Full text of Economic Review (Federal Reserve Bank of San Francisco) : February 1959

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

. /llotitliLij
I V.£lM£U%
T WE LF TH F E D E R A L R E SE R VE D I S T R I C T

FEDERAL RESERVE BANK OF SAN F R A N C I S C O

February 1959




1958 DISTRICT REVIEW
C r e d i t ............................................... 10
I n d u s t r y ............................................... 14
C o n stru c tio n .................................
.
20
A g r i c u l t u r e ...................................... . 2 4
Foreign T r a d e ............................
25
Retail T r a d e ...........................................27
G overnm ent
................................. 28

A f t e r sliding downward for approximately
x \ . n i n e months, business activity in the
Twelfth District executed a quick reversal in
April 1958 and recovered uninterruptedly
through the remaining eight months of the
year. Although this recovery had sufficient
strength to boost total nonfarm employment
to record levels, it was weaker than that which
occurred in a comparable period in 1954-55,
and its margin of superiority over the 1949-50
upsurge narrowed considerably by December.
The 1958 recovery stemmed from a num­
ber of sources, among which the substantial
expansion of credit made possible by Federal
Reserve action in the early part of the year is
especially important. Some of the increased
credit supply spilled over into mortgage m ar­
kets and helped launch a boomlet in housing
construction. Financing of other types of con­
struction may also have been aided as state
and local government flotations were at record
levels during the first three quarters of 1958.
The sharp rise in construction activity in the
final three quarters of the year was more sig­
nificant to the economy of the Twelfth Dis­
trict than to the nation as a whole. N ot only
was the gain in activity more substantial in the
West, but the nationwide increase in the de­
mand for construction materials enabled the
District’s lumber industry to “turn the corner”
after a prolonged slump.
Governm ent actions played an im portant
role in the improvement of economic activity
in the Twelfth District in 1958 also. Action of
the Federal Government specifically aimed at
the residential housing m arket included en­
larging the borrowing authority of the Federal
National Mortgage Association and liberaliz­
ing terms on Veterans’ Administration and
Federal Housing Adm inistration insured
mortgages. In addition, heavy placement of
military prime contracts in the first half of the
year brought employment gains after April in




construction, and especially in aircraft, elec­
tronics, ordnance, and in service industries
engaging in space research. Grants-in-aid to
state and local governments under highway
and unemployment insurance programs also
expanded in 1958. Independently of these
grants, state and local governments stepped
up construction outlays and spending for edu­
cation.
In spite of the recession, agriculture in the
Twelfth District fared well in early 1958, but
this prosperity lessened after the recovery in
general business activity got underway. In
contrast to agriculture the recovery arrived
late or not at all for a num ber of m anufactur­
ing and mining industries. Foreign trade at
District ports also showed little reaction to
the recovery. Domestic trade at retail stores
in the West, however, rose gradually with the
upturn in employment and income and ended
the year with a strong upsurge. This included
some improvement in sales of consumer d u r­
ables— which remained, however, substan­
tially below prerecession levels.
Available evidence indicates that business
spending for new plant and equipment has
thus far shown littie or no recovery in the
Twelfth District, although some improvement
was noted in the value of plant expansions
in California during 1958. The failure of both
consumer and business spending for durable
goods to show a noticeable upturn stands out
as the main brake on the speed of the 1958
recovery.

The general business recovery after April
1958 required moderation of the policy of
ease pursued during the recession. Keeping
one eye on the improvement in business con­
ditions and the other eye on the lookout for
any resumption of boom or inflation, the F ed­
eral Reserve System moved by gradual stages

February 1959

MONTHLY REVIEW

during the last five months of 1958 away from
the m arked ease of the earlier months of the
year. The discount rate was raised from 1 %
percent to 2 percent early in August and to
2V2 percent around the end of October. In
addition, the monetary authorities supplied
only a portion of the reserves needed to meet
the increasing demand for credit and to offset
the reserve drain of a continual gold outflow,
thereby permitting the banking system’s re­
serve position to tighten. The monthly average
of free reserves dropped from $546 million
last July, close to the highest level of recent
years, to $383 million in August and to $95
million in September. By December the free
reserve figure was a negative $30 million,
indicating that member banks’ total borrow­
ings from the Federal Reserve were greater
than their excess reserves. Although this con­
stituted a substantial change, the degree of
monetary tightness fell considerably short of
the level that existed in August and Septem­
ber 1957, when the discount rate was at 3 Vi

percent and free reserves were around a neg­
ative $470 million.

Interest rates rose quickly
Last June a sharp rise in interest rates and
a corresponding drop in bond prices got un­
der way. Initially, this seems to have repre­
sented a reaction to overspeculation on rising
bond prices, which had provided speculators
with large gains during the previous seven
months. In addition, and more important,
many investors quickly realized that the busi­
ness recession was ending and that sooner or
later this would mean higher interest rates—
partly because there would be an increased
demand for credit and partly because the
Federal Reserve System would move toward
restricting the supply of credit in order to
prevent inflation. As a result, a rush to sell
bonds developed, and in four months bond
prices dropped as much as they had risen in
the previous eight. Yields on long-term Uni­
ted States Government securities rose from an

C hart 1

YIELDS

ON T R E A S U R Y B I L L S A N D L O N G T E R M G O V E R N M E N T B O N D S

PERCENT

. LONG TE RM
US. G O V E R N M E N T 8 0 N D S
. -

:v:.v is:

TREASURY

BILLS

(NEW 4SSUE)

m m I
m m k
t• e' i ,l-vi <

950
1956
1958
*Change in series.
Note: Shaded areas represent recession periods using turning points (Peak and Trough) established by the National Bureau of Economic
Research.
Source: Federal Reserve Board.







F E DE RA L R E S E R V E B A N K O F S A N

average of 3.13 percent in the week ending
May 31 to 3.83 percent in the week ending
October 4. Other interest rates moved higher,
too. The m arket yield on three-m onth Treas­
ury bills, for instance, soared from 0.58 to
2.70 percent during the same period.
The sharp drop in interest rates during the
recent recession and their even sharper re­
bound early in the recovery stand in marked
contrast to the behavior of interest rates dur­
ing the two previous business cycles. During
the recession of 1953-54, interest rates de­
clined rather gradually and hesitantly over a
period of about a year and then rose even
more slowly during the following recovery.
Long-term bond yields, for instance, re­
quired about two years to return to their
prerecession peaks. During the 1948-50 busi­
ness cycle, the decline and subsequent rise in
interest rates were so slight and irregular that
it takes a little imagination even to detect
a cyclical pattern in their behavior. (Chart 1)

Loan demand lagged business upturn
Total loans and discounts by District mem­
ber banks levelled off, except for minor sea­
sonal fluctuations, during the period of the re­
cession. W ith business inventories at excessive
levels, business activity declining, and unem­
ployment growing, relatively fewer firms and
individuals were anxious to borrow more from
the banks. As business recovery set in, how­
ever, loans outstanding began to rise, grad­
ually at first but more rapidly during the last
few months of 1958. By the end of the year,
the total exceeded $13.8 billion as compared
with less than $13.0 billion in April and May.
It should be noted, however, that this increase
was partly seasonal and was substantially
smaller than the increase during the corre­
sponding period of either 1955 or 1956 and
roughly the same as during 1957.
Commercial and industrial loans dropped
rather sharply and continuously (except for
m inor and tem porary rises of a seasonal na­

FRANCISCO

ture) from September 1957 to July 1958.
During the last five months of 1958, however,
they rose fairly steadily, reflecting the general
business recovery, as well as the norm al yearend increase in loan demand. R eal estate
loans, which are of exceptional im portance in
the Twelfth District, showed little change dur­
ing 1957 and the first four months of 1958.
Beginning last May, however, as residential
construction activity was stepped up, they
began a gradual rise, which continued through
the remainder of the year. The third m ajor
loan category, “other loans” (which are large­
ly to consum ers), changed slightly during
1957 and 1958 except for a m arked rise dur­
ing the final two months of 1958, which was
due mainly to an increase in single payment
loans.

Bank investments moved
contracydicaily
The effects of the measures taken during
the past year by the Federal Reserve System
are more clearly evident in the behavior of
bank investments than in that of bank loans.
Securities holdings of Twelfth District member
banks increased slowly during the first part
of the recession— from $8.3 billion at the end
of July 1957 to $8.7 billion at the end of
January 1958. During the next three months
— while business conditions were still worsen­
ing— the banks added to their investment
portfolios at a much more rapid rate, the total
reaching $10.0 billion by the end of April. A
small further increase took place during the
initial period of business recovery, and by
August total investments am ounted to nearly
$10.5 billion. They then levelled off, and the
year-end figure was about the same as for
August.
The credit-easing measures taken by the
Federal Reserve System early last year for
purposes of combatting the recession, (par­
ticularly the cuts in required reserve ratios)
provided the banks with additional free re-

MONTHLY

February 1959

C hart 2

TI M E AND DEMAND DE POSITS
TWELFTH D IST R IC T M E M B E R B A N K S
B IL L I O N S OF D O L L A R S

1 9 5 7 -5 8

14

J

M

M

J
1957

S

N

J

M

M

J
S
1950

N

N ote: Shaded area indicates the July 1957-April 1958 recession.
Source: Federal Reserve Bank of San Francisco.

serves, and, since the demand for loans was
not rising, the banks invested the extra funds
in securities. The much slower increase in
bank investments during the latter part of
1958 may be attributed partly to the pick-up
in loan dem and and partly to the shift away
from a credit-easing monetary policy. This
general pattern of bank investment behavior
— a sizable increase during the last months
of the recession, a smaller rise during the first
months of the recovery, and then a levellingoff or decline— also characterized the 194850 and 1953-55 episodes, although with some
differences in degree and timing.

