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F E D E R A L R E S E R V E B A N K OF S A N F R A N C I S C O MONTHLY REVIEW IN THIS ISSUE Paying for Aerospace See (Western) America First Germany: Strength and Stresses JULY 1965 Paying for Aerospace . . . Ch anges in the budget of the industry’s dominant customer show up in the balance sheets of leading aerospace firms. See (Western) America First . . . The W e st’s $3-billion travel industry beckons the tourist who is staying home because of balance-of-paym ents considerations, Germany: Strength and Stresses . . . The Federal Republic triples its industrial production within a dec ad e and a half, but experiences w age and price pressures, too. Editor: W illia m Burke July 1965 MONTHLY REVIEW Paying for Aerospace W est’s crucial “export” industry — A irc ra ft-m issile contracts dominate aerospace m anufacturing — has gener W estern defense manufacturing ated as much work for corporate treasurers GOVERNMENT PRIVATE B i l l i o n s of D o l l a r s B il l ion s of Do ll a rs as it has for personnel managers, sales man 0 2 4 6 80 2 4 1------1 (------ 1------ 1------ 1------ 1------ 1 agers, and government relations officers. The rapid growth and abrupt fluctuations in this industry, in other words, have brought changes to corporate balance sheets as well as to plant layouts, scientific developments, and rela tionships with the Pentagon. The industry, of course, is dominated by a single im portant customer— the Federal gov ernment. Although aerospace producers m an ufacture a num ber of im portant products for the commercial market, their major work is reserved for defense and space contracts. N ote: C hart shows shipm ents in 1963, b y category, of firms e n Moreover, the unique character of this custogaged in defense-related m anufacturing Source: D epartm ent of Commerce mer-producer relationship has significantly affected the sources and uses of funds in the 85 percent of the products of the Western rapidly changing postwar period. defense-manufacturing industry and only 60 Single-customer industry percent of the products of defense firms else where. The industry is principally affected by the size and shape of its dom inant customer’s In addition, Census data show some other budget— a budget which has exhibited mas significant differences in the structure of sales. sive structural shifts and significant ups and About 60 percent of billings by Western de downs since 1945, and which has also exhib fense-oriented firms in 1963 were made for ited a constant demand for high-quality prod government-financed aircraft and missiles, ucts incorporating the latest technological about 20 percent for government-financed breakthroughs. M any of these products of communications equipment and instruments, course result from advanced research-andand about 10 percent for privately financed development programs, which in turn are gen commercial aircraft. By way of contrast, de erated by that custom er’s demand for techno fense-oriented firms elsewhere had roughly logical progress. the same proportion of sales in communica The R&D-oriented W estern industry has tions equipment and instruments, but only benefited from a postwar shift of emphasis 30 percent of their billings were made for from conventional hardware to sophisticated government-financed aircraft and missiles. aerospace systems. Consequently, sales of the (These firms were also much less important regional industry are now more closely tied to than Western firms in the commercial-aircraft field.) government business than are the sales of de fense-oriented firms elsewhere in the nation. The postwar boom in the Western aero In 1963, according to Census of M anufac space industry is shown most vividly by de tures data, the Federal government purchased fense contract-award data. Between 1947 and T he 127 FEDERAL RESERVE BANK 1964, Twelfth District firms increased their share of defense contracts from one-eighth to one-third of the national total. In dollar terms, their contracts increased from less than $1 billion to $9 billion. These firms thus have been under constant pressure to add to their plant, equipment, and working capital in or der to meet the steep increase in demand for their unique product line. Four-firm data 1 28 OF SAN FRANCISCO defense requirements from battlefield equip ment, such as tanks and ammunition, to mis sile production and research-and-development programs. To meet these increased requirements, these four m ajor