Full text of Economic Review (Federal Reserve Bank of San Francisco) : February 1960

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FEDERAL RES ERVE B A N K OF S A N F R A N C I S C O
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T W E L F T H F E D E R A L RES E R VE D I S T R I C T

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1959— Growth in the Far West
in Perspective................

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http://fraser.stlouisfed.org/
CALIFORNIA
Federal Reserve Bank of St. Louis

ARIZONA

NEVADA

The Board of Governors of the Federal Reserve System has called for a report
from lenders (other than banks, brokers, and dealers) whose activities as of De
cember 15,1959 included granting credit for the purpose of purchasing or carrying
securities registered on a national securities exchange. Although the original filing
period expired March 15,1960, this period was extended by the Board to May 15,
1960. The reports are to be forwarded to the Federal Reserve Bank of the district
in which the lender is domiciled.
Lenders not extending such credit on December 15,1959, but whose activities
at any time thereafter bring them within the scope of the above definition, are re
sponsible for filing reports within 90 days after the first extension of credit for such
purpose.
Additional information and copies of the reporting Form F.R. 728 may be
obtained from the offices of this bank in San Francisco, California; Los Angeles,
California; Portland, Oregon; Salt Lake City, Utah; and Seattle, Washington.

1959-Grow th in the Far W est,
in Perspective
year 1959 was one of renewed growth
and expansion of economic activity in the
Twelfth District.1 Key measures such as in
come, employment, and commodity produc
tion recorded substantial gains, and most
major types of endeavor closed the year at
new highs. On the other hand, it was also a
record year for work stoppages, as the total
number of man-days of idleness resulting from
major labor disputes in steel, copper, ship
building, and other industries was more than
double the postwar average. These work stop
pages, and particularly the nationwide dispute
in the steel industry, tended to slow the rate
of over-all economic expansion in the second
half of the year, though perhaps less than in
other parts of the country. With only the cop
per industry dispute remaining unsettled at the
end of December, the Twelfth District econ
omy appeared to be resuming expansion at
about the pace experienced earlier in the year.
Higher incomes, mainly because of increas
ing employment, helped to boost consumer
outlays for goods and services in the Twelfth
District during 1959, and credit buying re
corded a sizable climb also. New residential
housing activity approached boom status,
though moderately increased sales prices and
higher financing costs tended to restrain de
mand as the year progressed. An estimate re
leased earlier in the year indicated that manu
facturing firms were stepping up their invest
ment in new plant and equipment by about
one-fourth in the West, although it appears
likely that some of these plans had to be tem
porarily scaled down or shelved later in the
year because of steel shortages. As in other

1Limitations of data have prevented the inclusion of a discussion
of economic developments in Alaska during 1959 in this Review.
The reader is referred to the August 1959 issue of the Monthly
Review for recent developments in Hawaii.

parts of the nation, Twelfth District business
firms increased inventories sharply during the
first half of 1959, and moderate further ad
ditions may have been possible during the
second half despite the effects of the steel in
dustry work stoppage. Higher profits from
increased sales provided much of the funds to
finance the rise in business spending, but busi
ness borrowing from banks was sizable also.
New capital issues marketed by Twelfth Dis
trict firms during 1959 amounted to about the
same as in the preceding year, according to
the limited data available. Improved revenues
were not sufficient to meet all new state and
local government spending needs, however,
and borrowing in the capital market climbed
by almost one-fifth to exceed $1.3 billion.
Federal Reserve System actions during
1959 were directed toward maintaining mod
erate pressure on bank reserve positions so
that the money supply and credit extensions
would not provide fuel for a resumption of the
inflationary pressure of previous years. De
mand deposits held by the public grew by little
more than $500 million in the Twelfth Dis
trict, and time deposits increased by only a
small amount. Total bank loans, however,
rose by $2.6 billion. Not surprisingly in a
period of economic expansion, most of the
increased borrowing was by business firms,
although mortgages and consumer debt also
increased sharply. Commercial banks fi
nanced a sizable part of this loan expansion
through reduction of their investment port
folios.
Although credit demand rose sharply in
1959 and most types of economic activity
reached new highs, a comparison of the rela
tive size of gains in most over-all measures

FEDERAL RESERVE B A N K OF S A N F R A N C I S C O

with those in corresponding periods following
previous recessions and recoveries of the post
war era indicates that few records were at
tained. The growth of the Twelfth District
economy during the previous postwar years
was usually describable only in terms bor
rowed from Hollywood or Madison Avenue.
The past year certainly needs no apology for
the gains actually recorded, but a return to
everyday terminology is in order. Does this
suggest the District economy is growing more
slowly? Shifts in the over-all level of econ
omic activity during one year alone are hardly
sufficient to establish whether a trend is being
significantly modified. Further, there are no
data available to measure the amount of total
spending in this District in a fashion, for ex
ample, comparable to total national spending
(i.e., Gross National Product). It is possible,
however, to examine the major segments of
the District economy and the few available
aggregate measures to see more clearly how
1959 fits into the pattern established during
C hart 1

DISTRIBUTION O F CIV ILIA N IN C O M E
BY IN DU STRIA L SOURCES
Twelfth District, 1946, 1958

□

CO M M O D ITY

S 3

D IS T R IB U T IO N 2 /

P R O D U C T IO N J /

JInc!udes agriculture; contract construction; manufacturing; and
mining.
2 Includes transportation, communication, electric, gas, and sani
tary services; and wholesale and retail trade.
includes finance, insurance and real estate; government; and
miscellaneous services.
Source: United States Department of Commerce, Office of Busi
ness Economics.

C hart 2

DISTRIBUTION OF C IV IL IA N IN C O M E
FRO M C O M M O D IT Y PR O DU CTIO N
Twelfth District, 1946, 1958

Source: United States Department of Commerce, Office of Busi
ness Economics.

the previous postwar years, and whether any
major factors which may change the growth
trend are clearly emerging.
Before reviewing developments during
1959, however, it would appear desirable to
examine briefly some of the major changes
which have occurred in the structure of the
Twelfth District economy in the years since
World War II. These changes are illustrated
by data on the industrial sources of civilian
income received by labor and proprietors.
(Charts 1 and 2) With the rapid industrial
ization of the West, an increased proportion
of civilian income is now being generated
from the production of commodities. Man
ufacturing and construction account for all
of the increased proportion of income from
commodity output, while mining output con
tributes about the same share as just after the
War. Fluctuations have occurred in income
from agriculture in the intervening years, but
total dollars derived from this source in 1958
were slightly below that of 1946. Since total
civilian income more than doubled over the
period, the relative share originating in agri
culture was more than halved, dropping from
13 percent in 1946 to 6 percent in 1958. Ex

February 1960

MO NT HLY REVIEW

pansion of state and local government activi
ties accounted for most of the increased per
centage of income generated by service indus
tries, while most o f the relative decline in
importance of distributive industries occurred
in trade.
These structural changes, which have been
only broadly outlined here, are of course only
surface evidence of the operation of underly
ing factors influencing western economic ex
pansion. For example, commodity production
is now more important in the Twelfth District
economy because of growth of the western
market, changes in wage and transportation
costs (both absolutely and in relation to sell
ing prices), and differential resource advan
tages, including labor skills, among other
things. The sharp growth of the western mar
ket, most of which is the result of migration
from other areas, reflects mainly the drawing
power of the western climate and mode of
living and the general availability of jobs
and/or high wages relative to other parts of
the nation. What is perhaps most encouraging
for the future growth of the West is that dur
ing the postwar years its economy has been
able to take in stride marked shifts in the de
mands for its products without losing its for
ward momentum.

N ational credit dem ands
strong in 1959
The high level of economic activity that was
evident in 1959 was accompanied by a strong
demand for funds from all quarters. A brief
review of developments in the national money
and capital markets during the past year may
serve to highlight Twelfth District conditions.
Total credit at commercial banks in the na
tion, including both loans and investments,
rose only $3.4 billion,1 the smallest gain in
recent years. This moderate growth reflects a
sharp increase in loans and a decline in invest
ments. For the year, the money supply (de
1Excluding banks in Alaska and Hawaii.

C hart 3

M EM BER BANK B O R R O W IN G S A N D
EXCESS RESERVES, UNITED STATES

E X C E SS

IET BORROWED RESERVES
FREE

RESERVES

SO R R O W IN G S A T

1958

F.ft. BA N K S

1959

Source: Board of Governors of the Federal Reserve System.

mand deposits adjusted and currency outside
banks) grew by $1.2 billion, seasonally ad
justed, or about one-fourth of the increase in
1958. As is common in the expansion stage
of the business cycle, the velocity of money
transactions outside financial centers in
creased, by 5 percent in 1959.
The pressure upon the resources of the
banking system is indicated by the fact that
member banks were net borrowers from the
Federal Reserve Banks in every week but two
during 1959. Net borrowed reserves— the dif
ference between excess reserves and borrow
ings— reached $500 million on a daily aver
age basis in June and remained between $400$560 million during the second half of the
year. (Chart 3) Another indication of re
straint is provided by the discount rate, which
was raised 3 times, from the rate of 2V2 per
cent effective at the start of the year to 4
percent on September 11.
Total loans of all commercial banks in
creased by $11.7 billion in 1959, matching
the record expansion of 1955. To meet this
demand for funds, banks reduced their hold
ings of United States Government securities
by $8 billion, just about offsetting the increase

FEDERAL RESERVE B A N K OF S A N F R A N C I S C O

in such holdings during 1958. The composi
tion of the expansion of loans was quite dif
ferent from the last half of 1958, when real
estate loans showed the strongest gains. The
increase in mortgage debt was slowed due to
the more favorable interest rates offered on
other investments relative to that obtainable
on government-guaranteed mortgages. Busi
ness loans (including those to nonbank finan
cial institutions) increased by $5.3 billion, as
manufacturers built up inventories prior to
the steel strike and seasonal borrowers, such
as the food processing industries and trade
C h art 4

SELECTED INTEREST RATES
PERCENT PER ANNUM

5.0

1958

1959

securities were yielding about 5 percent.
(Chart 4) The increases in rates were neither
gradual nor uniform. The general pattern of
rates for the first 8 months of the year might
be described as an upward sloping plateau,
with market yields on 91-day Treasury bills
rising from 2.82 percent in January to 3.38
percent in August, and long-term United
States Government bonds and Aaa corporate
bonds moving from 3.90 to 4.10 percent and
4.12 to 4.43 percent, respectively. In Septem
ber there was a sharp upward movement in
rates which was much more evident in the
short- and intermediate-term maturities than
in long-term maturities. Yields on 91-day
Treasury bills rose by 0.66 percent to 4.04
percent in September and ended the year at
4.49 percent. The increase in long-term Gov
ernments in September amounted to 16 basis
points. After falling back to mid-year levels
during the next 2 months, they finished the
year yielding 4.27 percent. The marked rise
in yields on short- and intermediate-term
United States Government issues was due in
part to the large Federal deficit and the Treas
ury’s inability to sell long-term issues because
of the 4V* percent rate limitation on issues
longer than 5 years. Its principal recourse
under these circumstances was to confine its
financing to the short and intermediate ranges.