District bank credit
increased steadily
Total bank credit extended by Twelfth Dis­
trict member banks has increased at a fairly
steady pace during the past year and a half,
despite the different and partly offsetting be­
havior of its two components, loans and invest­
ments. Since the extension of bank credit in
either form normally gives rise to deposits of
approximately the same amount, total deposits




REVIEW

also have increased at a fairly steady pace and,
on balance, this district neither gained nor
lost funds to the rest of the country. However,
there have been interesting differences in the
behavior of demand and time deposits. (Chart
2) Total demand deposits (adjusted) changed
relatively little at District member banks be­
tween July 1957 and June 1958, but during
the second half of 1958 they showed a sub­
stantial rise, from $11.3 billion at the end of
June to $13.0 billion at the end of December.
Time deposits have risen almost continuously
during the past two years but most rapidly be­
tween the end of November 1957, when they
amounted to $10.3 billion, and the end of
June 1958, when they exceeded $11.7 billion.
In the second half of 1958, they increased at
a slower rate to $12.1 billion at the end of the
year. Thus, during the recession period time
deposits rose sharply while demand deposits
showed little change, whereas during the fol­
lowing recovery period demand deposits have
increased rapidly and time deposits only slow­
ly. M uch the same sort of behavior may be
observed in the records of the 1948-50 and
1953-55 cycles.

Long-term credit demand
remained strong
Demand for long-term credit has behaved
quite differently during the current business
cycle than the dem and for bank loans. Ade­
quate data are not readily available for the
Twelfth District, but the statistics for the
entire nation show that, whereas short-term
borrowing at banks languished during the
recession phase and then picked up during the
recovery phase, long-term borrowing was sus­
tained at a high level during the recession and
then dropped off somewhat as business con­
ditions improved. Thus, long-term security
issues by the state and local governments for
the purpose of raising new capital were at alltime record levels during the three quarters
ending June 30, 1958, averaging $2.2 billion

F E DE RA L R E S E R V E B A N K O F S A N

per period. During the third quarter of last
year they dropped to $1.9 billion and during
the fourth quarter to an estimated $1.4 billion.
Similar issues by corporations totalled $3.0
billion in the fourth quarter of 1957 and $3.1
billion in the first quarter of 1958— not quite
record levels, but nevertheless substantially
higher than in most previous periods— where­
as during the remaining three quarters of
1958 they amounted to only $2.6, $2.8, and
an estimated $2.4 billion, respectively.
The large am ount of new bond issues dur­
ing the recession may well have been due in
part to the relatively low level of long-term
interest rates prevailing then. Undoubtedly
some corporations and state and local govern­
ments took advantage of these low interest
rates to bring out security issues that had been
deferred from the previous “tight money”
period or that would not otherwise have come
to m arket until later. Conversely, the drop in
such bond issues during the second half of
last year probably resulted to some extent
from the sharp rise in interest rates during the
summer, although higher corporate profits
may also have been partly responsible by re­
ducing the need for outside financing.

FRANCISCO

By November, seven months after the
April low, total nonfarm employment in the
Twelfth District had regained all that had
been lost during nine months of recession and
had risen to a new peak. This feat was accom­
plished at a rate of recovery less impressive
than that which occurred after the 1954 up­
turn and only slightly faster than the one be­
ginning in November 1948.1 (C hart 4 ) A
similar picture of the 1958 upsurge is pre­
sented by the movement of unemployment on
the Pacific Coast. The num ber of jobless dur­
ing 1958 consistently remained between the
relatively high level of 1949-50 and the much
lower level of a comparable period in 195455. (C hart 3) The bulge in unemployment
that occurred in August and September 1958
resulted from a combination of events that
1 Turning points in business activity used here are those estab­
lished by the National Bureau of Economic Research for the
whole United States on the basis of numerous economic series
not available regionally. In 1949 the District economy appears
to have lagged the nation, while in 1954 the upturn in the
West may have led by a month.
C hart 3

U N E MP L OY M E NT IN PACIFIC COAST S T A T E S
IN T H R E E R E C O V E R I E S
percent

J/

sea so n a lly

a d ju sted

Bank earnings rose
Accompanying these changes in the mone­
tary and credit sector of the economy, bank
earnings increased. F or Twelfth District mem­
ber banks, net profits before income taxes
were 24.8 percent higher in 1958 than in
1957. M uch of this improvement was ac­
counted for by substantial capital gains on
securities sales, particularly during the first
half of 1958 when bond prices were relatively
high. During 1957, in contrast, total securities
sales resulted in a net loss. In addition, the
District member banks enjoyed a small in­
crease in net current profits last year, as their
total earnings on loans and from other sources
rose somewhat more than their total expenses.




JULY
1949

JUNE
1950

■ —

J AN
0EC. 1958
MAY 1-954
APRIL
1955

...........

-2

•>
3
TROUGH

2

4
MONTHS

6

8

1 Percent of the civilian labor force.
N ote: Seasonally adjusted data have been indexed so that
trough months equal 100. As determined by the National
Bureau of Economic Research, recoveries began in October
1949, August 1954, and April 1958.
Source: State employment agencies.

MONTHLY REVIEW

February 1959

C h a r t s 4, 5, 6, a n d 7

COMPARATIVE

EMPLOYMENT

IN T H R E E

CHANGES

R EC O VERY P E R IO D S
IN D E X

IN D E X

104

106

R V IC E IN D U S TR IE Sj/

TO TAL N O N FA R M

irwri c r u m c T D i r n

102
JU NE
1950

(T W E L F T H O I S T R IC T ) .

100

2

4

6

8

M O N TH S

2

4

6

CHART 7

8

MONTHS

J U N E 1950
OEC.

C H A R T

5

M A N U F A C T R IN G

( p a c if ic

co ast

)

A P R IL
1955

A P R IL I9 5 5

JU N E
1950
OEC.

2

4

6

8

M ONTHS

2

4

6

8

M ONTHS

*Prerecession peak regained.
1Includes (in order of importance) wholesale and retail trade; federal, state, and local government;
services; transportation, communications, and public utilities; finance, insurance, and real estate.
Note: Seasonally adjusted data have been indexed so that trough months equal 100. As determined by the National Bureau of Eco­
nomic Research, recoveries began in October 1949, August 1954, and April 1958.
Source: State employment agencies.

include an unseasonably early peak in fruit
canning, a m ajor work stoppage in trucking
(which also idled workers in related distribu­
tion industries), and a late upturn in logging
and lumber production. These events followed
the entry into the labor force of a higher-thanusual num ber of summer job seekers. Many
of these withdrew in the fall, however, so that
the overall growth in the Pacific Coast’s labor
force from April to December amounted to
only 0.5 percent. This may be compared with
an increase of 3 percent from August 1954 to
April 1955, and a fall of about 2 percent dur­
ing the upswing that preceded the Korean
War. On the basis of these three recovery




periods it appears that West Coast job seekers
execute a net withdrawal from the labor force
when unemployment is relatively high and,
conversely, enter in larger numbers when un­
employment is low.
As shown in Table 1, Government was the
only employment category showing a greater
gain in 1958 than in either of the two previ­
ous recoveries. Although this is primarily due
to an expanding teaching force at state and
local levels, it will be seen below that in­
creased outlays at all levels of Government
have made a relatively larger contribution
during the present recovery than in the prior
two. Government payrolls rose by 40,000 in

FE DE RAL R E S E R V E B A N K

District states from April to December after
a rise of 30,000 during the recession.
In contrast, four key sectors— m anufactur­
ing; trade; finance; and transportation, com­
munications, and public utilities— show per­
centage changes less sizable than in earlier
recoveries, in line with the relatively more
m oderate expansion in business and consumer
outlays during the 1958 upswing. In these
industries, moreover, only finance employ­
ment had regained recession losses by Decem­
ber.
M irroring the pronounced expansion in
building activity, employment in construction
has shown the largest percentage rise of all
m ajor nonfarm industries just as it has in
other recoveries. Similarly, manufacturing
registered the largest absolute growth (79,000) and the second highest percentage in­
crease. These sectors, being sensitive to that
portion of demand inclined to show the great­
est amount of cyclical variance, generally re­
corded the most severe employment losses
during the three recessions. During the 195758 recession, however, mining suffered the
largest percentage drop in employment as
both metal ore and petroleum extraction felt
more intense competition from foreign sup­
plies at the time that domestic demand was
falling.




OF S A N

FRANCISCO

Defense-oriented manufacturing
industries led recovery
Table 2 compares m anhour gains in m anu­
facturing of Pacific Coast states for the 1958
upswing and its immediate predecessor.1 It is
evident that manhours worked in m anufactur­
ing, which reflect both changes in employ­
ment and a lengthening of the workweek,
show greater percentage gains than do em­
ployment figures alone. It is also apparent
that activity in durable goods manufacturing
responded more rapidly in both recoveries
than did hours worked in nondurables. This
might be expected since durables record the
most sizable losses during recessions. Among
durable goods industries, those most depend­
ent on Government contracts— machinery
(including electrical m achinery), transporta­
tion equipment (mostly aircraft and m issiles),
and other durables (including ordnance and
instruments m anufacturing)— show gains in
the 1958 upswing more sizable than in a com­
parable period in the 1954-55 recovery.2 D ur­
ing the earlier period defense expenditures
were being curtailed following the Korean
conflict. Such outlays, particularly for missiles,
1 Available data limit this comparison to the two most recent
post-World War II recoveries and to Pacific Coast states only.
2 I t should be noted th a t the seasonal influence of expanded oper­
ations a t California automobile assembly plants tends to inflate
slightly the April-December rise in manhours worked in trans­
portation equipment.