aerospace firms have utilized the usual financial resources— internal financ ing (retained earnings and depreciation), along with external financing (security issues, bank loans, and the like). F or the postwar period as a whole, they have relied about equally on internal and external financing. By way of contrast, the nation’s total m anufactur ing sector has placed more reliance on inter nal financing, especially increased deprecia tion allowances. All of this has m eant a massive change in the finances of the W estern aerospace indus try. The magnitude of that development can be judged from an examination of the balance sheets of four m ajor aerospace firms head quartered in this region. These firms in fiscal On the basis of these financial inflows, as 1964 received 17 percent of defense contract sets of the major aerospace firms rose from awards and 40 percent of space agency $0.4 billion in 1947 to $1.0 billion in 1954, awards. Although headquartered in the West, and then to $2.2 billion in 1964. Roughly they now operate installations in other regions one-half of the postwar increase went into new too, so their books do not necessarily present plant and equipment, and the rest went into an exact picture of the financial requirements inventories and receivables. But the sources of the W estern industry. Nonetheless, for all and uses of funds shifted somewhat between practical purposes, their balance sheets re the Korean period of rapid growth and the veal most of the m ajor influences at work in subsequent period of missile-production the region during this crucial period. Sales of these four M a jo r a e ro sp a c e firm s continue to a dd plani-equipment, m a jo r a e r o s p a c e firms rose from $0.3 but reduce inventories and receivables, during 1 9 6 3 -6 4 MAJOR A E R O SP A C E A L L M A N U FA C TU RIN G billion in fiscal 1947 Average Annual Change, Average Annual Change, M illio ns of Dollars B i l l i o n s of D o l l a r s to a K o r e a n - w a r 0 5 10 [5 -50 -0 + 50 100 rj high of $3.3 billion in fiscal 1954. In the post-Korean period, sa le s ro se a lm o st c o n s t a n t l y , w ith m in o r p a u s e s in 1955 and 1958, and eventually reached $6.4 billion in 1964. The m ajor impetus to sales during the recent past was the post-Korean shift in Sources: Balance-sheet d ata of four m ajor W estern aerospace firms; D epartm ent of Commerce July 1965 MONTHLY REVIEW tion and test facili ties related to the de in decreased reliance on external financing velopment of aero ALL M AN U FACTU RIN G MAJOR AERO SPACE V" sp a c e te c h n o lo g y . Average Annual Change, A v a r o g e A n n u a ! C h a n g « , M i l l i o n s of Do l i a r s B i l l i o n s of D o l l a r s N o t s u rp ris in g ly , 0 5 10 -tOO -50 -0 + 50 100 th en , p la n t-e q u ip ment ex p en d itu res quadrupled for these four firms between 1954 an d 1964, while all manufac turing firms doubled th eir p la n t-e q u ip ment spending durin g t h i s p e r i o d . These producers also placed greater reliance than before Sources: Balance-sheet data of four m ajor W estern aerospace firms; D epartm ent of Commerce on internal financ ing— both depreciation and retained earnings. buildup, and then shifted again between those But short-term credit resources also remained years of expansion and the more recent era important, with bank credit especially rising of relative stability. sharply to a peak in 1962. C u tback in a e ro sp a c e sp e n d in g reflected Korea and post-Korea During the Korean-war period, the four firms added significantly to their receivables and inventories but somewhat less to their plant and equipment. Of course, plant-equipment spending was somewhat unnecessary at that time, since military requirements were concentrated in the W orld-W ar-II type of equipment. F or financing, these firms depend ed almost entirely on external sources, mostly short-term credit. They relied especially on trade-credit sources, such as contract deposits and advances, but they also utilized bank loans. (G overnm ent-guaranteed bank loans were especially im portant at that time; such loans totaled $979 million in 1952, but since 1954 authorizations have consistently re mained below $400 million.) During the post-Korean period, the major aerospace firms again added significantly to their inventories and receivables. Their m a jor requirements, however, were for produc . , . And post-1962 Since 1962, the m ajor aerospace firms have experienced a sharp reversal