m anufacturing em ploym ent from 25 to 6 percent. December 1964 MONTHLY REVIEW The seriousness of the problem has varied from state to state. Front-running Oregon, for instance, has been able to cushion the decline by virtue of the diversification of its forest economy. O regon ranks first in the nation not only in lum ber b u t also in logs, plywood, and particleboard; about tw o-thirds of the n ation ’s plywood and m ore than one-fourth of its hardboard em anate from this state. It stands high and is still clim bing in the output of pulp and paper, poles and piling, fiberboard, and an im posing array of other forest products. T he rapid expansion of other forest industries thus has been a trem endous boon to Oregon, to some extent offsetting the decline in her lum ber industry. Between 1929 and 1962, O regon’s forest-products industries as a group increased their share of all m anufacturing value added from 52 to 56 percent and in creased their share of total em ploym ent from 55 to 58 percent, despite lum ber’s decline. W ashington’s lum ber industry meanwhile has suffered a m ore substantial decline. In 1929, the industry occupied about the same position in that state’s econom y as it did in O regon, accounting for roughly half of all manufacturing value added and employment. By 1962, its share had receded to only 5 per cent of value added and 10 percent of em ploy ment. W ashington’s plywood and pulp and p ap er industries grew in relative im portance between 1929 and 1947, but each has since experienced a relative (although not absolute) decline. A s a result, the contribution of all for est products industries to total value added in m anufacturing dropped from 40 percent in 1947 to 20 percent in 1962. The lum ber decline has been felt in other D istrict states also. In fourth-ranking Idaho, where lum bering ranks second only to agri culture and where lum ber’s share of total m anufacturing value added still exceeds 30 percent, the im pact has been widely felt. B ut in third-ranking C alifornia, where all forest products account only for 4 percent of m anu facturing value added, the im pact— while substantial— has been less w idespread. The W estern industry’s adaptation to in creasingly com petitive m arket conditions has been m arked by the elim ination of sm aller units and the increasing im portance of larger, m ore efficient units. Between 1939 and 1947, the num ber o f W estern sawmills jum ped from 4 50 to 4,961, as small operators responded to higher prices resulting from the postw ar housing dem and for lum ber and the rem oval of w artim e price controls. But m ost of the newcomers failed to survive the postw ar p e riod. Between 1947 and 1962, the total num ber of mills declined by m ore than one-half, to 2,214. M ost of the drop-outs were small mills producing less than 3 million board feet a n nually. In contrast, the num ber of mills with over 10 million board feet capacity actually increased, so th a t their share of the region’s output rose from 66 to 81 percent. This drastic redistribution of production from small to larger, m ore m odern, and m ore efficient mills reduced considerably the labor required for equivalent outputs of lum ber, and it thus con tributed substantially to the severity of the de cline in mill em ploym ent com pared with p ro duction. Another part of the forest Looking tow ards the future, m ost observers anticipate an expansion in lum ber production as well as in other forest products to m eet the needs of a larger and m ore affluent popula tio n .1 O ne recent study— that of G uthrie and A rm strong — places national production in 1975 betw een 41 and 47 billion board feet, with W estern production accounting for 28 billion board feet, o r 40 percent m ore than in 1960. 1 John A. Guthrie and George R, Armstrong, W estern Forest In dustry, A n Econom ic Outlook (Baltimore: Johns Hopkins Press, 1961). Stanford Research Institute, Am erica’s D em and for W ood, 19251975 (Washington: Weyerhaeuser Timber Company, 1954). U. S. Forest Service, Tim ber Resources for America’s F uture (Washington: U . S. Department of Agriculture, Forest Research Report, N o. 14, 1958). _ 253 FEDERAL RESERVE B A N K OF S A N F R A N C I S C O Ind u stry experts expect th a t expanding tim ber dem and will result in increased stum page prices, in higher lum ber prices, and in continued substitution of com peting m aterials. L u m b er’s com petitive position can be p ro tected to some extent, how ever, through ex pansion and revam ping of existing facilities, expenditures for research and developm ent, and m assive advertising and field prom otion. F o r exam ple, lum ber sizes