T able 1

EMPLOYMENT CHANGES IN TWELFTH DISTRICT INDUSTRIES
DURING THREE RECOVERIES
(seasonally adjusted)
Net
Percent
Change
Difference
April-December 1958
TO TAL
M an u fa c tu rin g
M in in g
Construction
Transportation
Trade
Finance
Service
G overnm ent

2 1 4 .4
79.3
1.9
47.3
— 9.5
23.2
3.0
2 9 .6
39 .6

N ote: Differences are in thousands.
Source: State employment agencies.

3.7
5.0
2.6
12.1
— 1.7
1.5
1.0
3.5
3.4

Net
Percent
Change
Difference
August 1954-April 1955
27 7 .5
125.4
2.7
32 .6
14.3
43.1
7.8
28.1
16.3

4.9
8.8
3.6
8.8
2.9
3.3
3.2
3.9
2.3

Percent
Net
Change
Difference
October 1949-June 1950
14 9.0
69.1
1.0
5 0 .7
0.1
21.5
10.9
2.5
— 6.8

3.2
6.6
1.4
17.0
0.0
1.9
5.8
0.4
— 0.8

M ONTHLY REVIEW

February 1959

T able 2

Percent
Change
Apr. 1958Dec. 1953

Psrcent
Change
Aug. 1954Apr. 1955

8.7

10.1

N o n d u rab le s
Food a n d kindred products
Textiles an d ap p arel
Paper a n d p ap e r products
Printing an d p u b lish in g
O ther n ondurables

2 .9
— 0.3
7.3
5.7
3.7
3.9

5.8
4.3
5.5
4.4
3.6
10.7

D urables
Lumber a n d w o o d products
Furniture a n d fixtures
M e ta ls
M a ch in ery
Transportation equipm ent
O ther d u rables

11.4
10.5
9.0
7.3
7.2
12.9
15.5

12.3
34.5
9.1
10.2
3.7
5.6
7.7

TO TA L M A N U F A C T U R IN G

N ote: D ata seasonally adjusted.
Source: State employment agencies.

began rising in 1958 and engendered an ex­
pansion in manhours worked before the gen­
eral business upturn in April.
In contrast, activity in lum ber and in metals
manufacturing did not expand so rapidly in
1958 as in the preceding upswing. Although
the August 1954 to April 1955 gain shown for
lumber reflects the settlement of a major work
stoppage, that industry enjoyed a pick-up in
demand at an earlier stage in the general busi­
ness recovery of that period. This time the
rise in housing construction had a relatively
later start and has been, so far, less substan­
tial. The consequent expansion in the demand
for lumber has similarly been less marked. In
the case of metals, the relatively slower gain
over the recent recovery reflects the cutback
in Government stockpiling programs, partic­
ularly for aluminum, and the absence of a
significant improvement in plant and equip­
ment expenditures in the West.

Nondurables showed damped rise
In nondurable goods manufacturing, appar­
el, paper, and printing and publishing topped




earlier increases in the 1958 resurgence in
business activity. These more favorable recov­
ery rates were more than offset by a slight loss
in the im portant food processing industry, and
a reduced rate of gain in “other nondurables”
which include petroleum refining and chem­
icals. The loss over the 1958 recovery in manhours worked in food processing reflects
sharp cutbacks that have occurred outside
canning, particularly in meat packing.

Canning activity stabilized
The District canning industry appears to
have been in a more favorable position during
both the recent recession and recovery than it
was in prior years. Throughout 1958 canners’
shipments were maintained at a high level,
and prices for most items generally averaged
higher than in the previous year, particularly
for canned fruits. Demand for canned fruits
and vegetables, like that for food in general,
changes more moderately in response to
changes in price, or in consumer income, than
does demand for many other goods. Canners’
sales showed no sharp changes traceable to
declines or recoveries in business conditions
in any of the three postwar business cycles.
The canning industry, a fairly competitive
one, operates in a context of relatively stable
demand, but comparatively unstable supply.
Moreover, prices and shipments tend to vary
with changes in supply, since the industry de­
pends for raw materials on agriculture, where
output is unpredictably affected by weather.
The lack of sensitivity of canning to business
cycles is further illustrated by the fact that it
was the only m ajor District manufacturing
industry to show almost no change in employ­
ment over the first eight months of the recov­
ery period.
Fruit packs were reduced 6 percent in 1958
because unfavorable weather reduced harvests
of some deciduous fruits last spring, particu­
larly in California. With relatively low inven­
tories to supplement the pack, total supplies

FE DE RAL R E S E R V E B A N K O F S A N

were down 10 percent. Most of the reduction
was in apricots, but cling peach, pear, and
cherry canning was also reduced. In response
to this sizable cutback in supplies, prices of
most items advanced to their highest levels
in many years, more than offsetting a decrease
of 2 percent in the movement from canners’
stocks during the first six months of the sea­
son, com pared with the same period a year
ago.
Supplies of vegetables for the season, how­
ever, were more plentiful, mostly because
acreage increases and excellent weather per­
m itted District growers of canning tomatoes
to harvest the second largest crop in history.
The total vegetable pack was up 10 percent,
more than offsetting the decline in output of
canned fruit. This was chiefly due to an 18
percent increase in the pack of tomatoes and
tom ato products which came close to equal­
ling the 1956 record. Total supplies of tom a­
toes and their products topped the previous
level by 12 percent, as new packs were added
to a moderately large inventory remaining
from last year’s pack. Demand for many of
these items was strong during the first half of
the marketing year (the last six months of
1958) reinforced by shortages in some types
of tom ato packs in other regions. By January
1959, District canners had disposed of a 4
percent greater volume than in the first half
of the previous season, although large supplies
prevented any significant price increases.

Steel production gained
Output at District steel ingot producing
plants reached a recession low before the gen­
eral business turning point and tended to level
in early 1958. (Throughout this period steel
output nationally continued to decline.) An
upswing in District production started in
April, but this was interrupted by a sharp falloff in July, resulting partly from hedge buying
against an anticipated price increase that
finally came in August. However, the dip also




FRANCISCO

reflects the Fourth of July holiday, industry­
wide vacations, and a shutdown associated
with a major expansion program at Kaiser’s
F ontana plant. Generally, the third and fourth
quarters were periods of strong recovery, and,
beginning in August, each m onth except De­
cember established a new production high for
the year as the industry responded to a recov­
ery-induced increase in demand. With the
exception of the July drop-off, production fol­
lowed a path in the 1958 recovery similar to
that of the 1954-55 upswing. (C hart 8. Com­
parable data for the 1949-50 recovery are not
available.)
Even though the first six months of 1958
included several in which the dem and for
finished steel products was not particularly
strong, available figures indicate that imports
were up 50 percent from early 1957 levels.
Foreign steel supplied 5 percent of the Dis­
trict’s total requirements during the first half
of 1958, while it accounted for only about 1
percent of the national market. Although im­
ports failed to make a substantial inroad on
the relatively large m arket for construction
steel, im ported tubular and wire products hit
some District producers quite heavily. Japan
accounted for nearly half the District m ar­
ket for nails and wire products while West
European producers increased their share
of the tubular market from 3 percent in 1957
to almost 25 percent in early 1958.
A nother significant development in the
Twelfth District during 1958 was a 25 per­
cent expansion in steel ingot capacity. This
was about one-fifth of ingot capacity installed
in the nation during the year. Facilities for
finishing steel products were also enlarged,
making it possible for District producers to
supply nearly two-thirds of the West’s steel
requirements.

Nonferrous metals lagged in recovery
Prim ary aluminum production in the P a­
cific Northwest declined 23 percent from

M ONTHLY REVIEW

February 1959

Chart 8

INGOT S T E E L OUTPUT
IN TWO R E C O V E R I E S
T W E L F T H D IS T R IC T

index

DEC. 1958
SE A S O N A L L Y A D J U ST E D
/
#

*AY

A

m4

JUNE
1955

\

JAN. (958

ou

-2

0
TROUGH

2

4

6

8

M ONTHS

Note: Seasonally adjusted data have been indexed so that trough
months equal 100. As determined by the National Bureau of
Economic Research, recoveries began in October 1949, August
1954, and April 1958.
Source: Data to April 1958 from Facts for Industry, United
States Department of Commerce. D ata for April-December
1958 from the American Iron and Steel Institute.