in their require ments for inventories and receivables, as a result of the cancellation of several large con tracts as well as the development of other con tracts past the stage of heavy funding. On the other hand, these firms have continued to add to their plant and equipment, although to a proportionately smaller degree than other types of manufacturing firms. In the last sev eral years, moreover, the m ajor aerospace producers have recorded a sharp rise in their liquid assets. This increase may reflect the de sire to have ready cash on hand in order to shift emphasis to commercial-aircraft produc tion— or in order to diversify into completely new lines. In the recent past, the m ajor aerospace firms have sharply reduced their reliance on external financing, especially trade credit and 1 29 FEDERAL RESERVE B A N K OF S tro n g uptrend in plant-equipment spending recorded by aerospace firms M i M i o n i of D o l l a r s Sources: Balance-sbeet d a ta of four m ajor W estern aerospace firms; D ep artm en t of Commerce bank loans. This development reflects a re duction in requirements for inventories and accounts receivable, and it possibly also re flects their sharp increase in retained earnings. SAN FRANCISCO M anufacturing firms elsewhere have experi enced a similar increase in retained earnings but, on the other hand, have continued to rely heavily on external sources. Balance-sheet data for the four m ajor West ern aerospace firms thus reflect the substan tial gains in activity during the Korean period and the early missile-age period, along with the 1963-64 m oderation in aerospace sales. Unlike all manufacturing firms— which have continued to expand their sources and uses of funds on the basis of a strong business de mand— the W estern aerospace firms in the last two years have experienced a smaller need for inventories and receivables, and thus have reduced their reliance on external sources of funds. B ut the strength of their retained earnings and cash position indicates that they possess the flexibility to meet the shifting demands of their dom inant customer — or of any new custom er for their unique product line.— Donald Snodgrass. New Series on Federal Funds Beginning with data for the reserve period ended June 23, 1965, a new weekly series on reserve positions and Federal funds and related transactions of selected Twelfth District banks was instituted. Basically, the new series is a com ponent part of the national series which the Board of Governors of the Federal Reserve System began publishing in August 1964. Current reports, which are to be released each Friday, and back data are available on request from the Research Departm ent, Federal Reserve Bank of San Francisco, 400 Sansome Street, San Francisco, California 94120. 130 MONTHLY REVIEW July 1965 See (Western) America First beaches, Scandinavian fiords and m ountains, Spanish Old W orld charm, Oriental food, Parisian night life . . . The tour ist who desires adventure, but who also de sires to ease the nation’s balance-of-payments difficulties, should be reminded that he can find all these experiences (and Disneyland too) within the confines of these Western American states, So says the travel advertis ing— and so too says the presidential task force on travel, which has recently been or ganized to coordinate the travel industry’s efforts to help American tourists “discover Am erica.” P o ly n e s ia n Spending abroad The growing emphasis on domestic tour ism is related to the fact that Am erican tourist spending abroad has tripled since 1950. In 1964, $2.8 billion was spent by tourists abroad or was paid in fares to foreign-flag airlines and shipping lines. This out ward flow of dollars thus has significantly af fected the nation’s balance of payments. The 1954 deficit of $1.6 billion reflected a traveldollar outflow of $1.2 billion, and 1964’s $3.1billion deficit was linked to a $ 2 .8 -bilIion out flow on the travel account. Dollar spending by Am erican tourists has increased everywhere, especially in Western Europe and the M editerranean (over $800 million in 1964), and in other overseas areas (about $350 million in 1964). Spending in Canada and Mexico has also increased sharp ly; these two countries together obtained about $1 billion from tourists last year. And, in addition, fares paid to foreign-flag carriers totaled about $650 million. These dollar out flows, amounting to $ 2.8 billion, were partly offset by a $ 1 . 