Source: Board of Governors of the Federal Reserve System.

Loan dem and vigorous in District
firms, showed a stronger than usual demand
for credit in the second half of the year. The
rise in consumer loans at commercial banks
during 1959 moderately exceeded the previ
ous record increase of $2.3 billion in 1955.
One of the most significant developments
of the year was the sharp rise in interest rates.
Rates in all sectors of the money market
touched or exceeded levels of 1928 and 1929.
The prime rate— the rate charged by commer
cial banks to first-quality borrowers— was
raised to 5 percent in September, and in No
vember and December certain maturities of
intermediate-term United States Government

Viewed against the backdrop of national
credit developments, the accomplishments of
District member banks in 1959 stand out in
sharp relief. Total loans increased by $2.6 bil
lion,1 an amount more than two-fifths greater
than in the record year of 1955. The advance
was shared by all categories of loans. (Chart
5) Tighter reserve positions as the demand
for credit intensified, and to a lesser extent the
effects of the primary metals strikes, contrib1The addition during 1959 of new member banks in Alaska and
Hawaii accounted for about $200 million of this increase. Com
parisons of other 1959 data for Twelfth District member banks
with those for 1958 also reflect the changes arising from these
additions of member banks in 1959. The same comment applies
to comparisons with prior years.

MONTHLY REVIEW

February 1960

C h art 5

SELECTED ASSET A N D LIABILITY ITEMS
TWELFTH DISTRICT M EM BER BANKS
as of End of Year, 1945-19595

194 5

1947

1949

1951

1953

1955

1957

1959

1Beginning in 1959, data include new member banks in Alaska
and Hawaii.
Note: This chart is plotted on a ratio or semi-logarithmic
scale on which equal vertical distances represent equal percent
changes, rather than equal absolute amounts. A straight line
indicates that change is occurring at a constant rate.
Source: Board of Governors of the Federal Reserve System.

uted to a lessened rate of loan expansion in the
second half of the year. The usual pattern of
seasonal borrowing in the second half is for
the expansion to begin rather slowly around
the first of July and to gather strength rapidly
in the third quarter and up to the Christmas
holidays.
The ratio of total loans to total deposits,
a measure of a bank’s ability to increase loans
further, rose from 49.8 percent at the end of
1958 to 56.0 percent in December 1959. The
District loan ratio was above the average for
member banks in the nation, and is probably
due in part to the presence in this District of
a higher proportion of large banks, which
typically keep more of their earning assets in
loans.
The sharp rise in real estate lending which
had gotten underway in the second half of
1958 continued well into 1959. By mid-year,
real estate loans had increased by the largest
dollar amount of any loan category reported,

reflecting a level of construction activity well
above the first half of 1958. But in September,
when money markets tightened perceptibly,
and through the fourth quarter, these loans
showed only moderate increases despite a rise
in the maximum interest rate on FHA-insured
mortgages from 514 to 53A percent in Sep
tember. Commercial banks began to limit
their mortgage lending as total credit demand
increased relative to their lending capacity
and the rise in other interest rates made the
yields on mortgages less attractive. In dollar
terms, real estate loans rose by $736 million,
or 14 percent, during the year. This compares
with increases of more than 50 percent during
both 1946 and 1947, and an average of 13
percent per year during the period 1948 to
1958.
Total business loans (including loans to
nonbank financial institutions) increased by
$1.2 billion, or 25 percent, during 1959. The
greatest part of the gain came in the last half
of the year, reflecting the seasonal pattern of
business borrowing. This compares with the
previous peak expansions of $837 million in
1956 and $776 million in 1955. Loans to non
bank financial institutions accounted for $ 145
million of the increase during the last quarter
of the year. Important among these are sales
finance companies which tend to borrow heav
ily from banks late in the year to obtain funds
for retiring open market paper held by nonfinancial corporations, which require funds
for tax and dividend payments.
The major business borrowers in the second
half of the year in the District are the seasonal
group of food, liquor and tobacco processors,
trade concerns, and commodity dealers. Their
borrowings declined somewhat less than sea
sonally during the first half of the year and
increased by $240 million in the second half.
For the entire year their net debt to the weekly
reporting banks rose by $164 million, com
pared with a decline of $108 million in 1958.
Other large borrowers were construction firms

FEDERAL RESERVE B A N K OF S A N F R A N C I S C O

and public utilities and transportation com
panies. Although the metal and metal prod
ucts processors showed a decline of $34 mil
lion in bank credit during the second half of
the year, indicative of the effects of the work
stoppages in the primary metals industries,
they reported a substantial increase ($73 mil
lion) in the first half as they stockpiled metals
in anticipation of interrupted production.
Loans to consumers increased by $576 mil
lion, or 23 percent, during 1959, as rising
personal income and optimisim rekindled the
willingness to go into debt for durable goods,
particularly automobiles, although all cate
gories of consumer loans showed gains during
the year. Loans to domestic commercial banks
rose $240 million during the first half of the
year and fell off $233 million during the sec
ond half. From early in July until mid-Octo
ber, District member banks sold heavily in the
Federal Funds market relative to their pur
chases and thereby served as a source of
reserves to banks in the rest of the nation.
(Federal Funds are claims balances at a Fed
eral Reserve Bank held by particular banks
which are lent to other banks having a tempo
rary reserve deficiency.) The fact that later
in the year District banks became net buyers
rather than sellers of these funds was a further
indication of tightening in reserve positions
and local money markets.
The restraints imposed by tighter reserve
positions, along with a smaller inflow of sav
ings deposits, caused member banks to reduce
their securities holdings to meet the demand
for loans during 1959. The reduction in port
folios was concentrated in United States Gov
ernment obligations, which showed a drop of
$1.3 billion, the largest decline in recent years.
Other securities, chiefly state and municipal
issues, decreased slightly.

Deposits gro w slow ly
Time deposits at District member banks
rose by $396 million in 1959, a gain of 3.3

percent.1 This was in marked contrast to an
increase of $1.4 billion in 1958. Since the
largest part of time deposits in the District
represents savings accounts of individuals and
savings undoubtedly increased in the District,
this denotes an increased selectivity by savers
with respect to alternative returns on their
funds. Since commercial banks were limited
to a maximum rate of 3 percent on time de
posits, individuals turned in part to savings
and loan associations which paid 4 percent
during 1959. Toward the end of the year, the
more sophisticated individual investors put
their funds into short- and intermediate-term
United States Government securities. An issue
of 4-year and 10-month Treasury notes bear
ing a coupon rate of 5 percent was so heavily
oversubscribed (largely by individuals) when
presented in October that it came to be known
in the market as the “magic fives” for the man
ner o f its public reception. Corporations and
state and local governments also switched
their funds from time balances to Treasury
obligations.

Net profits of District banks
declined in 1959
Current operating earnings of Twelfth Dis
trict member banks reached the highest level
in history during 1959, but net profits after
taxes declined moderately because of losses
realized on the sale of securities.2 Operating
earnings climbed to a record $1.4 billion, a
gain of 16 percent over 1958. (Chart 6) With
the increased tempo of economic activity in
1959, advancing levels of interest rates ac
companied rising loan demand. Although
banks reduced their holdings of United States
Government securities to help meet the de
mand for loans, the increase in average yields
on investments nevertheless resulted in higher
current earnings from this source also. Op1About two-fifths of this gain was accounted for by the addition
of member banks in Alaska and Hawaii,
*A detailed analysis of Twelfth District member bank earnings
will appear in a subsequent issue of this Review.

MO NT HL Y REVIEW

February 1960

C h art 6

E A R N IN G S A N D EXPENSES O F
TWELFTH DISTRICT M EM BER BANKS
1946-1959
M I L L I O N S OF D O L L A R S

•Net losses, charge-offs, or transfers to valuation reserves for
loans and/or other securities.
Note; This chart is plotted on a ratio or semi-logarithmic
scale on which equal vertical distances represent equal percent
changes, rather than equal absolute amounts. A straight line
indicates that change is occurring at a constant rate.
Source: Board of Governors of the Federal Reserve System.

erating expenses touched record heights,
amounting to $943 million, or 13 percent
higher than in 1958. This increase reflected
rising outlays for wage and salary payments
and interest on time deposits, as well as other
miscellaneous expenses. Net operating earn
ings before payment of income taxes totaled
$457 million, an increase of $81 million from
1958. Losses on the sale of securities and the
payment of $140 million in income taxes re
duced final net profits to $196 million, $10
million less than in the previous year.

Savings and loan associations
In contrast with the decline in the growth
of savings deposits at member banks in the
District, share capital or savings accounts of
savings and loan associations increased at a
record rate in 1959. At insured savings and

loan associations in the District (including
Alaska and Hawaii) there was an increase
of approximately $1.5 billion in savings ac
counts, or 19 percent, from 1958. The growth
of savings inflows in California was even
greater, as the rate paid on savings accounts
was increased from 4 percent to 4X
A percent
at some of the associations for the last quarter
of 1959. As practically all investment funds
at savings and loan associations go into the
mortgage market, the associations showed an
increase in real estate loans of nearly $1.9
billion, or 25 percent more than during the
previous year.

Sales of District municipal securities
Security issues by state and local govern
mental agencies in the Twelfth District ex
ceeded $1.3 billion in 1959, or almost onefifth greater than in 1958. Data on offerings
in excess of $5 million (which accounted for
more than three-fourths of total District issues
in 1959) indicate that local governmental is
sues rose by about one-half between 1958 and
1959 and contributed all of the annual in
crease. State government offerings of securi
ties declined $75 million to about $350 mil
lion in 1959, largely because the State of Cali
fornia postponed a sizable issue scheduled for
December to early 1960. Most of the increase
in the local government sector came from an
issue of nearly $200 million in bonds by a
public utility district in the State of Washing
ton for construction of the Wanapum Dam.
District bank assets grew steadily
in the postw ar period
A testimony to the rapid and sustained ex
pansion of the West has been the increase in
the assets of District member banks, which
grew at an average annual rate of about 6 per
cent between the end of 1945 and the end of
1959. Total deposits of banks increased at an
annual rate of over 5 percent during the same
period, with a very substantial part of this be
ing in the form of time deposits. The growth

FEDERAL RESERVE B A N K OF S A N F R A N C I S C O

C h art 7

SELECTED L O A N S
TWELFTH DISTRICT M EM BER BANKS
os o f end o f year, 1945-19591

1 Beginning in 1959, data include new member bants in Alaska
and Hawaii.
Note: This chart is plotted on a ratio or semi-logarithmic
scale on which equal vertical distances represent equal percent
changes, rather than equal absolute amounts. A straight line
indicates that change is occurring at a constant rate.
Source: Board of Governors of the Federal Reserve System.

of loans and discounts was even more dra
matic, as they increased at an annual rate of
37 percent in the 14 years since the end of
1945. Investments, on the other hand, de
creased $2.2 billion duringthe postwar period.
In terms of dollar volume, real estate loans at
the end of 1959 were $5.1 billion above the
amount at the end of 1945, while business
loans increased by $5.4 billion and loans for
consumer expenditure showed a gain of $2.8
billion. Chart 7 illustrates the pattern of
growth of these selected types of loans.
Gross earnings of District member banks
have approximately quintupled since the end
of 1945. There are two explanations for this
rise in bank earnings. With only temporary
interruptions during the three postwar reces
sions, banks have been shifting out of securi
ties— chiefly United States Government obli
gations— into higher yielding loans. The rise
in bank earnings in these years is a direct re
flection of the upward trend of interest rates

from the low levels maintained through World
War II to the present levels which are in many
cases comparable to the rates prevailing
before the “ Great Depression” of 1929-33.
Improvement in operating efficiency and the
development of more profitable types of lend
ing operations, including vigorous efforts to
capture a share of loans to consumers, have
opened other avenues of earnings. The rise in
gross earnings has been countered by a sharp
increase in operating expenses, mainly in
creases in wages and salaries and interest
payments on time deposits and on borrowed
funds.