1957 to 1958, continuing the downtrend from
the 1956 peak. This contrasts with earlier
years when production continued to increase
in spite of general business recessions. It is
also more severe than the 6 percent drop ex­
perienced by the national industry, although
the effect of national economic recession and
swollen inventories was felt by all producers.
Even though stocks on hand at the beginning
of 1958 were 70 percent larger than a year
earlier, output during the first quarter was
almost as high as during the same period in
1957. When general business activity began to
rise in April, several facilities in the N orth­
west either shut down completely or reduced
operations substantially.
In July transcontinental railroads lowered
freight rates for aluminum pig, sheet, and
plate moving East, enabling District produc­
ers to compete more effectively with supply
sources in the East. With this development,
an increase in demand, and an 18-month low
in primary aluminum stocks, Northwest pro­




ducers began reactivating potlines. Subse­
quently, ingot prices advanced 0.7 cents per
pound, following a wage increase in August,
and additional potlines were reactivated, rais­
ing operations to about 85 percent of capac­
ity at year’s end. In August primary produc­
ing capacity in the District rose nearly 10
percent with the opening of Harvey Alumi­
num Company’s new plant at The Dalles,
Oregon.
Production of copper, lead, and zinc at
District mines— down 11, 23, and 16 percent,
respectively, from 1957 levels— was affected
by changes in the availability of foreign sup­
plies as well as by changes in domestic de­
mand. Copper prices began increasing in June,
and although this rise was accelerated by mine
shutdowns in Canada and Rhodesia, prices
generally averaged less than in 1957. Largely
because of reduced imports, District producers
lengthened workweeks and reopened mines in
October. With the increase in demand gen­
erated by the rise in output of metals products
nationally, mine activity in District states ex­
panded further at year’s end.
Although lead and zinc mining were gener­
ally curtailed throughout 1958, complete
mine closure was infrequent. Even where out­
put was maintained, as in Arizona (lead pro­
duction equalled last year’s m ark) and in
Utah (output of zinc ran ahead of the previ­
ous year’s level), generally depressed prices
sharply reduced the mineral income generated.
Compulsory quotas, which went into effect
in October and limited imports of lead and
zinc to 80 percent of the 1953-57 annual im­
port rate, gave some support to weak price
structures. However, permissible im port lev­
els still implied a lead supply rate in excess
of demand in the fourth quarter. Moreover,
foreign lead bypassed quotas by entering as
finished or semi-finished products. Conse­
quently, demand for domestically-produced
pig remained relatively dull at year’s end.

F E D E RA L R E S E R V E B A N K O F S A N

FRANCISCO

Petroleum moved sluggishly in 1958
Production of crude oil in District Five1
showed little change during the 1958 recov­
ery and remained at a level about 5 percent
below that of mid-1957. A t best, the general
business recovery evident after April only
m anaged to halt the long-run trend which has
pulled output down 10 percent from the peak
rate reached in 1953. This decline in the out­
flow of California’s heavy gravity crude is due
to encroachment of natural gas on the market
of residual fuel oil, and superior qualities of
the lighter foreign crudes.
Residual fuel oil has been the source of a
more or less constant inventory problem for
the West Coast petroleum industry. The prob­
lem is intensified during periods of industrial
recession when accumulation of heavy fuel
stocks upsets the balance between indigenous
crude producing capacity and refinery crude
requirements. Thus a drop in the demand for
residual fuel of 14 percent in 1958 caused a
30 percent rise in inventories, a cut in refinery
operations, and an 11 percent fall in fuel oil
prices. In addition, the reduced rate of crude
production dam ped drilling operations, well
completions, and exploration activity in Dis­
trict Five during 1958.
In spite of the 14 percent decrease in de­
mand for residual fuels, total Fifth District
demand for petroleum products increased 1
percent from 1957 to 1958. Distillate fuel oil
demand was down 1.6 percent, reflecting un­
usually mild climatic conditions, but gasoline
sales increased 4 percent in volume. The
speed-up in the placement of Government
orders led to a jum p of 33 percent in military
dem and for petroleum products. In contrast
to stocks of residual fuels, gasoline inventories
at year’s end were down about 10 percent
from the beginning of 1958. Reduced opera­
tions at refineries had also cut inventories of
middle distillate fuels.
1 D istrict Five includes California, W ashington, Oregon, Arizona,
and Nevada.




Perhaps the most striking recovery among
Twelfth District industries during 1958 oc­
curred in construction. The total value of con­
tracts awarded for construction projects ex­
ceeded that in 1957 by 7 percent, and the
value of work put in place during the year
was probably a record amount. By year-end,
employment in the industry matched the pre­
vious record at the end of 1956. Unusually
heavy rains dampened activity during Feb­
ruary, M arch, and April, especially in Cali­
fornia. Despite strong evidence of an in­
creased availability of funds for the home
mortgage market, there was at that time some
doubt about the strength of demand for hous­
ing during a period of impaired income and
declining employment. Moreover, though
contract awards during those early months al­
ready signalled that 1958 would be a banner
year for construction of highways and com­
mercial and public buildings, awards for fac­
tories and most types of public works and
utilities projects slumped sharply.

H ousing turned up in the spring
With better weather and an increased sup­
ply of mortgage funds, construction rebounded
after April. Aided by Federal legislation pro­
viding the Federal National Mortgage AssociT able 3

Western Region*
1 9 58

1959

United States

J a n u a ry 1

6.3 5 %

6 .0 0 %

A p ril 1

6.05

5.7 5

July 1

5.8 5

5 .6 0

October 1

5.85

5.6 5

J a n u a ry 1

6 .1 0

5.7 5

•Western Region includes Twelfth D istrict states plus Wyoming
and Montana.
Source: Federal Housing Administration, Research and Statistics
Release.

M ON THLY REVIEW

February 1959

C hart 9

N E T P R I C E S OF F H A I N S U R E D
HOME MORTGAGES
W ESTERN

J

F

R E G IO N A N D U N I T E D S T A T E S IN 1958

M

A

M

J

J

A

S

O

N

D

J

1 Estimated average quotations on the first day of the month for
immediate delivery transactions of 10 percent down-payment,
25-year m aturity, FHA-insured, 5J4 percent new home mort­
gages (Section 203).
N ote: Western region includes Twelfth D istrict states plus Wy­
oming and Montana.
Source: Federal Housing Administration, Research and Statistics
Release.

ation with enlarged authority for purchasing
mortgages on low-cost homes, and with mod­
ification of FH A and VA mortgage terms,
home builders were able to secure lending
commitments which were generally adequate
to finance their operations through the end of
the year. Spring brought a m arked pick-up in
home-building activity in most District areas,
but the most im portant home-building area in
the nation, Southern California (hard hit by
aircraft payroll reductions), lagged behind for
several months. By midyear, however, all Dis­
trict areas were sharing the revival. The num­
ber of dwelling units covered by contracts
awarded for the construction of one- and
two-unit dwellings during the entire year in
the eleven western states—-most of which is
accounted for by Twelfth District states—
exceeded those in 1957 by 24 percent, and
awards for apartm ent dwellings, which had
jumped one-third between 1956 and 1957,
increased by an additional one-third in 1958.




Fears of inadequate demand for housing
were found to be excessive, for there was no
general increase in vacancy rates. Such rates
for sale-type housing remained unchanged
during 1958 in this district, while a moderate
increase in rental vacancy rates evident in the
first half of the year was quickly worked down
during the second half to a lower level than
at any time in the previous three years. Thus,
there was no lack of demand and after mid­
year the home-building industry turned to the
problem of finding adequate mortgage funds.
The residential building upsurge had barely
gained full momentum when a sharp increase
in interest rates made other forms of invest­
ment increasingly competitive. Discounting
of Government-backed mortgages increased
and rates on conventional mortgages rose.
(Table 3 and Chart 9) Since the amount of
saving generated in this district is insufficient
to finance the volume of home construction
as well as other investment associated with
its relatively high rate of growth, funds must
be attracted from eastern areas, which, as
C hart 9 indicates, results in higher costs to
borrowers here than in the rest of the nation.
At the end of 1958, however, there was some
evidence of a levelling in discounts demanded
on Government-backed mortgages and on
conventional mortgage interest rates. M ore­
over, unusually dry weather in California was
contributing to a high level of work put in
place.

Other construction advanced also
Other types of construction, not so sharply
affected by changes in financing terms, under­
went a more moderate but similar upward
spurt in the second and third quarters of 1958
and then levelled off at year-end. With the
stimulus of Federal aid, highway construction
and contract awards for future highway work
rose to record heights and expansion of air­
port facilities progressed, with particular at­
tention being paid to modifications to accom­
modate jet aircraft. Other heavy engineering




FE D E RA L R E S E R V E B A N K OF S A N

construction work eased during 1958, how­
ever, and despite a rise in contracts awarded
during the summer, total awards for the year
failed to match the 1957 level by a substan­
tial margin. Awards for public buildings con­
tinued to increase in 1958, but after April
those for commercial building construction
were almost unchanged from corresponding
months in 1957, and awards for factory con­
struction remained low throughout the year.
Among nonresidential and heavy engineer­
ing construction, two items appear worthy of
further mention. As of the end of the year,
the amount of proposed factory projects be­
ing planned in Twelfth District states was un­
changed from the end of 1957, suggesting
that there will be no increase in this type
of construction at least during the early part
of 1959. In contrast, a slight improvement in
factory awards nationally was indicated for
mid-1959 by an increase in factory projects
T able 4

Valuation (thousands of dollars)
1957

1958

Percent
change

Com m ercial b u ild in gs

5 7 9 ,1 6 0

6 2 3 ,6 0 0

+

M a n u fa c tu rin g b u ild in g s

3 6 9 ,3 0 2

2 3 4 ,8 8 4

— 36

Edu cation al a n d
science b u ild in gs

5 7 5 ,1 7 2

6 0 8 ,6 0 5

+

A ll other n onresidential
b u ild in g s *

5 8 0 ,2 1 9

7 4 2 ,7 0 3

+ 28

O n e - a n d tw o -fa m ily
houses

8

6

2 ,2 8 2 ,0 1 9

2 ,8 5 1 ,7 7 6

+ 25

O ther residential
b u ild in g s * *

4 7 4 ,0 0 4

6 6 8 ,1 4 2

+ 41

Public w o rks a n d
utilities

2 ,0 5 1 ,8 5 6

1 ,6 7 4 ,4 7 4

— 18

Total Construction

6 ,9 1 1 ,7 3 2

7 ,4 0 4 ,1 8 4

+

7

N U M B E R OF D W E L L IN G U N IT S
O n e - a n d tw o -fa m ily
houses
A p artm e n t b u ild in gs

186,121

2 3 1 ,4 5 2

+ 24

56,901

7 5 ,6 1 6

+ 33

•In c lu d e s hospitals, public, religious, social and recreational,
and other miscellaneous nonresidential buildings.
••In c lu d e s ap a rtm en t buildings, hotels, dorm itories, and other
nonhousekeeping residential structures.
Source: F . W. D odge C orporation, C onstruction C ontracts.