1-billion inflow caused by for eign travelers’ spending in this country. Yet, although this type of dollar inflow has in creased sharply, it lags far behind the level of spending by Americans overseas. Spending at home Where then should the balance-of-payments conscious tourist go in order to enjoy R ap id g a in s in o v e rse a s trav e l and in payments to foreign-flag carriers help accentuate balance-of-paym ents problem M i l l i o n s of D o l l a r s Source: D epartm ent of Commerce B i l l i o n s of D o l l a r s FEDERAL RESERVE 132 BANK the exotic pleasures of far-away places? The answer, according to the travel posters, is to head West of the Continental Divide. This type of appeal has been increasingly success ful in recent years; in 1964, for example, tourists and business travelers together spent roughly $3 billion in Twelfth District states. Tourist spending, moreover, has consist ently been an im portant source of income for many W estern states and communities. Pay rolls of hotels and places of amusement ac count for about 2.3 percent of total payrolls in the District, against only 1.1 percent in the rest of the nation. (In Nevada, payrolls of this type account for a whopping 20 per cent of total payrolls.) Statistics on tourist spending are difficult to estimate, especially because the dollar to tals include a mixture of pleasure and busi ness spending as well as a mixture of intra state and interstate travel spending. In rough terms, however, over $1 billion was spent by all travelers in California in 1964, while about $600 million was spent in Nevada, an other $700 million in the other M ountain states, about $500 million in the Northwest states, and over $200 million in Hawaii. And even m ore dollars are attracted by special events, such as the $200 million or more at tributable to the Seattle W orld’s F air in 1962. All in all, total travel spending in District states has jum ped from about $ 1.1 billion in 1950 to roughly $3.1 billion in 1964. The average am ount of spending varies from place to place. In rough terms, the average traveler spends about $8 to $9 a day in California, Arizona, and the Northwest states. Spending in Nevada, meanwhile, runs about $15 daily— about the same as the av erage Am erican tourist spends in Western Europe. Tourists in Hawaii, moreover, tend to spend over $30 a day. (B ut average spend ing figures, like the dollar totals, are affected by the different amounts spent by intrastate— as opposed to interstate— travelers.) OF SAN FRANCISCO M o u n ta in state s a n d H a w a ii boast largest gains in travel spending M il l i o n s of D o l l o r t Source: S ta te tourist agencies While spending figures are somewhat in exact, data on the num ber of visitors to park and camping facilities are easily measurable — and quite impressive. In 1963, 20 million visitors were logged in at the national parks located in District states, and more than 50 million visitors were recorded at state parks and in recreational areas of national forests. M ore important, tourism of this type has grown rapidly in recent years. Between 1950 and 1963, national park visitors in Califor nia increased from 3 to 6 million, and na tional park visitors in other District states rose from 6 to 14 million. State park visits, meanwhile, more than quadrupled in num ber in the same period. Reasons for more spending Will tourism in W estern states continue to grow at such a rapid pace in future years? Recent trends in population, income, leisure, and education indicate that continued growth of this type is quite likely. In the recent past, all of these factors have been strongly favorable. Population in the West alone has grown from 17 million in 1950 to 27 million in 1964. Income in the West alone has grown from $30 billion in MONTHLY REVIEW July 1965 1950 to $80 billion in 1964. And the in creased leisure (especially the longer vaca tions) available to the average American has stimulated travel everywhere. The shifting of more and more people into the upper-income brackets has favored more tourist spending. W hereas only about 50 per cent of the nation’s families earning less than $4,000 take one trip or more annually, 83 percent of those earning over $ 10,000 take at least one trip. And, again, rising educational levels have favored tourism, since relatively twice as many college graduates as gradeschool graduates take at least one trip an nually. Also favorable are developments in the field of transportation— for example, the availability of speedy jet