Broad g a in s in District employment
Employment expansion in Twelfth District
nonagricultural industries amounted to just
over 4 percent during 1959, and, except for
the strike-affected period of September and
October, new record highs were reached in
each succeeding month of the year. The largest
increase, almost 6 percent over the preceding
year, occurred in manufacturing employment,
which finally exceeded the peak level attained
during World War II. Construction employ
ment rose by 4 percent over 1958 and re
turned to its previous high of 1956, while serv
ice industries, including government, increased
employment about 4 percent above their 1958
highs. Employment in trade went up slightly
less, although it too was at a record; other
distributive lines reported no change in em
ployment after falling in 1958. Only mining
employment declined during 1959, with most
of this occurring during the second half of the
year because of labor disputes.
While employment was rising moderately,
unemployment fluctuated between 4.5 and 5
percent of the labor force during 1959. The
pattern of fluctuation— mildly downward at
the beginning of the year, more markedly up
ward at mid-year, and then down again at
year-end— suggests the impact which major
labor disputes had on District joblessness. A l
though workers directly involved in labor dis-

MONTHLY REVIEW

February 1960

hart

N O N F A R M EMPLOYM ENT, TWELFTH DISTRICT
1946-1959
MILLIONS OF REASONS

7.0

1946

1948

I9 S 0

1952

t9 64

I9 S 6

1 95 8

I960

Note: This chart is p l o t t e d o n a r a t i o o r s e m i - l o g a r i t h m i c
scale on which equal vertical distances represent equal percent
changes, rather than equal absolute amounts. A straight line
indicates that change is occurring at a constant rate.
Source: State employment agencies.

putes are not counted as unemployed, other
employees in affected industries and in other
lines of work may be indirectly idled. The drop
in joblessness at year-end to about 4.5 percent
of the labor force, after reaching 5.0 percent in
September, indicates that while the prolonged
work stoppages may have interrupted the
expansion in economic activity, they did not
seriously impair it. However, the unemploy
ment rate was still moderately above the pre
recession level.
Between 1946 and 1959, total nonfarm em
ployment rose by just over 50 percent, to an
average of almost 63A million persons in the
past year. (Chart 8) Since 1959 represented
a year of expansion following recovery from
the 1957-58 recession, it is not surprising that
growth in jobholding during the year, amount
ing to over 4 percent, exceeded the postwar
average of 3.4 percent. Though the level of
employment attained was moderately below
that which would have been expected by con
tinuation of the postwar trend, the employ
ment statistics for 1959 do not point conclu
sively to a slowing in the rate of growth. As
Chart 8 shows, Twelfth District employment

did not return to the line of apparent trend
after the 1948-49 recession until 1951, though
it did in 1955 following the 1953-54 reces
sion. If 1959 had not been sharply higher than
the postwar average in the number of workers
affected by labor disputes, employment would
have been slightly closer to the trend line.
The postwar pattern of employment expan
sion has been led by the commodity produc
ing industries, which recorded both the largest
gains and the widest fluctuations during busi
ness cycles. (Chart 9) Employment in dur
able goods manufacturing was less important
in this region than in the entire nation until
about the past 5 years, and in fact since 1957
it has been of slightly greater importance in
the Twelfth District. Nearly one of every five
nonfarm workers in the West is now employed
in durable goods manufacturing, compared
with about one in seven in 1947. Employment
in Twelfth District construction is also pro
portionately higher than in the entire nation,
while in nondurable goods manufacturing and
C hart 9

M A J O R C O M P O N E N T S N O N F A R M EMPLO YM ENT
TWELFTH DISTRICT— 1946-1959

S E R V IC E S 3 /

C O M M O D IT Y PRODUCTION J /

D IST R IB U T IO N 2 /

includes contract construction; manufacturing; and mining.
! Includes transportation, communication, electric, gas, and sani
tary services; and wholesale and retail trade.
•Includes finance, insurance and real estate; government; and
miscellaneous services.
Source: State employment agencies.

FEDERAL RESERVE B A N K OF S A N

in mining, employment in this District is less
important than nationally.
Employment growth in the service indus
tries has been almost as rapid as in commodity
production, and the impact of business fluc
tuations has been reflected in these industries
more through a slowing in the rate of climb
than in an actual decline in employment. Over
the postwar years, the most rapidly growing
segment of the service industries (as of total
nonfarm employment) has been that of fi
nance, insurance, and real estate, with an in
crease of 84 percent through 1959. Govern
ment employment has risen about 60 percent,
while miscellaneous services are up by more
than half. Distributive industries recorded rel
atively moderate growth in the postwar period,
with the trade segment up by almost 37 per
cent, and the transportation and communica
tion complex up by about one-eighth.
The Bureau of Census estimates that the
population of the 7 Western States climbed
from 15.1 million persons in mid-1946 to
22.3 million persons in mid-1959. (Chart 10)
C h a r t 10

TWELFTH DISTRICT PO PULATIO N
as of July 1, 1946-1959

Note: This chart is plotted on a ratio or semi-logarithmic
scale on which equal vertical distances represent equal percent
changes, rather than equal absolute amounts. A straight line
indicates that change is occurring at a constant rate.
Source: United States Department of Commerce, Bureau of the
Census.

FRANCISCO

C h a r t 11

RATE O F U N EM P L O Y M E N T
THREE PACIFIC CO AST STATES
1947-1959
PERCENT OF LABOR FORCE

10.0

3.0
0

1947

1949

I9SI

1953

1955

1957

1 95 9

Source: State employment agencies.

Ever since mass settlement of these states be
gan over a century ago, most of the net increase
has been the result of migration from other
states and foreign lands. The proportion re
sulting from migration has tended to drop in
recent years because of rising birth rates in
the West, so that between 1950 and 1958, a
period when the total District population rose
by more than 5 million persons, migration
accounted for just about one-half of the total.
In the 3 Pacific Coast States, the proportion
of the civilian population in the labor force
declined by almost 3 percentage points, from
44.5 percent in 1947 to 41.7 percent in 1959.
This fall largely reflects shifts in the popula
tion structure of the Twelfth District through
higher birth rates and a changed migration
pattern (which is now less confined to work
ing-age people). Nevertheless, the labor force
in these states grew by about 2 million persons
during this period, or by slightly less than the
increase in the number of jobs. The rate of
unemployment on the Pacific Coast declined
substantially between 1947 and 1951, and,
despite fluctuations since then during business

February 1960

MONTHLY REVIEW

recessions, has remained at a fairly moderate
level. (Chart 11) It is also apparent that the
changing population structure has had impor
tant ramifications for the types of goods de
manded by western consumers, e.g., larger
houses, and for the types of government serv
ices needed, e.g., more schools.

Personal income scores
further advance
Personal income received by Twelfth Dis
trict residents reached about $56 billion in
1959, representing a gain of over 8 percent
from 1958. The major labor disputes which
erupted after mid-1959 in shipbuilding and
metal mining and manufacturing resulted in a
brief dip in personal income receipts during
September and October, but, as with employ
ment, recovery to the pre-strike level was vir
tually completed by year-end. The effects of
the work stoppages during the second half of
the year were most apparent in the economies
of Arizona and Utah, with their heavy comple
ment of copper miners, and with the steel and
related coal mining industry in Utah. How
ever, both states were experiencing growth in
defense-related manufacturing, which partial
ly offset these declines; and with the first settle
ments in the copper dispute reached during
December, it appeared to be only a question
of time before income in the two states would
break through to new high ground. Work stop
pages, though sizable, had only a minor de
pressive effect on California income receipts,
but the rate of gain there was slowed for sev
eral months. Personal income in other District
states was scarcely affected at all by work stop
pages, but most of them did experience a lev
elling in income growth during the second half
of the year.
On a per capita basis, the gain in 1959 was
almost 6 percent, to about $2,520. While the
rates of gain in total and per capita income
failed to match those achieved during the
Korean War years and during 1955-56, also

periods of expansion, the differences were not
substantial, with the single exception of
1951, and they do not provide conclusive
evidence that growth has slowed. (Chart 12)
Between 1946 and 1958, personal income
increased by 121 percent in Twelfth District
states, while it doubled in the entire United
States. But with its more rapid population
growth and the reduced proportion of its
population in the labor force, personal in
come on a per capita basis rose by 54 percent
in the Twelfth District and 64 percent in the
entire nation. Correspondingly, the proportion
by which per capita personal income in this
District exceeded the national average dropped
from 23 percent to 16 percent. Moreover, as
in other parts of the country, higher money
incomes did not represent equivalent gains in
purchasing power over goods and services.
The Consumer Price Index for the four major
western cities indicates that the gain in real
income may have been only about three-fifths
of the increase in money terms.
C h a r t 12

TW ELFTH D ISTRICT P E R S O N A L IN C O M E

1946-1959
BILLIONS OF DOLLARS

THOUSANDS OF 0 0 L L A R 3

-•

S A T 10 SCALE

50
TOTAL

40
L IN E

Note: This chart is plotted on a ratio or semi-logarithmic
scale on which equal vertical distances represent equal percent
changes, rather than equal absolute amounts. A straight line
indicates that change is occurring at a constant rate.
Sources: For 1946-1958 data: United States Department of Com
merce, Office of Business Economics; for 1959 estimates: Mc
Graw-Hill Publishing Company, Business Week.