FRANCISCO

entering the construction stage in the final
months of 1958. Also interesting is the fact
that there was a slight net increase during
1958 in contract awards for nonresidential
and heavy engineering projects placed by
public agencies, while awards from private
companies declined. A sizable majority of
awards for heavy engineering projects in this
district customarily comes from governmental
bodies, but the proportion was even greater
in 1958. And within public awards there was
a moderate shift from heavy projects to non­
residential buildings during the year. Private
awards for both types of construction de­
clined in 1958, and for utilities projects they
were only about one-third of the 1957 level.

Construction expanded sharply
in all postwar recoveries
Although the decline in construction ac­
tivity in the Twelfth District was relatively
mild during the two previous recessions,
sharp expansion was experienced during the
recovery periods. Residential housing starts
were moderately reduced during both reces­
sions, but rebounded in both 1950 and 1955
to set new records— and indeed the num ber
of housing starts in 1955 remains the alltime high. Other types of construction work
were even less affected by the previous reces­
sions but they also increased following the
cyclical low. D ata on heavy engineering con­
tract awards reported by Engineering News
Record show continuing increases from 1948
through 1951, and although there was a tapering-off in new awards after the Korean War,
this gave way to further boom in 1955. These
data only cover large-scale construction proj­
ects, however, which make them of limited
use for overall trends.
The sole measure available for comparison
of changes in total construction activity dur­
ing the three postwar recoveries is construc­
tion employment. (C hart 7 ) It appears that
the gain in construction employment during
the first six months of the 1958 recovery was

February 195 9

M ON THLY REVIEW

r
Table 5
IXDELES OF INDUSTRIAL PRODUCTION
TWELFTH DISTRICT
(1947-49 ■100)
Industrial
Production
Copper
Lead
Zinc
Silver
Gold
Iron Ore
Steel Ingots
Aluminum

1939
80
93
48
167
234
9
24

1953
113r
78r
78
107
89
201r
158
165

1954
103r
72r

1955

1956

1957

1958p

106r
80
13 9r
128
177

120r
77r
72
104
85
177r
154
186

131r
80r
72
I 06r
79
218r
162r
197

130 r
79r
74
11Or
77r
224r
I70r
185r

116
61
62
103
70
180
141
142

64

Petroleum
Refined Oils
Natural Gas

67
63
64r

109
122
95

106
119
92

106
122
98

105
129
92

101
132
92 r

94
124
80

Cement
Lumber
Wood Pulp
Douglas Fir
Plywood

56
71
67

13 2r

118
157

I33r
116
164

145
121r
180

156
120r
192

150r
107r
189r

157
106
183

53

213

219

273

295

301

345

74
39r
63
97
91
I74r
86
47r

110
139r
119
107
96
92r
98
108r

107
I45r
123
116
99
116r
104
106r

130
178r
139
109
103
104r
90
107

142
225
149
113
105
87r
85
114

129
194r
13 9r
120
106
98r
89r
120r

121
214
127
111
103
94
86
125

Canned Fruit
Canned Vegetables
Meat
Sugar
Flour
Butter
American Cheese
Ice Cream

P preliminary
r revised
Motes Data given above supersede all previously published annual indexes.

V ___________________________________________

J

more rapid than those in corresponding pe­
riods of the previous upsurges. After Novem­
ber, however, the 1958 rise fell behind the
pace achieved by construction employment
just before the Korean War.

Lumber business— a long-awaited
recovery
In 1958 the Twelfth District’s lumber in­
dustry happily witnessed a reversal in the twoyear downtrend of production and prices.
The turnabout followed a nationwide up­
surge in residential building which propelled
housing starts sharply from a M arch low to
boom proportions in the closing months and
the highest yearly total since 1955.
Despite the increase in residential con­
struction activity, the volume of lumber pro­
duced in the District in 1958 differed little
from output in the previous year because im­
provement in the final six months merely off­
set the depressed rates of the first half of the
year. Production might have shown a greater




reaction to the pick-up in housing if logging
activities had not been shut down in some
areas because of the extremely dry conditions
in the woods. A t the close of 1958, District
lumber mills generally had a higher backlog
of unfilled orders than at the close of 1957
and lower levels of inventories than at the
start of the year.
Lum ber prices also rose during 1958, but
this strengthening did not extend to all types
of lumber. Redwood prices remained level
over the recovery just as they had during the
recession. Douglas fir prices, on the other
hand, rose rapidly after midyear, declined
some during the last three months of the year,
and wound up approximately 10 percent
higher at the close of 1958 than a year earlier.
Western pine prices also strengthened during
the year. Initial gains were less spectacular
than in the case of Douglas fir but prices con­
tinued to rise and by December were about
7 percent higher than at the end of 1957.

Plywood production expanded
Plywood production capacity and output
increased substantially in 1958, although for
the first time in many years the number of
plants operating in District states declined.
According to Lumberman magazine, plants
operating at the close of 1958 were capable
of producing 14 percent more plywood than
the year before and production in western
states was 10 percent higher than in 1957.
Part of this increase resulted from a rise in
the production of hardwood plywood of more
than 40 percent between 1957 and 1958. Al­
though only about 6 percent as large as the
output of softwood plywood, the production
of hardwood plywood is increasing in im­
portance. Because of the scarcity of native
hardwoods, the veneer is obtained almost ex­
clusively through imports of Oriental woods.
It should be noted that industry capacity
and production have been expanding more
rapidly than the demand for softwood ply­
wood for quite some time. This is reflected




F E D E RA L R E S E R V E B A N K OF S A N

in the decline in softwood plywood prices rel­
ative to lumber prices and the composite
price index of all building materials. With ex­
cess capacity available and no inventories to
cushion against sudden changes in demand,
a rise in plywood prices tends to induce an
unduly large increase in output which, in
turn, weakens prices. Wide fluctuations in
plywood prices, therefore, are quite common
and 1958 was no exception. Although ply­
wood prices were at a relatively low level in
the early months of the year, by summer they
had increased 25 percent. This led to output
increases that soon outran demand. Conse­
quently, prices fell back and later production
was cut sharply as producers attempted to
halt further price declines. A t year’s end the
price of Douglas fir plywood was about 5
percent higher than at the beginning of the
year.

Lumber lo gge d general upturn in
business activity
The lumber business played a different role
in the most recent recovery period than in
the two preceding postwar recovery periods.
Lumbering activity is associated with con­
struction activity, particularly residential
building. During the two preceding recovery
periods, housing construction either turned
up several months prior to general business
activity (in 1954) or continued to rise during
the recession (1949-50). This time, how­
ever, housing activity started to slump long
before general business activity turned down
and turned up at about the same time. District
production of lumber in the postwar period
has typically lagged behind changes in hous­
ing starts during periods of fluctuations in
general business activity. This again was the
case in the recovery period in 1958. Since the
initial pressure of the increase in demand was
absorbed by reductions in inventories and ris­
ing prices, production did not rise so fast as
housing starts during the early months of the
recovery period.

FRANCISCO

A noticeable feature of the recent recession
was the contracyclical behavior of farm
prices and farm income. The agricultural sec­
tor does not dance to the same tune as the
rest of the economy and, consequently, its
movements frequently are not synchronized
with fluctuations in general business condi­
tions. Farm prosperity in the Twelfth Dis­
trict, for example, is particularly sensitive to
meat production cycles which move inde­
pendently of ups and downs in the nonfarm
sector. In the 1957-58 recession the domi­
nant factor increasing farm prices and farm
income was the rise in the price of m eat ani­
mals due to the smaller supply available for
market. This experience contrasts sharply
with two earlier postwar recessions. In both
of these the reverse phase of livestock pro­
duction cycles occurred— increasing supplies
and falling prices of m eat animals led to
declines in farm income. After the 1948-49
contraction a recovery in farm income did not
take place until the Korean W ar propelled
farm prices upward in the summer of 1950.
In the recovery beginning in September 1954,
farm income rose after and more moderately
than general business activity.
In the opening four months of 1958 rising
prices boosted farm cash receipts in the Dis­
trict to a level 13 percent above that of early
1957. F or the year, on the other hand, the
cash intake from marketings of crops and live­
stock totalled only 2 percent more than in the
1957 period. Nearly all of this increase, more­
over, was due to the strong showing of re­
ceipts during the darkest months of the reces­
sion before May. Although higher prices for
meat animals dominated the increase in cash
receipts during these months, the value of
marketings was also buoyed by unusually high
prices for citrus fruits and some vegetables
after winter freezes reduced supplies forth­
coming from eastern producing areas. In ad­