and grades could be tailored to the requirem ents of the indus trialized house, m ade from factory m achined and fitted parts. T he possibilities of increasing the sale of N orthw est p a p er and paperboard in the W est ern m arket are particularly prom ising, since this region (especially C alifornia) is deficient in its p ap er and board requirem ents and relies heavily on foreign im ports. In one recent study, the W est’s consum ption of pap er and paperboard was projected to rise 85 percent betw een 1961 and 1975.1 Prospects for pulp are som ew hat less ebullient b u t still favorable. W estern sales of pulp are m ade prim arily to nonintegrated paper mills and converters in the N ortheast and L ake States, with sm aller am ounts going to the Southern States and C alifornia. T he Pacific N orthw est pulp mills are at a com petitive disadvantage com pared with C anadian and Southern mills, because of higher transportation costs to the principal centers of consum ption. T he prospects fo r increasing exports are considered favorable, however, particularly to such countries as Jap an , K orea, and A ustralia. Plyw ood, the forest industry which has shown the m ost spectacular recent grow th— a five-fold gain since 1950— may n o t be able to sustain such a rapid pace in future years. A m ong other reasons, plyw ood’s favorable price situation m ay not long continue, in view of upw ard pressures on the costs of peeler logs, labor, and equipm ent. O n balance, how254 1John A. Guthrie and William Julo, Some Econom ic A spects o) the P ulp and Paper In d u stry. (Washington: Northwest Pulp and Paper Association, 1963). D ecline In lum ber mill jobs offset by gains in other forest industries Thoutandt of Production Workers 0 10 20 30 40 T Source: Department of Commerce ever, plyw ood’s future looks quite bright. The key to growth? If the projected grow th of these o th er fo r est industries is realized, lum ber could face a tight supply squeeze. T here need be no con flict, how ever, if the tren d tow ard integration of lum ber, pulp and paper, and plyw ood o p erations continues. “ Integrated utilization,” the use of a com m on log supply fo r p roduc ing two o r m ore separate products, is p a rt of the sweeping adjustm ent which the W estern forest industries are undergoing to obtain econom ies in tim ber usage. In these o p era tions, the plywood mills utilize high-grade Douglas-fir peelers, the sawmills ob tain the bulk of the better-grade logs, and pulp and paper mills utilize hem lock and oth er species, the sm aller stems, and the residues from ply w ood and lum ber mill operations. T he successful lum ber mills of the future are likely to be characterized not only by inte grated operations bu t also by b etter quality control, extensive use of chem ical im pregna tion fo r preservation, and increased process ing and finishing operations. In this way, the efficient elem ents in the W estern lum ber in dustry prom ise to m aintain a healthy position in the natio n ’s overall econom y. MONTHLY REVIEW December 1964 Western Digest Banking Developments Total bank credit at Tw elfth D istrict weekly reporting m em ber banks increased by $426 million in N ovem ber— far m ore th an enough to offset O ctober’s credit con traction of $198 million. . . . N ovem ber’s loan increase of $285 million, which offset an O ctober decline, was considerably short of the expansion in the com parable period of 1963. The business sector showed a less active dem and for bank credit th an in the year-ago period, but the m ajor reason for the year-to-year loan decline was the relative lack of D istrict bank participation in the m ortgage m arket this N ovem ber. However, banks channelled a substantial am ount of funds to brokers and dealers for financing U. S. G overnm ent securities during the m o n th .. . . D istrict banks recorded a small net loss in dem and deposits adjusted, b u t registered a gain in U. S. G overnm ent deposits during the m onth. These banks recorded a net decline of $74 million in total time and savings accounts, prim arily because of large Christm as Club payouts. A n increase of $78 million in negotiable time certificates of deposit helped to limit the im pact of these payouts. Production and Trade W estern steel production reached a yearly high during late N ovem ber and, al though receding som ew hat in early D ecem ber, still rem ained about 25 percent above year-ago levels. N ational steel production did even a little better, in relation to the year-ago pace. . . . L um ber orders slipped a little in late N ovem ber but still rem ained considerably above year-ago levels. Price quotations were