FEDERAL RESERVE B A N K OF S A N

Consumer expenditures boosted
sh a rp ly in 1959
Rising personal income and increased use
of credit led to a record level of consumer ex
penditures in the Twelfth District during 1959.
Retail sales in the District were about 13 per
cent above 1958, with every month in 1959
showing an increase over the comparable yearago month.1 Since retail prices for goods rose
little in 1959 (about 1 percent), the dollar
amount of sales also approximates the real
volume of goods purchased.
Sales of durable goods in 1959 showed an
increase of 21 percent over 1958 and sales
of nondurable goods experienced a 7 percent
rise. This was materially better than the na
tional performance of 14 percent for durables
and 5 percent for nondurables. Department
store sales in the District exceeded those of
the previous year by 10 percent and followed
much the same pattern as sales of retail stores
generally, except that department store sales
picked up markedly in November when retail
sales generally were still low. In December,
dollar sales at department stores were at an
all-time high, exceeding by 7 percent the
previous record set last December. On a sea
sonally adjusted basis, however, December’s
sales were below the level reached during the
summer months.
In spite of the slowup in automobile pro
duction because of steel shortages in the fourth
quarter of 1959, sales of automobiles and
automotive accessories showed the largest
sales gain in the District of any of the durable
goods— 30 percent over 1958. (1958 was the
poorest year for District automobile sales since
1954.) New passenger car registrations in the
Twelfth District were 33 percent higher than
in 1958 and all District states shared in the
improved car market. (Chart 13) From evi
dence so far available, the new compact cars
’ These are data based on firms operating 1-10 stores, which account
for about 80 percent of total Twelfth District retail sales. Sales
data are obtained from a special tabulation supplied by the
United States Department of Commerce, Bureau of the Census,

FRANCISCO

C h a r t 13

N E W A U T O M O B IL E REGISTRATIONS,
TWELFTH DISTRICT— 1947-1959
TH 0U SAN M OF UNITS

1000

Source: Automotive News.

have met with favor, but it is too early to judge
possible long-range effects on standard models
and on foreign car imports. The District in
1959 again accounted for one-fourth of all
sales of imported cars in the country and one
out of every six new passenger cars sold in this
area was of foreign manufacture.
A good year for residential construction
helped to push retail sales of lumber and build
ing materials and hardware up about 10 per
cent above 1958 and contributed in part to the
15 percent rise in sales of furniture and appli
ances. In the nondurable goods group, apparel
and general merchandise turned in the best
performance, although sales in all categories
of soft goods were higher than in 1958.
Credit financing of consumer purchases in
creased sharply in 1959. Outstanding con
sumer instalment credit held by Twelfth Dis
trict banks resumed its steady upward climb
in 1959 after having levelled off in 1958. The
rate of increase slowed in October and No
vember as limited automobile inventories
reduced the amount of automobile credit ex
tended, but in December the upward move
ment resumed so that at year-end credit out
standing was $436 million above December

February 1960

MO NT HL Y REVIEW

31, 1958. A ll types o f instalment credit
extended by banks showed increases during
1959. There were, however, month-to-month
declines in personal loans in October and No
vember and in other consumer goods paper
in November. Both automobile paper pur
chased from dealers and automobile loans
made directly to purchasers (which account
for the bulk of bank-held instalment credit),
increased every month, though the October
and November increases were very small. The
percentage of new automobile loans with ma
turities of 31-36 months increased for both
purchased paper and direct bank loans. The
maturity pattern for loans on used cars, how
ever, remained relatively unchanged from
1958.
The pattern of consumer expenditures in
the postwar years has altered, with shifts oc
curring among different goods and between
goods and services. Of their total expenditures
for goods, consumers in the District have in
creased materially the proportion spent for
automobiles, automobile accessories, and gas
oline, while a declining proportion has gone
for apparel and general merchandise. Relative
expenditures for home furnishings and appli
ances have remained about the same. There
are no adequate measures of consumer outlays
for services in the Twelfth District, but the
pattern over the postwar period has probably
followed that of the entire nation: a gradual
rise from about 32 percent of total outlays in
1946 to 39 percent at present.
As a result of these changes in consumer
buying habits, sales of department stores have
shown some decline as a proportion of total
retail sales in the District. Nevertheless,
Twelfth District department store sales reg
istered an increase in every postwar year
except 1949, 1954, and 1957. The largest
gain in the postwar period took place in 1959
when the sales index hit 156 (1 947 -49 =
100), 13 index points above 1958. (Chart 14)
At the beginning of the postwar period only
about one-sixth of the total dollar volume of

C h a r t 14

DEPARTMENT STORE SALES
TWELFTH DISTRICT— 1946-1959
1 9 4 7 *4 9 3 100 (DAILY AVERAGE BASIS)

160

Source: Federal Reserve Bank of San Francisco.

retail sales in the District was accounted for
by automobiles and automobile accessories.
By 1955, this proportion had increased to
about one-fifth and, except in 1958, has con
tinued at that level. District residents ac
counted for about 12 percent of total new
automobile registrations in the United States
between 1946 and 1954, but since then the
proportion has increased to 13 percent and
reached almost 14 percent in 1958 and 1959.
District consumers began in 1950 to purchase
foreign cars in significant numbers. This trend
gained momentum and by last year about
one-sixth of all new passenger cars sold in
the District were imported cars.
The increase in consumer expenditures in
the District since 1946 has been accompanied
by expanding amounts of consumer credit.
(Chart 15) Commercial banks in the Twelfth
District have increased their holdings of con
sumer instalment credit by over 400 percent
since 1947. Throughout the postwar period,
automobile paper has accounted for the larg
est percentage of outstanding consumer credit.
From 41 percent of total outstandings in 1947,
it rose to 61 percent in 1955 and has dropped
only a few percentage points since then.

FEDERAL RESERVE B A N K OF S A N

C h a r t 15

C O N S U M E R IN STALM ENT CREDIT O U T ST A N D IN G
TWELFTH DISTRICT M EM BER BANKS
as of end of year, 1947-1959
M ILLIO NS OF DOLLARS

Source: Board of Governors of the Federal Reserve System,

FRANCISCO

may be inferred from this source that District
housing starts reached record proportions and
perhaps totaled about 290,000 units. More
over, contract award data reported by the F.
W. Dodge Corporation indicate that the num
ber of new dwelling units started in just the 7
District states totaled almost 324,000 units,
or 19 percent above 1958. The value of con
tract awards rose even more during 1959,
exceeding 1958 awards by 24 percent. Re
gardless of the source chosen, the vigor of
housing construction activity in the Far West
during 1959 obviously reached unequalled
proportions.
It should be recognized, of course, that the
use of annual data on housing starts, as for
other types of economic activity, may obscure
within-the-year developments. The past year

The construction boom of 1959
Construction contributed significandy to
the over-all expansion of business activity in
the Twelfth District during 1959. This is re
flected in both of the aggregate measures
which are available: construction employ
ment, which climbed 4 percent, and contract
awards, which were up 8 percent in value.
(Table 1) The buoyancy noticeable in resi
dential construction aftermid-1958 continued
into 1959 and achieved boom status during
most of the year. Estimates prepared by the
Bureau of Census indicate that the number
of housing starts nationally during 1959 was
certainly impressive— the 1.34 million pri
vate dwelling units begun was second only to
1950’s 1.35 million units and 18 percent
above the 1958 level. But the same source
estimates that housing starts in the 11 Western
States jumped by almost one-fourth between
1958 and 1959 to reach 325,000 units— over
4 percent above the previous high in 1955.
Since the states located within the Twelfth
District have accounted for about seveneighths of the 11-state total in recent years, it

T able 1

C O N S TR U C TIO N C O N TR A C TS AW ARDED
B Y P R O JE C T T Y P E
11 Western States— 1958-59
Valuation
(millions of dollars)
1958
1959

Commercial buildings
Manufacturing buildings
Educational and science
buildings
All other nonresidential
buildings1
Total nonresidential
buildings
One- and two-family
houses
Other residential
buildings2
Total residential
buildings

Percent
change

624

685

235

313

+ 10
+ 33

609

528

— 13

743

612

— 18

2,210

2,138

—

2,852

3,490

+ 22

668

747

+ 12

3,520

4,237

+ 20

Total heavy engineering
construction
1,674

1,609

—

Total construction

7,404

7,985

231

270

Number of dwelling units
One- and two-family
houses
Apartment buildings

+ 17
+ 14

includes hospital, public, religious, social and recreational, and
other miscellaneous nonresidential buildings.
2 Includes apartment buildings, hotels, dormitories, and other non*
houskeeping residential structures.
Source: F. W. Dodge Corporation, Construction Contracts.

MO NT HL Y REVIEW

February 1960

serves as a good illustration of this point, as
Twelfth District housing starts followed the
national pattern of decline after mid-year.
Although this decrease is generally attributed
to a slowup in the flow of funds into the
home mortgage market, the fact that there
were also rather sharp rises in vacancy rates
during the first half of the year and little more
than seasonal declines over the next 3 months
suggests that the level of demand may not
have been sufficiently strong to permit the
rate of housing starts during the first half-year
to be maintained. (Table 2) There certainly
T able 2

W E S T E R N A R E A V A C A N C Y R A TES

195S and 1959, by Quarter

1958

Rental
Vacancy Rate
(Percent of
Total Vacant)

Homeowner
Vacancy Rate
(Percent of
Total Vacant)

6 .8

1.1

7 .6

1.1

III

7 .5

1.1

6 .3

1.1

1 .5

1959
1

6 .6

9 .0

1 .6

III

8 .6

1 .4

e: United States Department of Commerce, Bureau of the
Census.

were, however, all of the indications of
progressive tightening in the western (as well
as national) market for home mortgages dur
ing most of 1959. Interest rates on conven
tional mortgages rose sharply throughout the
year, as did yields on FHA-insured mort
gages. Moreover, the extent of the decline in
FHA applications during the second half of
the year cannot be explained solely in terms
of seasonal factors. After reaching record
highs earlier in the year, applications declined
sharply, and in November were 42 percent
below those of the corresponding year-ago
month. The modest turnup which occurred
in December still left applications 19 percent
below December 1958.

Nonresidential, heavy construc
tion dip slightly
Nonresidential construction activity, as
measured by contract awards, fell about 3 per
cent in the West during 1959, as a declining
volume of public projects was only partially
counterbalanced by recovery in private out
lays. Industrial building contracts rose by onethird after a severe drop in 1958 and commer
cial building activity accelerated after an ad
vance of 8 percent during 1958. Heavy engi
neering contract awards were slightly under
the 1958 volume, with new highway and air
port construction down markedly. Gains in
power, sewage, and miscellaneous public
works projects were approximately offsetting,
however.
Information on construction activity in the
West during the postwar years is adequate for
discussion only in the case of new residential
construction, although there is no doubt that
the trend in all types of construction was gen
erally upward. Moreover, housing starts are
the only available measure of residential con
struction over the entire period. (Chart 16)
Although starts provide no inkling about
C

hart

H O U S IN G STARTS, 11 W ESTERN STATES
1948-1959’

‘ Estimated for 1959.
Source: United States Department of Labor, Bureau of Labor
Statistics.

FEDERAL RESERVE B A N K OF S A N

trends in spending per dwelling unit, it is
generally agreed that they do provide an ade
quate index of major changes in the over-all
level of activity.
The sharp postwar fluctuations which have
been experienced in residential construction
activity obscure, but do not obliterate, the evi
dence of a moderate upward trend. Chart 16
indicates the three apparent cycles which have
occurred in homebuilding during this period
and the average number of housing starts dur
ing each cycle. A slowing in the upward trend
of starts is apparent in the most recent cycle,
but the level of homebuilding in 1959 con
sidered by itself appears to be more consistent
with the over-all growth trend. Industry opin
ion generally is that a new downward phase
of the homebuilding cycle began late in the
year, however.
Changes in the number of housing starts
are generally attributed to income, demo
graphic, and financial factors. Previous discus
sion has already indicated that these factors
tended to work positively in relation to hous
ing demand during the postwar years gen
erally. In viewing the relationship of each of
the three factors to total demand, however, a
comparison of western housing starts with
those in the entire nation suggests that the
higher rate of western population growth has
been the dominant influence in maintaining a
rising trend in this area relative to the level of
national starts.