February 1959

MONTHLY REVIEW

dition, unusually large quantities of cotton
from the 1957 harvest were m arketed in
early 1958. Finally, the maintenance of con­
sumer purchasing power at a relatively high
level during the recession appears to have
permitted a national increase in spending for
food during the opening quarter of 1958.
After reaching a peak in April, farm prices
fell back from early-year highs under the
pressure of large harvests in other regions and
increasing supplies of hogs from the Mid­
west. District prices for meat animals, chiefly
cattle and calves, declined slightly in the MaySeptember period, but were still higher than
in any year since 1952. Thus livestock re­
ceipts remained above the year-ago period
and more than offset declines in summer crop
receipts. In the fourth quarter, livestock prices
rose again but a reduced volume of market­
ings depressed cash receipts below those of
the final three months of 1957. F or the year,
cash income from livestock marketings shows
a gain of 1 percent over the 1957 figure.
Although gross farm income for 1958
topped that of 1957, it is less probable that
net income will show a gain. While produc­
tion costs of District fanners do not corre­
spond precisely with those of other areas of
the United States, expenses of agriculture na­
tionally rose 3 percent from 1957 to 1958.
It should be noted that changes in the net
income position of District farmers are of
smaller significance to the rest of the economy
than was the case in earlier postwar recover­
ies. In 1957 farmers and farm workers re­
ceived 5 percent of total personal income in
District states, down from 6 percent in 1955
and 8 percent in 1949. Thus the portion of
farm income available for personal consump­
tion expenditures has a small and shrinking
impact on the economy of the Twelfth Dis­
trict. This is not the case with business ex­
penditures of farmers, however. Production
expenses regularly consume more than twothirds of gross farm income in the Twelfth
District and tend to vary directly with changes




in such income. Outlays for capital goods
such as farm machinery tend to move with
gross income from crops. Since District crop
receipts showed a 3 percent rise in 1958 from
1957 levels (this was almost entirely due to
higher average prices because output changes
were small) it is probable that purchases of
farm equipment in the District also showed
little change from the previous year. This is in
sharp contrast to the national situation where
crop production rose 10 percent and gross
income from crop marketings advanced 15
percent. The national increases were accom­
panied by a substantial boost in manufactur­
ers’ shipments of farm machinery during the
first three quarters of 1958. It is likely that
farmers in other crop-producing areas have
sharply stepped up outlays for farm equip­
ment.
It could be concluded that the farm sector
in the District provided some minor stimulus
to the economy before the spring upturn in
business activity. This expansionary influ­
ence, however minor, moderated as the re­
covery continued.

Pacific Coast exports (seasonally adjusted)
fell about $50 million from August 1957 to a
recession low of $124 million in M arch 1958,
one month before the trough of general busi­
ness activity and were only 5 percent above
the trough by November. Thus, no indications
have yet appeared of a definite upsurge in ex­
ports, in contrast with the behavior of District
exports in the two earlier postwar recoveries.
(C hart 10) This is primarily due to differ­
ences in the economic situation abroad during
the three cycles.
At the present time, the factors that
boosted exports to all-time highs in the first
half of 1957— and depleted foreign gold and
dollar balances— are no longer operative. In­
dustrial production overseas levelled off or
declined in late 1957 and early 1958; infla­
tionary pressures in foreign countries have




FE DE RAL R E S E R V E B A N K O F S A N F R A N C I S C O

since been checked; and the United States
Governm ent’s agricultural surplus disposal
programs have tapered off. A favorable turn
during 1958 in the balance of payments of
foreign countries has helped restore foreign
gold and dollar balances to more normal
levels. However, Pacific Coast exports have
shown only slight improvement, since foreign
economic activity in certain sectors continues
depressed and raw materials-producing coun­
tries are still experiencing difficulties.
In the months preceding the 1954-55 re­
covery, on the other hand, foreign industrial
activity was rapidly expanding and foreign re­
serve positions were strong. Exports from the
Pacific Coast therefore continued to move up
steadily throughout the downturn and subse­
quent recovery, stimulating the District econ­
omy.
In the 1948-49 recession, when foreign
countries were still recovering from the rav­
ages of World War II, conditions were less
favorable for Pacific Coast exports. Toward
the end of 1948 business activity abroad be­
gan to improve, but the recession in the
United States occurred soon after, and our
consequent reduction in imports imposed ad­
ditional pressures on gold and dollar reserves
of foreign economies. This handicap was fin­
ally overcome but the strengthening of foreign
economies was not immediately reflected in
increased dollar imports. So District exports
continued to fall during the initial months fol­
lowing the upturn in domestic business.
Pacific Coast imports are fairly responsive
to changes in domestic business conditions,
with a lead or lag in some cases of one or two
months from the turning points in general
business activity. (C hart 11) The most note­
worthy feature of Pacific Coast postwar im­
ports, however, has been their steady rise.
Nevertheless, in both the 1948-49 and 195354 recessions and recoveries, the magnitude
of fluctuations was about the same as in
1958, although imports recovered more
quickly in the 1953-54 recession.

C h a r t s 10 a n d 11
PA C IF IC COAST FO REIG N TRA D E
DURING BUSINESS UPSWINGS
IN DE X

SEASONALLY

ADJUSTED

IN D E X !

N ote: Seasonally adjusted data have been indexed so that trough
months equal 100. As determined by the National Bureau of
Economic Research, recoveries began in October 1949, Aug­
ust 1954, and April 1958.
Source: United States D epartm ent of Commerce.

The circumstances surrounding the 195759 recession and upturn, on the other hand,
differ from the two earlier cycles. Pacific
Coast imports in 1958 were maintained at
levels only slightly below those of 1957 and
the seasonally adjusted dollar totals reveal no
clear turning point. F or the first nine months
of 1958, imports were only 2.5 percent below
the comparable period in 1957. The principal
sustaining factors have been unusually large
imports of meat and finished consumer goods,
particularly passenger cars. The latest statis­
tics for September show an increase for that

February 1959

M O N TH LY REVIEW

one month but, like exports, do not seem to
signal a definite upward trend.

The dollar volume of consumer spending
at retail stores in the Twelfth District was vir­
tually unchanged from 1957. Moreover, real
per capita outlays on goods declined, for a
midyear estimate placed the District’s popula­
tion at close to 22 million persons, up 3 per­
cent from mid-1957, and consumer prices
averaged about 3 percent higher than in 1957.
Shifts in spending during the year, both in
dollar and real terms, are obscured by these
annual comparisons, however. Dollar outlays
fell sharply early in 1958, but the downward
trend was reversed by early spring. F or the
next six months consumer spending recov­
ered moderately until in the last two months
of the year there was a sharp better-than-seasonal upward spurt. Prices paid by consum­
ers, however, rose during the first half of the
year at a rate only slightly less than in 1957,
but during the second half there were only
slight further increases.
When spending for various types of goods
is examined, m arked differences can be ob­
served. Food purchases rose throughout the
year along with increases in prices and popu­
lation, but expenditures at eating and drink­
ing places and apparel stores in 1958 were
almost unchanged from 1957 levels. D epart­
ment store sales fell sharply during the first
quarter of the year and then recovered mod­
erately; for the entire year sales show a slight
gain of 1 percent above those in 1957. Other
general merchandise stores recorded a sizable
gain in business during 1958, however, and
despite poor sales early in the year, gasoline
service stations also bettered their 1957 mark.

Auto sales showed large drop
The “do-it-yourself” boom boosted sales
of lumber, hardware, and related stores dur­
ing 1958 to a record annual amount, but




sales at other consumer durable goods stores
were depressed throughout most of the year.
The crucial item among durable goods is, of
course, the automobile, and most auto deal­
ers will long remember 1958 as a year best to
be forgotten. From 800,000 vehicles in 1957,
new automobile registrations in Twelfth Dis­
trict states tumbled more than 20 percent to
about 620,000 vehicles during 1958. The de­
gree of decline in registrations was about the
same in this district as in other parts of the
nation— District states accounted for a little
over 13 percent of total national registra­
tions, just as they had in the previous three
years. And as in most eastern areas, there was
little improvement in spending for automo­
biles and other consumer durable goods until
the closing months of the year, when consum­
er appetites were noticeably stimulated by
the introduction of new models.
One interesting aspect of the automobile
market was the growing competition felt by
domestically-produced models from foreign
cars. More than one-fourth of the 375,000
imported vehicles sold in the United States
during 1958 were purchased in the Twelfth
District. About one in six cars sold in western
states was an import, compared with an aver­
age of one in fourteen in eastern areas. (D ur­
ing 1957 imports accounted for 8 percent of
total District new car registrations and for
less than 3 percent of the nation’s.)