travel at increas ingly attractive rates, the availability of the 41,000-mile interstate highway system, and the availability of at least one car per family. And also favorable are developments in the field of communication; even TV, with its en ticing commercials, has persuaded people to leave their armchairs and to go adventuring. Consequently, since more people hold more dollars and have more leisure and more in centive to spend— and especially since they now have the balance-of-payments incentive to spend their dollars at home— “the travel industry has hardly touched the surface of its potential.” (The speaker was Vice President Humphrey, chairman of the presidential task force on travel.) The industry’s surveys have shown that 60 percent of the American public have never spent a night in a hotel or motel, that 80 per cent have never been aboard an airplane, that 50 percent have never been more than 200 miles away from home-—and that 80 million Americans went nowhere at all last year. This year the industry is determined that those 80 million will join more than 100 million other Americans on the nation’s roads, sealanes, and airlanes. W hatever the success of that campaign, the tourist business undoubtedly will continue to boom on the W estern side of the Continental Divide. — Paul Ma. California Bank Mergers Copies are now available of “Bank Mergers and Bank Concentration in Cali fornia” — a study prepared for the Federal Reserve Bank of San Francisco by Professor Eugene Rotwein of Queens College, City University of New York. The study, which provides a general view of bank merger activity in California during the 1947-60 period, seeks to measure the effect of these mergers on banking concentration in the State. The study also analyzes the perform ance of acquiring and acquired banks, relative to each other and to other banks in the State, in the immediate pre-m erger period. Copies of the article are available on request from the Research Department, Federal Reserve Bank of San Francisco, 400 Sansome Street, San Francisco, Cali fornia 94120. 133 FEDERAL RESERVE BANK OF SAN FRANCISCO Germany: Strength and Stresses that the restoration of economic balance “was Wirtschaftswunder has encompassed a tripling of industrial production in the certainly not to be brought about by means G erm an Federal Republic since 1950. The of price increases.” And the Germ an central bank has spelled out the argument more spe “m iracle” has also brought about a succession of balance-of-payments surpluses and an in cifically: “The countries which become unbal crease in Germ an gold and dollar holdings anced must endeavor to find their own way from practically zero in 1950 to $6.2 billion back to stability. If the countries with rela at the end of 1964. But the Republic’s re tively stable prices conformed to the infla m arkable economic perform ance has also tionary tendencies, the countries suffering brought in its wake the type of wage and price from inflation would be relieved of the need pressures with which its trading partners have to initiate the measures required for regaining long been familiar. internal stability.” (Deutsche Bundesbank This situation has developed against a 1963 annual report.) backdrop of continued industrial expansion Critics of this Germ an viewpoint, however, in the Federal Republic. By late 1964, G er claim that the adjustment process should be man industrial production was roughly 50 shared. In such a situation, the surplus coun percent above the 1957-59 level— as com try should pursue expansionary monetary pared, for example, with a 35-percent in and fiscal policies, and in addition should in crease in U. S. production. crease its capital exports. According to this But this continued expansion has also view, the recent imbalance in (say) the Com created some m ajor problems. Between 1963 mon M arket might not have arisen if G er and 1964, the G erm an balance-of-payments man prices and costs had risen as rapidly as surplus dropped from $640 million to almost those of its trading partners. zero. (O n a comparable basis, the U. S. bal ance-of-payments deficit was roughly $2.7 billion in each year.) Moreover, in 1964 W e s t G e rm a n stre n gth reflected alone, G erm an official gold and dollar hold in balance-of-paym ents statistics Bi I l i ons of D o l l a r s ings dropped from $ 6.8 to $6.2 billion. And consumer prices, after rising slowly during the decade of the 1950’s, have lately begun to ac celerate; the Germ an