Forest industries share in gain s
With general improvement in economic ac
tivity and national housing starts close to the
record level of 1955, the Twelfth District’s
forest-based industries climbed from the dol
drums of the past few years. Paper and furni
ture manufacturing firms expanded employ
ment by about 5 percent above 1958 levels.
Employment in the even more important lum
ber and wood products segment jumped by
over 7 percent, and production of sawn lum
ber and softwood plywood were up 8 and 21

FRANCISCO

percent, respectively. The importance of the
expansion in plywood output to Oregon, which
of all District states is most dependent upon its
forest resources, is indicated by the fact that
half of its 1959 rise in lumbering employment
occurred at veneer and plywood plants. Over
a dozen new veneer and plywood mills were
opened in 1959, with half of them in Oregon,
to bring total capacity to an estimated 8 bil
lion square feet annually (on a ¥&" basis).
Since the status of the lumber and plywood
markets is closely tied to changes in the level
of national homebuilding, prices improved
through mid-1959, but then greater than sea
sonal price weakness was apparent in these
items as housing starts turned down in the
second half of the year. The price of quarterinch sanded plywood panels, which is often
used as a gauge of over-all plywood prices,
rose quickly from $76 per thousand square
feet at the beginning of the year to $85 at the
height of the spring building season. Several
price breaks after mid-year brought panels to
$64 in November’s slack buying season, but
a soft $72 was being quoted in December.
Sawn lumber prices were not quite so volatile:
after rising in the first half of 1959 and declin
ing more than seasonally after that, they nev
ertheless closed the year at about 8 percent
above the end-of-1958 level. Also, these re
cent price declines in lumber and plywood
had little effect on employment and produc
tion levels, at least through the end of 1959,
even though inventories were moderately
higher than a year ago.
The tides of Twelfth District lumber pro
duction over the postwar era have followed
fairly closely the flow and ebb of the residen
tial building cycle. Changes in other types of
domestic construction and in industrial and
export demand affect the industry also, but
less importantly. Following the rapid buildup
in output after the end of World War II, cycli
cal fluctuations in housing starts are reflected
also in terms of peaks and troughs in sawn

MONTHLY REVIEW

February 1960

hart

LUMBER A N D P LY W O O D OUTPUT,
WESTERN STATES— T946-1959
BILLIONS OF BOARD FECT

BILLIO NS OF SO U AR t FEET 1 3 /S - BASIS!

€.0

4.0

I9 6 0

Sources: National Lumber Manufacturers’ Association and Doug
las Fir Plywood Association.

lumber production. (Chart 17) Plywood out
put has climbed most rapidly in peak years of
the housing cycle and shows a tendency to
level off as housing starts decline, but there
has been no actual fall in output in the entire
postwar period. The fact that total sawn lum
ber output has not in recent years followed
the previously established trend of general in
crease (through 1955 and possibly 1956) is
indicative of the competitive inroads made by
other products in construction and other uses.
Plywood is of course one of the substitute
products, and to a certain extent it represents
a substitute end-product of the western tim
ber cut, particularly in the Douglas fir region
of western Washington and western Oregon.
Sawn lumber output in that area has trended
downward since 1952, with interruptions ap
parent only in years of peak lumber demand.
In the western pine region, the trend in pro
duction continues upward, and since 1956 its
sawmills have turned out more board feet of
lumber annually than the Douglas fir region.

Defense-space complex
provides thrust
Much of the stimulus to expansion of the
Twelfth District economy during 1959 was
provided by a complex of manufacturing in
dustries which have often been cited in this
Review as “ defense- and space-related.” Cer
tainly this term is only one of convenience,
representing a shorthand method of grouping
together the District’s sizable aircraft and ord
nance industries, the predominant portion of
whose output is for the government’s defense
and space exploration programs, with other
important suppliers such as the electrical and
nonelectrical machinery, instruments, and
shipbuilding industries. Large segments of
these latter industries have little or no direct
connection with the defense effort and the
entire group produces a wide variety of dur
able goods for civilian needs and other gov
ernmental programs. Yet federal outlays for
aircraft, missiles, and related equipment is
presently so important in this District as to be
the key influence on changes in the combined
output of these industries.
Measured in terms of manufacturing em
ployment, these industries were important
contributors to, if not the overriding factor in,
changes in economic activity in five Twelfth
District states during the past year. The
changes wrought were not of uniform strength,
however, and indeed they were not always ex
pansionary in direction. In Utah, for example,
where spending on missiles was almost negli
gible prior to 1958, employment in the manu
facture of transportation equipment and ord
nance doubled in 1959 and reached almost
10,000 persons by year-end. In the neighbor
ing state of Arizona, employment in these
same two industries rose only 5 percent, al
though the year-end employment level was
about 2,000 workers higher than in Utah. The
machinery manufacturing industries of Ari
zona, Oregon, and Wahington, while still rela

FEDERAL RESERVE B A N K OF S A N

tively small, experienced increases in employ
ment of fairly sizable proportions.
The State of Washington’s dominant air
craft industry cut back employment almost
uninterruptedly during 1959, dropping by al
most 16,000 workers, or 21 percent, between
January and December. A somewhat different
pattern was experienced at California’s air
craft plants, in that employment rose mod
erately through the summer but began a sharp
plunge in September which by year-end had
wiped out even more than the preceding gains.
At approximately 234,000 workers in Decem
ber, California aircraft employment was at its
lowest level since mid-1952. The cutbacks in
Washington and more recently in California
were both generally attributed to reduction of
manpower needs (largely of semi-skilled and
unskilled workers) on production lines, which
were offset only in part by additions to tech
nical staffs for research and development. De
spite the layoffs in its aircraft industry since
September, employment in California’s entire
defense-space complex averaged more than
40,000 workers higher in 1959 than in 1958
and in December remained above the year-ago
level by over 30,000 workers. These gains are
largely attributable to the strong expansion
programs underway at ordnance and electrical
machinery manufacturing firms.
Employment data may also serve as an
indicator of the growth experienced by the
defense-space complex in the postwar period.
After fluctuating within a narrow range of little
more than 200,000 workers between 1947 and
1950, employment in this combination of in
dustries doubled by 1952 under the stimulus
of the Korean War expansion, tripled by 1957,
and now includes about two-thirds of a million
workers. (Chart 18) Sales of one important
segment of this complex, the western electron
ics industry, rose from about $160 million in
1949 to nearly $2 billion in 1959. In re
cent years, western electronics firms have ac
counted for over one-fifth of the total national

FRANCISCO

C h a r t 18

EM PLO YM EN T IN "DEFENSE-SPACE"
M A N U F A C T U R IN G INDUSTRIES,
Twelfth District, 1947-1959
THOUSANDS OF WORKERS

700

Source: State employment agencies.

sales in this industry. In terms of employment
in the entire group of industries, the Twelfth
District accounts for over 15 percent of the
national total, but for the aircraft industry
alone, the District’s proportion is now about
42 percent.
Not all of the growth in electronics or in
the over-all complex of industries is connected
with federal outlays for defense and space ex
ploration, of course. Aside from being master
producers of military weapons of deterrence,
these Twelfth District industries also turn out
myriads of other products for civilian and non
defense governmental use. In many cases, they
are providing products for the growing west
ern market, but some major items are also
produced for national and international mar
kets. District firms have for decades been
major producers of civilian aircraft, especially
of propeller-driven, and more recently of jetpropelled, civilian transports. But neither do
these industries alone reflect total federal out
lays for defense and space exploration, since
vast sums are also being spent for construc
tion of military bases and other facilities in the
Twelfth District. Nevertheless, there can be

February 1960

MO NT HL Y REVIEW

no doubt that an important segment of the
Twelfth District economy is highly subject to
changes in federal policies with respect to
defense and space.
The defense-space complex has been un
dergoing rapid changes in recent years and
especially since mid-1957, as defense pro
curement reflected the advances in missile
technology. A sharp cutback in military and
space expenditures would have far-reaching
effects on the Twelfth District economy; and
there would be small comfort in the fact that,
even in absolute terms, defense production
industries employed substantially more work
ers here during World War II than they do
at present. These industries provided the
foundation for a sizable part of the expansion
which the Twelfth District has experienced
over the past decade, and sharp cutbacks
similar to those after World War II would
probably be accompanied by a somewhat
analogous unemployment problem. Thus far,
however, the District has shown great adapt
ability and is taking advantage of all oppor
tunities to attain a greater degree of diversifi
cation in manufacturing output.

District steel output reduced by
prolonged labor dispute
Twelfth District steel producers operated
at close to 60 percent of rated ingot capacity
during 1959, with actual tonnage falling below
that of 1958 by about 2 percent. The first half
of the year was characterized by a high oper
ating rate and a heavy inventory build-up. A
record of 613,000 ingot tons was produced
during May, and for the entire 6 months, out
put was almost 50 percent above the like 1958
period. After the nationwide labor dispute be
gan in mid-July, however, District output was
at a virtual standstill until early November.
Despite the decline in production, it is esti
mated that consumption of steel products in
the Twelfth District rose by about one-sixth
during 1959. Although this was somewhat

less than the rise in national consumption,
end-use here, like production, had declined
less than in the entire nation during the reces
sion in 1958. Moreover, western consumers
of steel appear to have fared better than in
the rest of the nation during and immediately
after the long work stoppage. Percentage
wise, jobbers handle more steel in the Twelfth
District than nationally and a greater inven
tory backlog was thus available during the
period when production ceased. The West
imported about 11 percent of its steel needs
from foreign countries in 1959, compared
with 6 percent for the entire country. (Both
doubled their imports over 1958.) Also, one
major producer here negotiated a new labor
contract almost 2 weeks before the national
return to work was ordered, permitting an
earlier resumption of output.
The steel industry gained importance in the
Twelfth District during World War II, with
the establishment of facilities to supply ship
yards and other war plants. Before the War,
western output consisted mainly of bar steels,
and only about 30 percent of over-all western
needs were produced in this area. Today, the
West produces an amount equal to about twothirds of its needs, including practically all of
its requirements of sheet steels for construc
tion and tin plate for canning. Since 1946,
steel capacity has more than doubled in the
Twelfth District to reach 7.6 million tons in
1959. (Chart 19) Capacity additions have
occurred here at twice the national rate, also.
On January 1,1959, District capacity jumped
by more than one-fourth from the preceding
year, largely because of a major expansion
program by one large producer. However, the
lengthy period required to break in these new
facilities and to complete other aspects of the
expansion program prevented full utilization
of the augmented capacity during 1959. Over
the past 12 months, further additions to ca
pacity were moderate, amounting to a little

FEDERAL RESERVE B A N K OF S A N

C h a r t 19

STEEL P R O D U CTIO N A N D CAPACITY
TWELFTH DISTRICT— 1946-1959
M ILLIONS OF NET TOMS

FRANCISCO

49 average in 1959, while capacity remained
at an index of 204. This was the first increase
in output since 1956, but only a part of the
fall in the output rate during the interim
was regained. (Chart 20) National output
C hart 20

A L U M IN U M PR O D U C T IO N A N D CAPACITY
TWELFTH DISTRICT— 1946-1959
INDEX 1 * 4 7 . « ■ 1 0 0

200

150

100

Source: American Iron and Steel Institute.

more than 100,000 ingot tons annually, or a
gain of about 1Vx percent.
With the rapid growth of the Twelfth Dis
trict since the War, spending on construction
here has boomed to become 20 percent of the
national total. Sheet steels for the construction
industry now account for perhaps half of the
steel produced in the West. Another 20 per
cent is consumed by the canning industry,
which produces two-thirds of the nation’s
canned fruit and 40 percent of its canned veg
etables. The nation, on the other hand, uses
only 30 percent of its steel products for con
struction and 8 percent for canning, and pro
duces many heavy alloys and stainless steels
for manufacturing industries (automobiles, for
example) which are not prominent in the West.
At year-end, the indicated rise in the auto
mobile industry suggested that steel demand
might for a time be increasing more in eastern
areas than in the Twelfth District, but a strong
demand for District products appeared also in
prospect.