Income and population growth
outpaced retail trade
The lack of change in the volume of con­
sumer spending for goods between 1957 and
1958 occurred in spite of the fact that in­
comes and population rose. Most of the re­
cession’s impact on income in the Twelfth Dis­
trict was felt in the closing months of 1957.
There was only a slight further loss in early
1958, and with steady recovery thereafter,
personal income for the entire year probably
exceeded the $49.4 billion in 1957 by at least
$ 1 billion and perhaps by $2 billion. Popula­

F E D E RA L R E S E R V E B A N K O F S A N F R A N C I S C O

tion growth which the Twelfth District ex­
perienced during 1958 appears to have had
little overall effect on consumer spending in
the West even though the rate of growth was
not significantly different from that of 1957.
The sluggish recovery of consumer outlays
in 1958 contrasts rather sharply with the
quick revival in spending during the two pre­
vious postwar recoveries. Expenditures of
Twelfth District households were rising mod­
erately, although not consistently, even be­
fore the cyclical low was reached in the pre­
vious recessions and they also increased at a
much sharper rate once overall economic re­
covery began. Sales at departm ent stores
showed no consistent rise after April. Up­
ward trends in comparable periods of earlier
recoveries were more pronounced and sales
at the close of such periods had registered
gains nearly 2 percent higher than 1958’s
April-December rise. (C hart 12) A further
contrast is found in prices paid by consum­
ers, which declined noticeably in major west­
ern cities within about six months after the
beginning of both of the previous downturns.
And although the previous recessions were
somewhat less severe in magnitude of decline,
losses experienced in personal income were
relatively smaller in the most recent recession.
Price declines, relatively greater holdings
of liquid assets, and a higher level of unsatis­
fied dem and for goods tem pted consumers
literally to spend the economy out of the re­
cessions of 1948-49 and 1953-54, but their
expenditures exercised less expansionary in­
fluence during 1958. Outlays for durable
goods, which are most easily postponable
during times of uncertainty, declined less and
recovered sooner in the two previous reces­
sions. Sales of automobiles, for example, fell
relatively little in this district during 195354, and after the cyclical low in 1954 they
rose to a record level late in that year and to
another in 1955. Automobile sales similarly
increased almost without interruption during
the first postwar recession and recovery.




C h a r t 12

S AL E S AT DI STRI CT D E P A R T M E N T STORES
T H REE RECOVERY P E R I0 0 S
,N D£X

SE A SO N A L LY A D J U ST E D
A P R IL 1955

106

1958

-2

0
TROUGH

2

4

6

MONTHS

N ote: Seasonally adjusted data have been indexed so that trough
months equal 100. As determined by the National Bureau of
Economic Research, recoveries began in October 1949, Aug­
ust 1954, and April 1958.
Source: Federal Reserve Bank of San Francisco.

Throughout 1958 economic recovery has
been abetted by rising Federal Government
purchases of goods and services, in contrast
to declines in Federal purchases during the
two previous postwar recoveries. M oreover,
the excess of cash payments to the public
over all tax receipts in the last nine months
of 1958 was about $11 billion, a sum five
times as large as the deficit incurred during
the comparable recovery period in the 194950 cycle and three times greater than in the
1954-55 cycle. The main contributing factors
in the relatively high level of cash payments
were the uptrend in military spending and a
liberalization of unemployment payments and
grants to states.1 Revisions in the laws con1Treasury expenditures regularly exceed receipts in the second
half of the calendar year. The situation is reversed in the first
half when heavy tax receipts flow in. The 1958 recovery period
included the last six months of the year, when there is ordinar­
ily a cash deficit. The 1950 recovery period, on the other hand,
ran from October through June, and thus included a period of
heavy tax receipts. The 1955 recovery fell more equally in both
halves of the year. These seasonal influences also affect the
comparisons.

February 1959

MONTHLY REVIEW

ceming unemployment compensation, social
security, farm and highway programs, and
Government salaries have boosted Govern­
ment spending significantly since the earlier
recessions.
The rising trend of military spending in
1958 was particularly im portant in this dis­
trict, as the experience in defense-oriented
manufacturing industries shows. The order
slowdowns and contract cancellations which
occurred in 1957 occasioned employment de­
clines in three West Coast industries— air­
craft, ordnance, and to some extent, electrical
machinery. Employment in these key indus­
tries declined from the July 1957 peak to a
low of 432,000 in February 1958, turned up
several months before general business ac­
tivity, and by December 1958 had recaptured
78 percent of the recession loss. (This is 80
percent of the total gain in manufacturing
employment in Pacific Coast states and about
one-fourth of the total gain in District non­
farm payrolls during the recovery.)
A good part of the 1958 employment in­
crease in these industries was a result of the
high level of military prime contracts for pro­
duction and construction received by District
firms in the first six months of the year. In
dollar terms, a jum p in awards to District
firms of $1.5 billion occurred from the last
half of 1957 to the first half of 1958. Con­
tract awards declined, as usual, in the third
quarter of 1958; but the District’s percentage
share increased to 31 percent of the national
total.

Legislation stimulated housing
Emergency housing legislation passed in
April 1958 proved to be a real spur to the
residential construction industry in the Dis­
trict, as mentioned above. Congress raised
VA interest rates, removed discount controls
on FH A and VA loans, and eased downpay­
ment terms; but most im portant of all, it sup­
plied the Federal National Mortgage Asso­
ciation with another $1.5 billion to support




its mortgage m arket operations. In the twelve
western states contracts for one- and twofamily houses jumped by 22 percent in the
first eleven months of 1958, while national
contracts increased only 8 percent in the same
period.
Stepped-up Federal heavy construction,
especially road building, also benefited the
District. Nationally, highway contract awards
were up 26 percent over 1957. Of the extra
$400 million voted in April 1958 for the non­
interstate roads, the eight District states have
under way or have completed (as of Novem­
ber 30, 1958) $73 million worth of roads, of
which the Federal Government is contribut­
ing $50 million. On the interstate program,
as of November 30, 1958, 534 miles, repre­
senting a total cost of $277 million ($251
million of it Federal funds) were underway
in District states and another 486 miles, rep­
resenting a total cost of $155 million ($116
million in Federal funds) were completed in
the District states, excluding Alaska.
Other large Federal construction projects
under way in this area include the Glen Can­
yon Dam, for which the prime contract
amounted to $108 million, and the $270 mil­
lion Rocky Reach Dam in Washington. Work
began late in 1958 on the $350 million John
Day Dam, which will be the last of the huge
lower Columbia River projects. A host of
smaller water and military construction proj­
ects, such as the new Vandenberg missile
base in California, on which it is estimated that
$100 million will have been spent by 1960,
also helped the District economy this year.
Construction projects have also been a
m ajor element in the persistent uptrend in
state and local purchases of goods and serv­
ices. For the whole United States, state and
local contract awards for heavy construction
were a record $8.6 billion in 1958, and new
construction put in place in 1958 amounted
to $11.9 billion, a 7 percent increase from
1957. Construction budgets are especially
im portant in those District states where rap­

FE DE RAL R E S E R V E B A N K O F S A N F R A N C I S C O

idly growing populations swell the demand
for public facilities of all types. F or example,
in the November 1958 elections over half of
the dollar volume of state and local construc­
tion bonds approved in the nation was ini­
tiated in District states.
One further measure of Governmental in­
fluence on economic activity in the District
is provided by employment. Increases in Gov­
ernment payrolls, mostly state and local,
am ounted to 30,000 during the recession and
40,000 from the April turning point to De­
cember. This gain outdistances those regis­
tered in earlier upswings. (C hart 13)

C h a r t 13

GO V E R N ME N T E MPL O Y ME N T
ik d e x

IN T H E TW E L FTH D I S T R IC T
T H R E E POSTW AR R E C O V E R I E S

District states face budget problems
Rising costs, particularly for education,
and increased aid to the unemployed and the
needy pushed state and local operating ex­
penditures up in 1958, while the growth rate
of revenues was slowed by the recession. Lo­
cal government data are not yet available for
1958, but state budgets indicate the trend.
Tax revenues in all District states in fiscal
1958 were lower than anticipated and outlays
were higher.1
California m anaged to balance its fiscal
1958 budget at a total expenditure level of
$2.1 billion by utilizing previous surpluses
and borrowing from special funds. But even
after depletion of the “rainy-day” reserve and
transfers from other funds, the fiscal 1959
general fund deficit may be as high as $68
million. California tax receipts rose very little
in 1958, even though estimates made by the
State Departm ent of Finance indicate that per­
sonal income in California rose twice as fast
as the national average in 1958 and that the
decline in corporate profits for firms operating
in California appeared to be much less than in
the nation as a whole.
F or the first half of the 1957-59 fiscal
biennium, Washington state tax collections
1 State budget years generally end on June 30. Therefore, data on
state revenue and expenditures refer to the twelve-month period
between July 1957 and June 1958, which is known as fiscal
1958.




N ote: Seasonally adjusted data have been indexed so th a t trough
months equal 100. As determined by the National Bureau of
Economic Research, recoveries began in October 1949, Aug­
ust 1954, and April 1958.
Source: State employment agencies.

increased at a slower-than-usual rate, and
expenditures continued to increase (especially
public-assistance grants) to a level of $330
million. The operating deficit for the period
from July 1957 to June 1958 appears to be
about $15 million, according to the latest of­
ficial Washington figures, and another $2 mil­
lion deficit is forecast for the twelve months
ending June 30, 1959.
The other District states managed to m ain­
tain small surpluses in spite of increasing ex­
penditures. Oregon was the only District state
in which the recession caused an absolute de­
cline from fiscal 1958 tax collections, sug­
gesting that there may also have been a drop
in personal income in that state. Total re­
ceipts for fiscal 1957-59 are expected to be
slightly below the previous biennium; but
there will be a small surplus of about $30
million on June 30, 1959 according to the
Governor’s budget. Utah appears to have a
small surplus in both the general fund and the
school fund in store for this fiscal biennium,
in spite of the large-scale construction pro­
gram that was initiated in 1957.