index has risen 13 per cent since 1960, as against a 6 -percent gain in the U. S. index. The question thus arises: has Germ any begun to “im port” inflation, as several of her trading partners have recom mended? D as Maintaining a balance 134 The recent discussion has centered about the responsibilities of surplus and deficit countries for maintaining an international payments balance. Chancellor E rhard has taken a strong stand on this m atter, arguing 1958 1959 I960 1961 1962 1963 1964 1965 N ote: Germ an series defined as n e t m ovem ent of gold and ex change; U . S. series defined aa overall balance on regular and special transactions Sources: D eutsche B undesbank; U . S. D ep artm en t of Com merce July 1965 MONTHLY REVIEW Germ any’s earlier cost and price stability was based to a great extent on special circum stances. These factors included the early post war fears of a 1922-style hyperinflation, the expansion of the labor m arket from both do mestic and foreign sources, and a consistent policy of union wage restraint. With some, or all, of these factors now weakening, perhaps more steam could develop behind an expan sionary wage policy now than heretofore. Some observers would justify an expan sionary policy of this type in terms of easing the adjustment problem of Germ any’s trad ing partners or in terms of compensating G er man workers for the relative lag in wages. Others would contend, however, that the con tinued success in confining wage increases within the trend of productivity has been an essential element in the nation’s strong pay ments position. In order to weigh the merits of these conflicting positions, therefore, some ex amination is necessary of the relationships of wages, productivity, and prices in the postwar period. W age claims justified? A re the trade unions’ claims for wage in creases justified in the light of postwar pro ductivity developments? On the basis only of the labor-m arket statistics, an argument could be made for some increases. A fter correction for changes in consumer prices, hourly earn ings in West Germany increased roughly 125 percent between 1950 and 1964, while output per m anhour increased roughly 135 percent. Moreover, the index of real hourly earnings tended to fall behind the productivity index in 1953-55, in 1956-59, and again in 196263. Nonetheless, relationships of this type are almost meaningless unless the factors underlying productivity gains and economic growth are examined. West Germ any’s growth until about 1955 was based largely on the increased utilization of resources— labor, capital, and materials. G e rm a n indu strial production triples during past decade and a half 1 9 5 7 -5 9 = 100 But thereafter, as labor shortages and indus trial bottlenecks developed, the growth proc ess depended increasingly on technological and organizational progress. In the earlier pe riod, labor’s income share tended to lag be hind its contribution to growth. A fter about 1955, however, the lag in labor earnings could be more strongly defended, in terms of the high level of investment essential for steady economic growth. The larger share of income paid to capital undoubtedly was a m a jor factor in Germ any’s post-1955 expansion. Yet, at some point, the rising returns to capital could cause labor— through the “dem onstration effect” of rising profit margins— to demand an adjustment of income distribution in its favor. But labor’s ability to achieve such a redistribution would depend on the state of the labor m arket and the economic outlook. Pressures in ’65 The economy boomed in early 1965, in an atmosphere perhaps even more ebullient than the business situation in this country. Costs and prices continued upwards, as a conse quence of a high level of domestic demand, continued pressures on productive resources, and the acceleration of wage increases. The labor m arket meanwhile remained very tight; 135 FEDERAL RESERVE BANK but productivity rises even faster = 100 220 Ratio Seal s 200 100 Rates HEAL EARNINGS 1950 _i 1965 Source: Organisation for Econom ic Co-operation ajid D evelopm ent in late M arch the unemployment rate was less than 1 percent. The strain was relieved somewhat during 1964 and early 1965 by the elimination of earlier payments surpluses. Germ an exports were slowed by the decreasing flexibility of export-supply conditions and by policy m ea sures on the part of its trading partners— and im port dem and meanwhile continued to boom. Heavy capital inflows were slowed by the