A lum inum output revives at
District facilities
Aluminum ingot production in the Twelfth
District climbed to 166 percent of the 1947

Sources: Capacity, Year Book of American Bureau of Metal Sta
tistics; production, Federal Reserve Bank of San Francisco.

reached a new record in 1959, on the other
hand, with production and shipments up 25
and 37 percent, respectively, over 1958.
From 1949 to 1956 the District’s operating
rate approached or exceeded rated capacity.
Reactivation by private companies of much
of the facilities built by the Federal Govern
ment during World War II boosted capacity in
the early postwar years, and further expansion
programs raised the District proportion of
national capacity to a peak of 52 percent in
1949. More recent additions to national
capacity have occurred largely in the Ohio
Valley and other eastern areas, so that by
1959 Pacific Northwest reduction facilities
accounted for less than 29 percent of total
capacity in the nation. Rising costs of develop
ing additional hydroelectric power and com
petition from improved techniques of generat
ing power from coal, along with the lesser
transportation costs in the East due to prox

February 1960

MONTHLY REVIEW

imity to markets, have caused a shift in the
location of new facilities to eastern areas.
About one-half of Pacific Northwest output
of aluminum ingot is shipped to other areas
for further processing, and aluminum prod
ucts fabricated and shipped from the Midwest
are reported to be competitive with western
products at least to the eastern border of the
District. With Twelfth District facilities cast in
the role of residual producers of ingot for the
large eastern fabricators, the course of alumi
num production in this area clearly depends
on further growth of western markets and on
finding new uses for the metal in domestic and
export markets. Expanded demand worked in
favor of Twelfth District production in 1959,
and aside from seasonal forces, there appeared
to be further strengthening at year-end, so
that aluminum ingot prices were hiked back
to the pre-recession level.

Other key metals affected
by w ork stoppages
Labor disputes at major mines tied up
about four-fifths of United States copper pro
ducing capacity during most of the last 5
months of 1959, and most of the idled facili
ties are located in the Twelfth District. A l
though mine output reached a record rate in
the first half of the year, production in this
area fell by almost three-fourths after the be
ginning of the work stoppages. As a result, an
nual production in 1959 fell 14 percent from
1958 to the lowest total since 1949. District
mines, which typically account for over threefourths of United States copper output, were
able to increase their share of the national
total slightly during the year, to about 79 per
cent. This reflected a rise in operating rates in
excess of gains in the other producing areas
during the first half-year which was only par
tially offset by the greater than proportional
drop in output here in the remainder of 1959.
Despite the labor tieups, the effects of metal
shortages and consequent pressures on prices

in national markets were minimized by a
record accumulation of stocks by mid-year.
Additionally, imports of unmanufactured cop
per rose 10 percent over 1958. Nevertheless,
prices were higher than in 1958, so that even
with the fall in tonnage, the value of total cop
per produced in 1959 was close to that of the
preceding year.
The rising level of national industrial activ
ity in 1959 resulted in significantly increased
consumption of lead and zinc, but the work
stoppages at mines producing these metals
jointly with copper held District output to
about the levels prevailing in 1958. Increased
consumption and production limitations
helped to push lead and zinc prices up during
the year, raising the value of metal output
somewhat over 1958. District mines ac
counted for 47 and 35 percent, respectively,
o f United States lead and zinc output, some
what higher shares than in recent years.
Although settlements at some producing
facilities led to limited output resumption late
in December, District copper production re
mained at low levels early in 1960, pending
settlements at major facilities in Arizona and
Utah.
Exploration, development, and expansion
programs continued apace at many important
locations in the District. A major producer an
nounced plans covering plant and equipment
expenditures which are expected to raise ca
pacity at one of its facilities by 20,000 tons
annually. Mining World estimates that west
ern mining industry’s plant and equipment
outlays totalled $220 million in 1959.

Petroleum: products and problems
Demand for petroleum and petroleum
products exceeded the 1958 volume by slight
ly over 6 percent in 1959. With a slightly
smaller increase in refinery output, the in
dustry’s long-standing inventory problem was
somewhat less severe than in many recent
years. The West Coast’s petroleum industry,

FEDERAL RESERVE B A N K OF S A N

like its national counterpart, has been bur
dened with excess refining capacity in recent
years, as a result of frequent plant expansion
ahead of demand. Much of California crude
has a relatively low yield of gasoline and a
correspondingly higher yield of “ residual” oil
for industrial use. Demand for gasoline and
light oils has continued to expand in recent
years, but the market for residual fuels has
declined relatively because of the competitive
inroads of natural gas and distillate fuel oil.
Capital outlays to increase gasoline output
and quality have absorbed much of the re
finery plant and equipment “ dollar,” so that
changes in processing techniques to reflect
the reduced demand for residuals have lagged.
Consequently this product has been the prob

FRANCISCO

lem child of the California refining industry,
and has contributed to the declining demand
for “ low gravity” California crudes (see pro
duction indexes—-Table 3 ), and to the ex
panding demand for higher gravity foreign
oils. The “ gravity” of the situation was high
lighted dramatically in 1958, when a 9 per
cent decline in demand for residual fuel
(compared with a 4 percent increase in gaso
line demand) led to an approximately 20
percent rise in residual fuel inventories by
December.
Although regional demand for residual fuel
continued to decline in 1959, residual stocks
were generally well below the year-before
level. Markedly heavier shipments to East
Coast ports were largely responsible for the

T able 3

IN D EX ES O F IN D U S TR IA L P R O D U C TIO N — T W E L F T H D IS T R IC T
(1947-1949 = 100)
INDUSTRIAL

PRODUCTION
Copper
Lead
Zinc

1946

1949

1955

1956

1957

1958

1959p

71
70
83
64

120
77

130
79
75

116
62

100
62

85
154

131
80
72
106
79
163

110
77
172

64
105
70
142

65
95
58
137

197

185

143

166

Silver
Gold
Steel Ingots

71
60

93
101
102
95
99
97

Aluminum

108

186

Crude Petroleum

106

105

101

Refined Petroleum

103

124

132

124

Natural Gas

129
92

130
85

Cement

100

145

156

149

158

Lumber

100

122

120

106

107

174
116

Wood Pulp

192

189

101
106

180

Douglas Fir Plywood

282

291

303

186
352

186
428

130
178

142
225
149

129
194

142
186

139

121
214
127

119

127
106

116
112

137
112
98

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

72
104

128

124
101

98
104

90
108

139
115

88
103

103
104

105
87

98
89

93
87

107

114

120

126

69
97
132

p— preliminary

Note: D ata given above supersede &1J previously published annual indexes.

134

92
128

February 1960

MONTHLY REVIEW

inventory runoffs, although other factors were
of considerable, and perhaps more important,
long-run significance.
Production of residual oil was held down
in 1959 partly by feeding relatively more
high gravity foreign crude oils into refineries.
Foreign crudes accounted for over 20 percent
of refinery inputs, compared with about 17
percent in 1958, and with 12 percent nation
ally in both years. Although technological
changes have over the years enabled Cali
fornia refiners to reduce residual oil yields
moderately, the sharp reduction in residual
oil yields in 1959 (to 24.4 percent of refinery
output, compared with 27.9 in 1958) prob
ably reflected the diminished quantity of do
mestic crude employed.
The generally improved “ tone” of the in
dustry’s supply-demand situation in 1959 is
perhaps most readily appreciated by reference
to the inventory positions of some of the
industry’s most important products. Chart 21
compares end-of-month stock levels of gaso
line, distillate fuel oil, and residual fuel oil
with those obtaining in comparable months
in 1958. Residual stocks declined as indicated
above. Although gaosline and distillate hold
ings offer less in the way of contrast, they
are considerably more important in terms
of the general health of the over-all industry.
Reflecting heavier industrial demands, as well
as increased space-heating needs, demand for
distillate fuel oil increased over 8 percent in
1959. Through 1958, distillate fuel oil stocks
were maintained in good relation to demand,
and in 1959 the increase in stocks reflected
a relatively cautious attitude toward accumu
lation despite the substantial improvement in
demand. On the other hand, even with a 3
percent rise in sales, stocks of motor fuel
became somewhat more excessive during
1959 than they had been in the preceding
year of recession. Thus, in contrast to most
of the postwar period, when the demand for

West Coast gasoline grew faster than the
national average and prevented gasoline sur
pluses during periods when such surpluses
were serious burdens in eastern markets, the
West Coast experience in 1959 was signifi
cantly more in conformity with the national
petroleum industry’s experience.
This in turn serves to highlight a pattern
which has been manifest to a greater or lesser
degree during much of the postwar period,
for although differing demand and raw mate
rial “ mixes” still continue to maintain the
West’s petroleum industry as a regional en
tity, the increased availability of foreign
crudes and the resdess pressure of technolog
ical change have served to diminish the differ
ences between the experience of the West
Coast and “ eastern” petroleum industries.
Developments during 1959 show continuation
of these trends.
C h a r t 21

PETROLEUM STOCKS IN DISTRICT FIVE1
1958-1959

‘ Includes California, Oregon, Washington, Nevada, and Arizona.
Source: United States Department of the Interior, Bureau of
Mines.