about equal to those quoted in the pre-strike period of several m onths ago. . . . In the four weeks ended N ovem ber 28, D istrict departm ent-store sales were 14 percent higher than in the com parable period of 1963. Sales volume nationally ran about 15 percent above the year-ago pace. Employment and Unemployment N onfarm em ploym ent in N ovem ber increased 0.6 percent in C alifornia and 0.5 percent in W ashington. The national gain for the m onth was 0.7 percent. N ovem ber’s unem ploym ent rates were 6.6 percent for California, 5.7 percent for W ashington, and 5.0 percent for the nation as a whole. . . . Recently released d ata on defense prim e contract awards cast new light on em ploym ent cutbacks at D istrict defense-m anufacturing firms. In January-Septem ber 1964, these firms recorded an 8.1-percent yearto-year decline in em ploym ent, as com pared with a 5.5-percent cutback elsewhere in the nation; meanwhile, contract awards dropped m ore than 25 percent in the District (to $4.7 billion) but increased by 2 percent elsewhere. 255 FEDERAL RESERVE B A N K OF S A N F R A N C I S C O Condition Items of All Member Banks — Twelfth District and Other U. S. Billion* of Dollars 1955 H«etision Periods 1957 1959 Billions of Dol I o r s 1961 B i ll io n s of D o ll a r s R e c e s s i o n Pe ri o ds B i l li o n s of D o l l a r s 1963 Source: Federal Reserve Bank of San Francisco. (End-of-quarter data shown through 1962, and end-of-month data thereafter; data not adjusted for seasonal variation.) B A N K IN G A N D CREDIT STATISTICS A N D BUSINESS INDEXES—TWELFTH DISTRICT1 (Indexes: 1957-1959 = 100. Dollar amounts in miliions of dollars) Condition items of all member banks2 Seasonally Adjusted Year and Month Loans and discounts5 U.S. Gov't. securities Demand deposits adjusted1 Total time deposits Bank rates on Bank short-term debits Index business 31 cities5," loans7, 8 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 7.751 8,703 9,090 9,264 10,827 12,295 12,345 13,441 15,908 16,628 17,839 20,344 22,915 6,370 6,468 6,577 7,833 7,162 6,295 6,468 7,870 6,495 6.764 8,002 7,336 6,651 9,512 10,052 10,129 10,194 11,408 11,580 11,351 12,460 12,811 12,486 13,676 13,836 14,179 6,713 7,498 7,978 8,680 9,130 9,413 10,572 12,099 12,465 13,047 15,146 17,144 18,942 57 59 69 71 80 88 94 96 109 117 125 141 157 3.66 3.95 4.14 4.09 4.10 4.50 4.97 4.88 5.36 5.62 5.46 5.50 1963 November December 22,673 22,915 6,730 6,651 14,272 14,179 18,923 18,942 170 167 5.47 1964 January February March April May June July August September October November 23,256 23,544 23,763 23,953 24,102 24.394 24,836 24,865 25,251 25,140 25,335p 6,575 6,832 6,893 6,559 6,541 6,489 6,215 6,170 6,507 6,473 6,667p 14,332 14,222 14,287 14,243 14.170 14,347 14.369 14 362 14,674 14,573 14552p 19,342 19,520 19,685 19,773 19.813 19,876 20,152 20.195 20,452 20 602 20.789p 163 168 166 170 167 167 166 175 167 173 178 5.47 5.46 5.51 industrial production (physical volume)6 Total nonagricultural employ ment Dep’t. store sales (value)" Lumber Refined8 Petroleum Steel8 80 84 86 85 90 95 98 98 104 106 108 113 117 68 73 74 74 82 91 93 98 109 110 115 123 129 99 101 102 101 107 104 93 98 109 98 95 98 102 87 90 95 92 96 100 103 96 101 104 108 111 112 97 92 105 85 102 109 114 94 92 102 111 100 117 118 118 130 136 106 111 110 110 110 107 119 119 119 119 119 119 119 120 120 120p 135 137 133 134 139 137 141 143 137 139 115 114 114 101 106 105 111 107 121 111 115 113 111 112 114 115 118 121 110 117 149 143p 142p 131 p 121p 12 lp 129p 132p 1 Adjusted for seasonal variation, except where indicated. Except for banking and credit and department store statistics, all indexes are based upon data from outside sources, as follows: lumber, National Lumber Manufacturers’ Association, West Coast Lumberman’s Association, and Western Pine Asso ciation; petroleum, U.S. Bureau of Mines; steel, U.S. Department of Commerce and American Iron and Steel Institute; nonagrieultural employment, TJ.S. Bureau of Labor Statistics and cooperating state agencies. 2 Figures as of last Wednesday in year or month. 3 Total loans, less valuation reserves, and adjusted to exclude interbank loans. 4 Total demand deposits less U.S. Government deposits and interbank deposits, and less cash items in process of collections. 5 Debits to demand deposits of individuals, partnerships, and corporations and states and political subdivisions. Debits to total deposits except interbank prior 1942. 6 Daily average. 7 Average rates on loans made iu five major cities, weighted by loan size category. 3 Not adjusted for seasonal variation. p—Preliminary, r—Revised. 256
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