proposal (and eventual enactm ent) of a 25-percent withholding tax on nonresident interest earnings on Germ an securities. So the Federal Republic in early 1965 exemplified the m ature stage of a strong business expan sion; investment demand, which had earlier replaced export dem and as the basis of the boom, was now being bolstered by heavy con sumption spending. The high level of demand, with consequent cost and price pressures, was supported by 136 SAN FRANCISCO rising wage rates and by a January 1 tax re duction. With pressures developing in most sectors of the economy, therefore, the mone tary authorities took action in the early part of the year. The discount rate was increased from 3 to 3 Vi percent in January, and credittightening measures were taken in response to price increases. G e rm a n la b o r e a r n in g s soar, 1953 OF Other signs of spending pressure became apparent in early 1965. There was a con tinued increase in imports, especially of finished-manufactured goods; there was a con tinued deficit in trade in invisibles, typified by swelling outflows for tourism and for pay ments on past investment— and there was also the possibility that U. S.-U. K. cutbacks in investment flows would discourage capital im ports into Germany and would encourage Germ an capital exports into third countries as a replacement for Am erican or British invest ment. Substantial wage pressures thus appeared likely to continue, because of the continued expansion of the German economy and the concomitant tightening of the labor market. But with no balance-of-payments surplus available to provide elbowroom, there may be less justification than heretofore for large wage increases. As a m atter of fact, the E uro pean Economic Commission has recently rec ommended strong measures to restrain cost and price pressures in Germany. Demands for imported inflation therefore may now be somewhat academic, although they would quickly be revived if large payments surpluses again developed out of the undoubted strength of the German economy.— Heather Wright. July 1965 MONTHLY REVIEW Western Digest Banking Developments Total bank credit at Twelfth District weekly reporting banks rose $712 million between mid-M ay and mid-June. This was more than double the increase recorded during the com parable period in 1964. . . . A loan increase of $531 million, which accounted for about three-fourths of the credit expansion, reflected heavy loan demand from the business sector over the corporate-tax date. The gain in business borrowing was about four times greater than the year-ago increase, but the increase in real-estate loans during this period was only about one-half of the year-ago gain. . . . District bank holdings of U. S. Government securities declined $32 million from mid-May to mid-June, but this was more than offset by a $213-million increase in other securities. . . . District banks recorded a large ($373 million) increase in de mand deposits adjusted. The net inflow of savings deposits in this 5-week period, which was nearly triple the year-ago pace, accounted for over half the $ 144-million increase in total time and savings deposits. Employment and Unemployment The employment situation brightened in May, both for the Pacific Coast states and for the nation as a whole, as the number of men at work rose and the number unemployed declined. In the Pacific Coast states total employment increased 0.5 percent above the April level (on a seasonally adjusted basis), with agricultural and nonagricultural employment sharing about equally in the gain. The national increase amounted to 0.3 percent, and was more heavily weighted in favor of agri cultural employment. . . . The unemployment rate in the Pacific Coast states fell from 5.9 percent of the labor force in April to 5.5 percent in May. Nationally, the rate declined from 4.9 percent to 4.6 percent — the lowest figure attained since 1957. Production and Trade While lum ber orders have been improving gradually since April, mill sales managers continue to quote prices below the levels of a year ago. Demand for sanded plywood also has been moderately active, yet excess production has held the price at $58 per thousand board feet, a full $10 below the year-ago quotation. . . . Western steel production, supported by the strong pace of heavy construction activity, has shown very little letup from its early-1965 record pace in the aftermath of a fourmonth postponem ent of a nationwide strike deadline. Production through mid-June was running a full 14 percent above the year-ago pace. , . . M odernization and expansion in the Pacific Northwest forest industry is giving a special boost to struc tural steel demand. Several new sawmills and plywood plants are being built in Washington and Oregon, while almost every pulp and paper producer in the region is now expanding facilities. . . . District department-store sales, in June as in the preceding month, continued to trail substantially behind the national pace. In the four weeks ending June 12, District department-store sales were up only one percent over a year ago, com pared with an 11 -percent increase across the nation. 