FEDERAL RE S E RVE B A N K OF S A N

M a n y record highs in District
agriculture in 1959
Agricultural production reached a record
high level in 1959, with crop production up
4 percent from 1958 and above the postwar
trend. Increased production of deciduous fruit
and cotton in California was largely respon
sible for the District’s gain in crop output.
Although extremely dry weather prevailed
throughout much of the District, irrigated
crops generally fared better than in 1958. The
production of early blooming deciduous fruits
in particular had been reduced in 1958 by
rainy weather during the spring.
Cotton yields were slightly higher than in
1958, but the big stimulus to District cotton
production came from an expansion in Cali
fornia acreage. Acreage and production re
mained about the same in Arizona, but many
California farmers took advantage of an op
tion under the cotton price support program
for 1959 which permitted expansion of
acreage above allotments in exchange for a
reduced level of support. As a result, har
vested acreage in the state increased by
145,000 acres, or 20 percent. Associated
with the expansion in cotton output, the
amount of land devoted to feed grain produc
tion was reduced by 75,000 acres. Moreover,
the quality of the cotton lint in California was
unusually high as growing and harvesting con
ditions were almost ideal. Exports of domestic
cotton from California ports for the season
August 1 through December 31, 1959 were
up sharply from last season— 329,900 bales
compared with 85,700 bales.
Increases in production or marketings were
general for most livestock and livestock prod
ucts. Of particular interest are the further
gains in cattle feeding activities that occurred
in the District. Although the number of cattle
and calves on feed nationally at the end of
1959 was up 9 percent from a year ago, the
gain in the District was nearly 18 percent,
with increases of 32 percent in California and

FRANCISCO

26 percent in Arizona more than offsetting
declines of 18 and 7 percent in Utah and
Idaho, respectively. Reflecting the heavier
feeding activity as well as poor pasture condi
tions, hay prices at the end of the year were
about one-fourth higher than last year. How
ever, the meat animal supply tended to lower
average prices received by District farmers.
At year-end, hog prices were about 35 per
cent lower; calf prices, 15 percent lower; beef
prices, 7 percent lower; and lamb prices, 17
percent lower than a year earlier.
Despite lower prices, the heavier volume
of marketings resulted in a record level of
District receipts from farm marketings in
1959. As in the case of crop production, not
all states shared in the increase in cash re
ceipts; and, in fact, except for a small increase
in Oregon, all of the gain occurred in Cali
fornia. The importance of deciduous fruit
and cotton marketings on District receipts in
1959 is evident from the sharp increases in
cash receipts in June and July and in the late
fall months when such crops come to market.
Accompanying the rise in deciduous fruit
production was an increase in hired labor
requirements with 10 percent more workers
on California farms in June than a year
earlier.
Farm costs were fairly stable in 1959 as
prices paid by farmers nationally rose less
than 1 percent between December 1958 and
December 1959. Although cost-rate data are
not available for the District, the course of
farm costs is usually much the same as nation
ally. The stability in the over-all measure of
prices paid by farmers obscures diverse move
ments in prices paid for specific types of goods
and services. Prices paid by farmers during
1959 increased about 1 percent as higher
costs for nonfarm items were largely offset by
lower prices of agricultural-based items. At
the close of the year, prices paid by farmers
for agricultural-based items such as feed,
feeder livestock, and seed averaged 6.3 per

MO NT HL Y REVIEW

February 1960

cent lower than a year earlier. On the other
hand, prices paid for nonfarm production
items averaged 2.6 percent higher, family liv
ing items were up 1.4 percent, and interest,
taxes, and wage rates increased by 5.6 per
cent.

C h art 23

PRO DU CTIO N O F SELECTED CROPS,
TWELFTH DISTRICT— 1946-1959
INDEX 1 9 4 7 -4 9 >100

250
P RO CESSIN G

Sharp growth in District
agriculture output
Since World War II, there have been strik
ing gains in output by District agriculture as
well as in the efficiency with which labor has
been utilized to increase production. Farm
output in the District rose approximately 30
percent from 1946 through 1958. Despite this
rise in output, the time spent on farm work
declined; where each man-hour of farm work
produced 9 units of agricultural products
in 1946, each man-hour produced 17 units in
1958.
The rise in farm production was general
(Chart 22) for most types of farm com
modities with reductions or minor gains oc
curring in the output of food grains, fruits
and nuts, and oil crops. The most spectacular
gains were in the production of cotton, feed
grains, and vegetables for processing. (Chart
C hart 22

TWELFTH DISTRICT CROP PRO DU CTIO N
1946-1959
INDEX 1947-49 * 100

140

1 946

1948

1950

1 952

1 95 4

1956

1958

I96 0

Source: Based on data from United States Department of Agri
culture.

1946

1948

1950

19S2

1 95 4

1956

1 95 8

I9 6 0

Source: Based on data from United States Department of Agri
culture.

23) The production of cotton lint, for ex
ample, rose almost threefold, from 616,000
bales in 1946 to 2,376,000 bales in 1958.
This rise was quite modest when compared
to what it might have been in the absence of
acreage controls beginning in 1954. Acreage
controls were largely responsible for the sharp
rise in feed grain production as acreage was
diverted from the production of cotton and
wheat. Moreover, the increase in feed grain
production must be considered as an impor
tant factor contributing to the expansion of
cattle feeding in recent years, although cattle
feeding activity was rising in the District even
prior to 1954. Feed grain production more
than doubled during the postwar period, while
the number of cattle and calves on feed rose
from 374,000 head on January 1, 1946 to
1,136,000 head on January 1, 1959.
Cash receipts of District farmers from mar
ketings rose by 30 percent between 1946 and
1958. However, production expenditures
grew at a more rapid rate, so that for the
more limited period of 1949 through 1958,
net income of farm operators grew by only
17 percent. Because of the declining number
of farms, however, net income per farm rose

FEDERAL RE S E RVE B A N K OF S A N

by 20 percent in the same period. Despite
the modest rise in net income of farm oper
ators, the value of farm real estate per acre
in the Twelfth District rose 86 percent be
tween March 1, 1946 and March 1, 1958 to
reach $18.4 billion on the latter date. District
farm debt also rose sharply, with the amount
of farm debt held by major lenders tripling
from 1946’s unusually low level through
1958. A large part of this increase repre
sented an expansion of farm mortgage debt.
The amount of farm debt outstanding on
January 1, 1958 totaled $2.5 billion.

M ore fruits, fewer vegetables
in 1959 canning pack
The total pack of fruits and vegetables at
District canneries remained about the same
as in 1958, according to incomplete data,
with increases in fruit canning activity about
offsetting a lower volume of vegetable can
ning. Not only was vegetable canning reduced
from 1958, but it was below the postwar
trend. Although growing conditions were gen
erally better for irrigated crops in the District
in 1959 than during the previous year, the
smaller volume of vegetable canning resulted
from lower yields as well as a cutback in
acreage. Because of the dry weather, decidu
ous fruits escaped rain damage which plagued
these crops in 1958 and output was consid
erably larger.
A record volume of deciduous fruit was
canned in the District in 1959, up 18 percent
from the short pack in 1958. Growing condi
tions were much improved over 1958 and, as
a result, 58.4 million cases of fruit were
canned. The increase in the size of pack was
general for most major items but was led by
cling peaches with a rise of about 4 million
cases, a 23 percent increase, and apricots
with a rise of about 3 million cases, an in
crease of approximately 200 percent from
the short crop of the preceding year. The
sharp rise in output more than offset a re

FRANCISCO

duced level of inventories from the previous
year, and canners’ efforts to move the in
creased supplies resulted in lower prices. At
year-end, quoted prices for most canned de
ciduous fruits were more than 10 percent
below year-ago prices. Despite the heavy
movement from canners, their stocks on Jan
uary 1, 1960 were still higher than last year
except for cling peaches. Movement of this
item was unusually heavy during the first 8
months of the marketing season.
The smaller vegetable pack resulted largely
from a smaller pack of tomato and tomato
products. Although carryover stocks of these
items increased, the reduction in tomato can
ning activity more than offset a rise in inven
tories. As a result, supplies of tomato prod
ucts available from District canneries for the
1959-60 marketing season were reduced from
the previous year. Nevertheless, the move
ment of these products from canneries up
to January of 1960 was above year-ago levels
for most major items except tomato juice.
Cannery prices of most tomato products at
year-end were about the same as a year ago.
Tomato juice again was an exception with
cannery prices down from a year earlier.

Canning: a gro w in g but
variable industry
Fruit and vegetable canning is a major
component of the District’s second largest
manufacturing industry, food processing.
Vegetable canning in particular has experi
enced rapid growth in the postwar period,
with the size of the annual pack about dou
bling since 1947. Fruit canning also has ex
panded but not as rapidly. (Chart 24) Vege
table canning is dominated by items derived
from tomatoes while fruit canning is domi
nated by products derived from cling peaches.
Canned tomatoes and tomato products ac
count for about two-thirds of all vegetables
canned in the District. The same proportion
of the total fruit pack is accounted for by

MO NT HL Y REVIEW

February 1960

C h a r t 24

C A N N E D FRUIT A N D VEGETABLE PACKS
TWELFTH DISTRICT— 1947-1959
M IL L IO N S OF C A SE S

125

VEGETABLES

FRU IT S

25<
0

1947

1 949

1951

1953

1955

1957

1959

* Partially estimated.
Sources: National Canners Association; Northwest Canners and
Freezers; and Canners League of California.

cling peaches or canned fruit products utiliz
ing cling peaches. District production of these
two important raw materials destined for can
ning is confined largely to the State of Cali
fornia. Because of the importance of cling
peaches and tomatoes to the canning industry,
substantial variations in the size of the annual
pack stem largely from fluctuations in the
canning of these two products. Fruit canning
activity has less violent fluctuations than vege
table canning because short-term changes in
production stem largely from variations in
growing conditions. Vegetable production, on
the other hand, is subject to acreage changes
as well as fluctuations in growing conditions.

Pacific Coast foreign trade
Pacific Coast foreign trade value in 1959
was about equal to the previous postwar rec
ord high reached in 1957, but the gain was
attributable solely to a sharp rise in imports.
Commodity imports for 1959 were almost
one-third larger than in 1958 while exports
only slightly exceeded those of the preceding
year. Imports in 1959 increased at a rate
equal to the near record expansion of 1949-50
when the Korean War broke out, a rate ex

ceeded only by the 1946-47 rise resulting
from the return to more normal peacetime
trading conditions. Exports during the past
year, on the other hand, seem to fit into a
pattern that has recurred several times in
the postwar period: following years of sig
nificant increases, there have been years of
relative stability.
The outstanding feature of last year’s Pa
cific Coast foreign trade is the appearance of
a trade deficit in place of this region’s tradi
tional merchandise export surplus. The only
other postwar year when import value even
approached export value was 1950. (Chart
25)
The upsurge in Pacific Coast imports dur
ing 1959 was in part a continuation of the
trend of previous years which resulted in
District purchases from foreigners increasing
almost sixfold between the end of World War
II and 1958. The export capacity of foreign
countries improved steadily throughout this
period, and the vigorous upswing in Twelfth
District and national economic activity stimu
lated imports. The behavior of selected com
modity imports, as shown in the accompany
ing charts, illustrates the impact of these
developments. Petroleum imports (as meas
ured by tanker tonnage figures), for example,
mirrored quickened economic activity until
in 1959, when voluntary import quotas im
posed to stem the rising tide of foreign oil
slowed the pace. Coffee imports, on the other
hand, point up the continuing importance of
certain staple commodities in West Coast in
shipments; volume was generally steady while
price fluctuated. Within the past 6 or 7 years,
however, two new influences have gradually
emerged which promised to exert a lasting
effect on District imports: the recovery of
foreign industrial capacity and of foreign
competitive position and shifts in consumer
tastes. The former is exemplified by the rising
trend of iron and steel mill product imports,
which was accentuated by the steel strike in

FEDERAL RESERVE B A N K OF S A N

hart

FRANCISCO

PACIFIC CO AST W A T ERB O R N E F O R E IG N TRADE— 1946-1959
(ratio scale)
m il l io n s

M IL L IO N S OF BOARD F E E T

dollars

1000

200
MONTHLY AVERAGES

MONT HL Y

EXPORTS

2 0 0 47

TH O U S A N D S OF B A L E S
IM P O R T S

2000

1000

4 0 0 47

M IL L IO N S OF B U S H E LS

200

1954
THOUSAN DS OF BAGS
400

1956

19 SB

THO U S A N D S O F U N IT S
500

■I

T H O U S A N D N E t’
900

M
t

O~NS

B IL L IO N S OF POUNDS
3 0 ,0 0 0

TA N K E R
10,000

E 5 S
*Not available.
**Less than 1 billion pounds.
Note: This chart is plotted on a ratio or semi-logarithmic scale on which equal vertical distances represent equal percent changes,
rather than equal absolute amounts. A straight line indicates that change is occurring at a constant rate.
Sources: United States Department of Commerce, Bureau of the Census; United States Department of Agriculture; and trade associations.