February 1959

MONTHLY

REVIEW

B U SIN E SS IN D E X ES — TWELFTH DISTRICT 1
(1947-49 average — 100)

Total
nonagricultural
employ­

Industrial production (physical volume)*
Year
and
month
1929
1933
1939
1949
1950
1951
1952
1953
1954
1955
1956
1957

Lumber
95
40
71

Petr ileum1
Crude
Refined

Cement

121
120

87
52
67
99
98
106
107
109
106
106
10 5

107

101

129
132

100

101

124

107
105
104
97
103

100
97
95
94
93
93
92
93
93
93
93
93

122

135

114
119
119
124
1 23
127
128
129
13 0
12 7
12 4

112
112

100
113
113
116
11 8
116

78
50
63
103
103

112
116

122
119

122

S teel3

54
27
56
12 8
124
130
132
14 5
156
149

24
97
125
146
13 9
158
128
154
163
172

139

100
112

Copper*

Electric
power

105
17
80
93
115
116
11 5
113
103

ment

Car­
loadings
(num­
ber'-1

Dep’t
store
sales
(value)*

102

29
26
40
108
11 9
136
144
161
172
192

120

Total
mf’g
employ­
ment

52
77
91
98

190

100
100
113
115
113
113

112

121r

118

130
137
134
143
1 52
157

96
104
104
96

132
141
141

121
120

Exports

4

64
42
47

112
120
122
122

‘ 57r
97
105

100
100
100

3,

30
18
31
98
107

60
99
103

Waterborne
foreign
trade**8

Retail
food
prices

110

Imports
124
72
95

114
118

163
85
91
186
171
140
131
164
19 5
230

137
157
200
308
260
308
443
575

112

121

131
130

210
224

127
134
138

143

128

216

137

151

93

139

119

17 8

610

132
134
13 9
132
13 9
14 0

126
128
125

223

79
91
1 19
1 32
139

1 50
149
1 48
147
147
1 48
1 49
1 50
1 50
151
153
154

94
86
87
87
90
90
84
92
94
81
91
97

132
135
137
142
142
143
14 0
14 8
140
141
149
14 7

121
121

112

137
136
136
135
1 35
136
137
137
1 38
138
139
1 39

163
149
160
171
193
19 0
180
181
178
1 74

393
358
422
445
468
617
602
513
607

1957

December
1958

Jan u ary
February
M arch
April
M ay
June
July
August
Septem ber
October
Novem ber
D ecem ber

100
102
109
109
113
114
119

129
176
178
179
1 79
1 79
186
1 59
16 5

132
1 48
152
1 68
16 5

221
226
218
227
234
232
232
228
238
23 1

120
106

101

123
125
124
124
124
123
123
123
124
12 3

BANKING AND CREDIT STATISTICS — TW ELFTH DISTRICT
(a m o u n ts in m illio n s o f d o lla rs)

Condition Items of all member banks*
Year
and
month
1929
1933
1939
1951
1952
1953
1954
1955
1956
1957
1958

U.S.

Loans
and
discounts

Gov’t
securities

Demand
deposits
adjusted7

Total
time
deposits

2 ,2 3 9
1,486
1 ,9 6 7
7 ,8 6 6
8 ,8 3 9
9 ,2 2 0
9 ,4 1 8
1 1,124
1 2,613
13.178
13 ,8 1 2 r

49 5
720
1 ,4 5 0
6 ,4 6 3
6 ,6 1 9
6 ,6 3 9
7 ,9 4 2
7 ,2 3 9
6 ,4 5 2
6 .6 1 9
8 ,0 0 3 r

1,2 3 1
951
1 ,9 8 3
9 ,9 3 7
1 0 ,5 2 0
1 0 ,5 1 5
1 1 ,1 9 6
1 1 ,8 6 4
1 2 ,1 6 9
1 1 .8 7 0
1 2 ,7 2 9 r

1,7 9 0
1,6 0 9
2 ,2 6 7
6 ,7 7 7
7 ,5 0 2
7 ,9 9 7
8 ,6 9 9
9 ,1 2 0
9 ,4 2 4
1 0 .6 7 9
12 ,0 7 7 r

1 3 ,1 0 6
1 3,002
1 2 ,8 6 0
1 2,979
1 2 ,9 7 7
13,197
1 3 ,1 4 2
1 3 ,3 5 6
1 3 ,3 5 0
1 3 ,4 1 9
13,591
13 ,8 1 2 r

6 ,5 7 3
6 ,8 8 4
7 ,0 7 5
7 ,6 0 5
7 ,5 4 6
7 ,6 3 2
7 ,6 7 0
7 ,9 8 4
7 ,8 2 7
7 ,8 4 6
8 ,0 2 6
8 ,0 0 3 r

11,601
1 1 ,3 0 5
1 1 ,2 2 5
1 1 ,5 7 0
1 1 ,2 9 2
1 1 ,2 7 8
1 1 ,7 4 4
1 1 ,7 7 4
1 1 ,8 6 0
1 2 ,1 7 6
1 2 ,3 9 5
1 2 ,7 2 9 r

1 0 ,761
1 0 ,9 9 2
1 1 ,1 8 3
1 1 ,4 0 6
1 1 ,5 3 0
1 1 ,7 2 4
1 1 ,7 7 9
1 1 ,8 1 7
1 1 ,7 7 6
1 1 ,8 3 6
1 1 ,7 2 5
1 2 ,0 7 7 r

1 3 ,8 9 7

8 ,0 9 9

1 2 ,5 0 8

1 2 ,0 3 7

Member bank reserves and related Items
Bank
rates on
short-term
business
loans4

Reserve
bank
credit9

_
—
+
3 .6 6
3 .9 5
4 .1 4
4 .0 9
4 .1 0
4 .5 0
4 .9 7
4 .8 8

Bank
debits
Index
31 cities*-1*

Factors affecting reserves:

+
+
+
+
-

Commer­
cial10

Treasury19

Money In
circu­
lation*

Reserves*1

(1947-49 —
100)*

21
7
14
2
38
52
31
89

0
110
192
- 1 ,5 8 2
- 1 ,9 1 2
- 3 ,0 7 3
- 2 ,4 4 8
- 2 ,6 8 5
- 3 ,2 5 9
- 4 .1 6 4
- 3 ,5 5 8

+
23
+
150
+ 245
+ 1,9 8 3
+ 2 ,2 6 5
+ 3 ,1 5 8
+ 2 ,3 2 8
+ 2 ,7 5 7
+ 3 ,2 7 4
+ 3 .9 0 3
+ 3 ,6 4 5

_
6
—
18
31
+
+
189
+ 132
39
+
30
100
+
96
—
83
63
+

175
185
58 4
2 ,2 6 9
2 ,5 1 4
2,551
2 ,5 0 5
2 ,5 3 0
2 ,6 5 4
2 ,6 8 6
2 ,6 5 8

42
18
30
132
140
150
154
172
189
203
209

16
12
62
43
11
59
52
2
4
0
48
54 r

+
-

25 8
42 7
180
3 91
20 3
409
384
15
378
517
305
542r

+
+
+
+
+
+
+
+
+
+
+
+

180
298
253
37 1
154
531
302
193
157
7 26
398
5 18r

+
+
-

137
17
11
2
90
22
4
46
31
57
31
llr

2 ,6 6 2
2 ,5 2 0
2 ,5 3 0
2 ,5 7 4
2 ,4 5 6
2 ,4 9 4
2 ,4 7 4
2 ,6 2 1
2 ,4 5 1
2 ,6 1 2
2 ,7 2 7
2 .6 5 8

211
203
198
206
193
212
211
204
210
215
208
239

11

-

517

-

389

—

109

2 ,6 5 6

226

34
2

2

1958

January
February
M arch
April
M ay
June
July
A ugust
Septem ber
O ctober
N ovem ber
December

—

+
4^95

—

+
-t4.81
4^80

+
+
+
+

4 .9 5

—

+
+
+
+
+
+

1959

Jan u ary

+

1A djusted for seasonal variation, except where indicated. Except for d epartm ent store statistics, all indexes are based upon d a ta from outside sources, as
follows: lum ber, California Redwood Association an d U.S. B ureau of the Census; petroleum , cem ent, and copper, U.S. B ureau of M ines; steel, U.S.
D ep artm en t of Commerce and American Iron an d Steel In stitu te ; electric power, Federal Power Commission; nonagri cultural and m anufacturing
em ploym ent, U.S. Bureau of Labor S tatistics and cooperating state agencies; retail food prices, U.S. B ureau of L abor S tatistics; carloadings, varioxis
railroads an d railroad associations; and foreign trad e, U.S. Bureau of the Census.
* D aily average.
* N ot ad ju sted for seasonal variation.
4 Los Angeles, San Francisco, and Seattle indexes combined.
6 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San
Diego, Oregon, and W ashington custom s districts; s tartin g w ith July 1950, “ special category” exports are excluded because of security reasons.
8 A nnual figures are as of end of year, m onthly figures as of la st W ednesday in m onth.
7 D em and deposits, excluding interbank and U.S. G ov’t
deposits, less cash item s in process of collection. M onthly d a ta partly estim ated.
8 Average rates on loans made in five m ajor cities.
9 Changes
from end of previous m onth or year.
10 M inus sign indicates flow of funds ou t of the D istric t in th e case of commercial operations, and excess
of receipts over disbursem ents in the case of T reasury operations.
11 E nd of year and end of m onth figures.
u D ebits to total deposits except
in terbank prior to 1942. D ebits to dem and deposits except U.S. G overnm ent and interbank deposits from 1942.
j?>—Prelim inary.
r— Revised.




3]