137 FEDERAL RESERVE BANK OF SAN FRANCISCO Condition Items of All Member Banks — Twelfth District and Other U. S. Bi l l i ons of D o l l a r s 300 200 ^ i ■.1 | 40 2 H H i S H I m ... 1955 1957 1959 20 1961 1963 2 m m w m m m m 1955 1965 ....... h i m 1957 n i l H iw ^ H B H M H U H a g a r 1959 1961 1963 20 1965 Source: Federal Reserve B ank of San Francisco. (E nd-of-quarter d a ta shown through 1962, and end-of-m onth d a ta thereafter; d a ta not adjusted for seasonal v ariation.) B A N K IN G A N D CREDIT STATISTICS A N D BUSINESS IN D EX ES— TWELFTH DISTRICT1* (Indexes: 1957-1959 = 100. Dollar amounts in millions of dollars) Condition items of all member banks1 Seasonally Adjusted Year and Month Loans and discountss U.S. Gov’t. securities Demand deposits adjusted* Total time deposits Bank rates Bank on debits short-term Index business 31 cities5,6 1oans’, 8 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1903 1964 8,712 9,090 9,264 10,816 12,307 12,845 13,441 15,908 16,612 17,839 20,344 22,915 25,561 6,477 6,584 7,827 7,181 6,269 6,475 7,872 6,514 6,755 7,997 7,299 6,622 6,492 10,052 10,110 10,174 11,386 11,580 11,384 12,472 12,799 12,498 13,527 13,783 14,125 14,450 7,513 7,994 8,689 9,093 9,356 10,530 12,087 12,502 13,113 15,207 17,248 19,057 21,300 59 69 71 80 88 94 96 109 117 125 141 157 169 1964 May June July August September October November December 24,126 24,443 24,912 24,965 25,282 25,165 25,339 25,561 6,493 6,380 6,161 6,212 6,480 6,519 6,685 6,492 14,199 14,376 14,369 14,377 14,689 14,587 14,503 14,450 19,813 19,896 20,152 20,235 20,473 20,602 20,792 21,300 168r 169r 168r 172r 167r 170r 172r 168r 1965 January February March April May 25,853 26,120 26,539 26,525 26,755 6,337 6,659 6,538 6,212 6,183 14,430 14,453 14,714 14,405 14,365 21,669 21,878 21.996 22,184 22,211 179 176 181 180 182 3.95 4.14 4.09 4.10 4.50 4.97 4.88 5.36 5.62 5.46 5.50 5.48 5.48 5.46 5.51 5.48 ••• 5.44 ... Industrial production (physical volume)® Total nonagricultura 1 employ ment Dep’t. store sales (value)* Lumber 84 86 85 90 95 98 98 104 106 108 113 117 120 73 74 74 82 91 93 98 109 110 115 123 129 139 101 102 101 107 104 93 98 109 98 95 98 103 109 90 95 92 96 100 103 96 101 104 108 111 112 115 92 105 85 102 109 114 94 92 102 111 100 117 132p 119 119 119 120 120 121 121 122 139 137 141 143 137 139 150 142 106 105 113 107 108 111 106 106 112 114 115 118 121 117 113 115 139 131 121 p 121p 129p 132p 149j> 140p 122 123 123 123 151 146 140 134 110 109 119 116 117 119 137p 142p 150p 149p 147p Refined* Petroleum Steel8 1 Adjusted for seasonal variation, except where indicated. Except for banking and credit and department store statistics, all indexes are based upon data from outside sources, as follows: lumber, National Lumber Manufacturers’ Association, West Coast Lumberman's Association, and Western Pine Asso ciation; petroleum, U.S. Bureau of Mines; steel, U.S. Department of Commerce and American Iron and Steel Institute; nonagricultural employment, U.S. Bureau of Labor Statistics and cooperating state agencies. 2 Figures as of last Wednesday in year or month. 5 Total loans, less valuation reserves, and adjusted to exclude interbank loans. * Total demand deposits less U,S. Government deposits and interbank deposits, and less cash itemsi n process of collections. 5 Debits to demand deposits of individuals, partnerships, and corporations and states and political subdivisions. Debits to total deposits except interbank prior 1942. e Daily average. 7 Average rates on loans made in five major cities, weighted by loan size category. * Not adjusted for seasonal variation. ‘Banking data have been revised using updated seasonal factors. Monthly data from 1948 available on request from the Research Department of this Bank. p —Preliminary. r —Revised. 138
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