1959, and the latter by the increasing prefer
ence of automobile owners for foreign pas
senger cars. These influences were especially
apparent last year, when imports of iron and
steel products were more than twice as high
as in 1958, and foreign car sales rose by about
50 percent.
District merchandise exports have in
creased more slowly than imports in the
postwar period. United States Government
programs— for reconstruction and rehabilita
tion and for disposal of surplus agricultural
products— have played a significant part in

bolstering this area’s sales abroad. Much of
the Pacific Northwest’s wheat exports have
moved under government grant and aid pro
grams. Cotton exports, on the other hand,
have fluctuated sharply in response to chang
ing foreign textile industry requirements and
to stimulation from government subsidies.
Part of the improvement in District exports
in the fourth quarter of 1959 was due to
stepped-up cotton sales to foreigners under a
new program that became effective last
August. Export demand for Twelfth District
lumber was high after World War II and dur

February 1960

MO NT HL Y REVIEW

ing the Korean War, but has declined sharply
over the past several years. The moderate
increase in lumber exports during 1959 ap
pears to be related in part to a protracted
labor dispute at British Columbia coastal
m ills which forced usual customers of the
Canadian m ills to seek alternative sources of
supply. However, the far eastern markets
of domestic producers were also improved in
1959.
The relative stability of Pacific Coast ex
ports from 1958 to 1959 should not arouse
undue alarm in the light of previous postwar
experience. Although 1958-59 exports were
below the peak attained in 1957, they were
still at respectable levels. As additional dollar
import restrictions abroad are removed (such
as the sterling area’s ban on canned fruit im
ports, which affects the District in particular),
as industrial production overseas expands,
and as foreign reserve positions improve fur
ther, Pacific Coast exports should benefit.

Conclusion
During the past year, many types of busi
ness activity in the Twelfth District reached
new highs, and the rates of growth in aggre
gate measures such as income and employ
ment were in excess of their respective post
war averages. But considering the pace of ex
pansion in these two indicators and in major
District industries following the two previous
business cycles of the postwar period, it could
hardly be said that growth during 1959 ap
proached boom proportions. Some major in
dustries in this District were not expanding by
as much as they had earlier in the postwar
era: petroleum and some of the nonferrous
metals are examples. The past year provides
a poor basis for judging the current status of
the steel and copper industries because of their
prolonged work stoppages, but improvement
should occur in 1960 since these disputes are
now settled and a backlog of unsatisfied de
mand has been built up.

At year-end, there were indications that
several industries which provided much of the
upward thrust in 1959 might not be so expan
sionary in the near future. The housing con
struction cycle evidently began another down
ward phase in the second half of the year,
but it appears that this is a continuation of a
pattern which has run roughly counter to the
over-all business cycle during the postwar
period. The decline in housing starts here and
in the rest of the nation will once again likely
have adverse effects on the western lumber
industry. In the closing months of 1959, the
“ defense-space” complex of industries seemed
to have lost even the moderate expansionary
tone which it exhibited earlier in the year, and
for the immediate future this may tend to limit
the rate at which over-all growth occurs.
The defense-space industries provided
much of the fuel for the sharp increase in
Twelfth District manufacturing employment
during the past decade. Since some slowing is
apparent in this section, for growth of the
District economy to continue substantially in
excess of that in the rest of the nation, other
commodity producing industries — mining,
manufacturing, agriculture, and construction
— have to provide the foundation. If the de
fense-space complex gives little or no stimu
lus, a larger share of resources would of course
be available for allocation to other types of
endeavor, but it is by no means obvious what
industries would grow at as rapid a pace as
this group has since 1950.
Growth of the Twelfth District economy
during 1959 was not markedly below our
past rate of growth, and the business climate
at the end of the year was generally favor
able to continued expansion. Higher incomes
should enable retail spending to improve from
the present advanced level, and total business
and government spending for goods and serv
ices should increase further. These increases,
however, are all likely to be moderate at this
stage of the business cycle.

FEDERAL RESERVE B A N K OF S A N

FRANCISCO

BANKING AND CREDIT STATISTICS AND BUSINESS INDEXES— TW ELFTH DISTRICT 1
(In d ex es: 1947-1949 = 100. D olla r am ounts in m illions o f dollars)
Condition items of all member banks2
Year
and
Month

Loans
and
discounts

U.S.
Gov't
securities

Demand
deposits
adjusted*

Bank debits
index
31 cities*- •

Total
time
deposits

Bank rates
on
short-term
business
loans'

2,239
1,486
1,967

495
720
1,450

1,234
951
1,983

1,790
1,609
2,267

42
18
30

....

7,866
8,839
9,220
9,418
11,124
12,613
13,178
13,812
16,537

6,463
6,619
6,639
7,942
7,239
6,452
6,619
8,003
6.673

9,937
10,520
10,515
11,196
11,864
12,169
11,870
12,729
13,375

' 6,777
7,502
7,997
8,699
9,120
9,424
10,679
12,077
12,452

1.32
140
150
154
172
189
203
209
237

3^66
3,95
4.14
4.09
4.10
4.50
4.97
4.88
5.36

1959
January
February
March
April
May
June
July
August
September
October
November
December

13,897
14,022
14,176
14,768
15,000
15,328
15,617
15,924
15,978
16,010
16,252
16,537

8,099
7,735
7,436
7,739
7,511
7,329
7,096
6,932
6,717
6,702
6,651
6,673

12,508
12,210
12,228
12,874
12,520
12,589
12,945
12,797
12,850
12,963
13,133
13,375

12,037
12,018
12,003
12,301
12,399
12,517
12,390
12,378
12,365
12,316
12,138
12,452

218
235
244
241
231
235
242
241
238
232
251
236

1960
January

16,354

6,304

12,971

12,111

239

1929
1933
1939
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

Total
nonagri
cultural
employ
ment

4.97
5.2 i
5.54
5.7i

Total
mf’g
employ
ment

Crude

1929
1933
1939
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

95
40
71
114
113
115
116
115
122
120
106
107r
116

87
52
67
98
106
107
109
106
106
105
101
94
92

78
50
63
103
112
116
122
119
124
129
132
124
130

55
27
56
112
128
124
131
133
145
156
149
158
174

24
125
146
139
158
128
154
163
172
142
137e

1958
December

119

125

165

1959
January
February
March
April
May
June
July
August
September
October
November
December

121
117r
114
114
118r
111
118r
111
113
114
117
129

92
92
92
92
92
93
92
92
92
91
91
91

125
126
128
130
128
128
136
136
132
132
133
131

161
142
171
178
188
186
192
191
176
186
154
152

Refined

30
18
31
107
112
120
122
122
132
141
140
143
156

64
42
47
100
113
115
113
113
112
114
118
123
123

141
141
142
143
143
143
144
144
144
144
145
145

161
162
164
164
163
164
166
163
162
161r
164
165

98
93
97
94
101
95
88
105
87
71
91
98

150
155
155
153
154
161
161
162
154
153
156
158

124
123
123
123
123
123
123
123
123
123
123
123

153

124

Total

Dry Cargo

103
17
80
115
116
115
113
103
120
131
130
116
100

29
26
40
120
136
145
162
172
192
209
224
229

190
110
163
91
186
172r
141r
133r
165r
20 lr
231r
176r

164

129

236

170

168
187
192
213
216
205
77e

136
138
140
144
148
138
118
76
36
40
43
40

240
242
250
250
254
269
267
256
248
249

237
156r
212r
170r
161
170r
166r
196r
171
231
141

i43e
2l4e

102
52
77
98
100
100
100
96
104
104
66
89
93

Electric
power

Steel7

57
105
121
130
137
134
143
152
156
154
163

Exports
Cement

Retail
food
prices

Waterborne Foreign Trade Index **10

Petroleum7
Lumber

Dep’t
store
sales
(value)'

60
103
112
118
121
120
127
134
138
138
143

Industrial production (physical volume)5
Year
and
month

Car
loadings
(number)1

Copper1

Imports
Tanker

Total

Dry Cargo

150

247
243
108
175
129
146r
123
149
117
123
123

124
72
95
142r
163r
206r
314r
268r
313r
459r
582r
552r

128

i07
80
194
200
138r
141r
178r
26 lr
308r
212r

97
145r
140r
142r
163r
166r
187r
219r
216r
218r

57
103r
733r
1,836
4,239r
2,912r
3,614r
7,180r
10,109r
9,096r

219r

101

766r

235r

14,589

244r
183r
210r
191r
181r
192r
215r
265r
217
289
189

228
118r
217
139
133
139
96
97r
107
150
71

508r
701r
657r
605r
587r
813r
612r
654r
678
702

266r
215r
383r
279r
283r
307r
284r
254r
269
261

6,799
13,375
7,810
9,101
8,516
13,990
9,168
11,074
11,344
12,206

Tanker

...

1 Adjusted for seasonal variation, except where indicated. Except for department store statistics, all indexes are based upon data from outside sources,
as follows: lumber, California Redwood Association and U.S. Bureau of the Census; petroleum, cement, and copper, U.S. Bureau of Mines; steel,
U.S. Department of Commerce and American Iron and Steel Institute; electric power, Federal Power Commission; nonagricultural and manufacturing
employment, U.S. Bureau of Labor Statistics and cooperating state agencies; retail food prices, U.S. Bureau of Labor Statistics; carloadings, various
railroads and railroad associations; and foreign trade, U.S. Bureau of the Census.
1 Annual figures are as of end of year, monthly figures as
of last Wednesday in month. ! Demand deposits, excluding interbank and U.S. Government deposits, less cash items in process of collection. Monthly
data partly estimated.
* Debits to total deposits except interbank prior to 1942. Debits to demand deposits except U.S. Government and
interbank deposits from 1942.
6 Daily average.
* Average rates on loans made in five major cities, weighted by loan size category.
1 Not adjusted for seasonal variation.
* Los Angeles, San Francisco, and Seattle indexes combined.
• Commercial cargo only, in
physical volume, for the Pacific Coast customs districts plus Alaska and Hawaii; starting with July 1950, “ special category" exports are excluded
because of security reasons.
10 Alaska and Hawaii are included in indexes beginning in 1950.
e— Estimated.
r— Revised.

Full text of Economic Review (Federal Reserve Bank of San Francisco) : February 1960

FRASER