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MONTHLY REVIEW TWELFTH F E D E RA L RESERVE DISTRICT F e d e r a l r e s e r v e Ba n k o f S a n F r a n c is c o March 1953 REVIEW OF BUSINESS CONDITIONS u s in e s s activity in the Twelfth D istrict showed signs B of substantial strength during the first quarter of this year. Employment, except for some m inor variations, had a strong undertone and exceeded last year’s firstquarter level by a good margin. The dollar volume of construction for which permits were issued moved far ahead of last year. This reflects an increase in housing demand, a relaxation of controls over construction com pared with a year ago, and unusually favorable weather for building in the early part of this year. Retail sales also expanded, but the variations in experience among different lines did not leave all retailers uniformly happy. Department store sales ran well ahead of 1952, with ap parel and television leading the list. Although new auto mobile sales were generally good, the market for used cars was dull. The continued rise in business activity was accom panied by a substantial demand for bank credit that pre vented commercial and industrial loans from declining as much as would be expected on a seasonal basis. Income tax payments drew down privately-held demand deposits in about the same proportions as in the first quarter of 1952. The trend of over-all business activity in both the Twelfth District and the nation has been favorable so far this year. W hile this was in accord with the expectations of most people, it does not necessarily furnish an assur ance of a rapidly rising level of business throughout the balance of the year. Variations in sales experience among different retail trade lines ought not to be overlooked. Nor should one take lightly the uncertainties in the eco nomic outlook created by such things as the revitalized Korean peace negotiations and the prospective changes in tax rates and in Federal spending. District nonagricultural employment ahead of last year Nonagricultural employment in the Twelfth District rose almost 5 percent in January and February over the corresponding level last year. M ost of the gain occurred in manufacturing, trade, and finance, real estate, and in surance lines. Mining enterprises reported the smallest increase over last year, up about 1 percent. Curtailment of lead and zinc operations and a moderate reduction in coal mining offset gains in the extraction of copper, pe troleum, and minerals. The over-all changes in employment conceal some sig nificant differences in behavior among different areas of the District, however. The Intermountain area had the largest relative gain over last year, reflecting a substan tial rise in aircraft employment in Arizona and good gains in construction and trade in Arizona and Utah. California ranked second in relative increases. Manufac turing led the rise in nonagricultural employment in Cali fornia with sharp increases in aircraft, electrical machin ery, and fabricated metals. Significant gains also oc curred in trade establishments, construction firms, and finance, real estate, and insurance lines. In the Pacific Northwest the increases were much smaller because of adverse weather conditions, power shortages, failure of the lumber industry in Oregon to recover to last year’s levels, and the completion of some contracts at metal fab ricating plants, particularly in Oregon. On a seasonally adjusted basis the changes from month to month so far this year have been rather variable. In January employment moved up by a considerable margin over December 1952 after discounting seasonal differ ences. Manufacturing, construction, retail trade, and the finance group of industries all had significant gains. In February, however, there was almost no change in the District level of employment, while the Pacific N orth west lost some ground. Failure of the lumber industry to expand activity as rapidly as usual and some slowness in the metal industries accounted for the decline from the January level. In most other areas of the District the rise from January to February exceeded the usual seasonal pickup by a small margin, with manufacturing contrib uting most of the gain. Government employment, which had expanded sharply in the two-year period from June 1950 to June 1952, dropped slightly on a seasonally ad justed basis. A lso in This Issue Consumer Credit In the Current Economic Setting Member Bank Earnings and Expenses— Twelfth District, 1952 42 FEDERAL RESERVE B A N K OF SA N FRANCISCO Exam ination of the areas of weakness in February coupled with developments in early M arch show some promise for further gains in employment during the next few months. Lum ber activity should show substantial improvement as the indicated expansion in construction on a nation-wide basis takes hold. Employment in con struction activity should rise as the spring and summer months bring more favorable weather. Expanding retail sales so far this year hold some promise for a good level of trade employment. Some gains may also occur at banks and insurance companies, which apparently still have a need for more workers. In contrast to these prospects, some decline is likely in Government employment during the next three months as planned cuts in Federal military and civilian agency jobs are achieved. Construction expa n ds as controls fade out The question as to how much effect the ultimate sus pension of m aterial controls and specific limitations on some types of building would have upon construction ac tivity was a topic of debate during much of 1952. The nature of the answer is evident from the rapid rise in Twelfth D istrict building permits. During January and February, the dollar volume of construction authorized by building permits in the District exceeded the same months last year by more than 25 percent. A strong upswing in the building of long-delayed shopping centers, stores, amusement places, and factories and office buildings con tributed a large part of the increase. Outlays for schools, public building of various types, and service projects also continued to grow. As a result nonresidential construc tion in the D istrict averaged 43 percent more in January and February than it did a year ago, primarily as a re sult of a large dollar volume increase in California. Home construction also increased substantially, although it slipped temporarily into the background because of the unusually large gains in nonresidential building. Resi dential units authorized in the District in January and February outdistanced last year’s volume by 20 percent. Building permit data for the District, which are avail able only for the first two months of this year, indicate that construction is considerably more active in the Dis trict than in the country as a whole. National data, which are available for the first quarter, indicate that total con struction authorized was 5 percent larger than in the first three months of 1952, and the gain in nonresidential construction was about the same. Commercial building advanced by more than two-fifths, however, and social and recreational building by almost one-fifth. The num ber of actual housing starts in the first quarter was about as large as in the corresponding year-ago period. W ithin the District, the largest relative increase came in Nevada, reflecting the start of a $3 million housing project at Las Vegas. The dollar volume of building per mits in Idaho and U tah also moved up sharply, with housing playing an im portant role. California, which ac counts for the bulk of the D istrict’s volume of building permits, recorded a more modest relative gain than the M arch 1953 other states already mentioned, but nonresidential build ing surpassed housing in the rate of increase. The per centage increase in Oregon fell only a little below the District average, with nonresidential permits taking the lead. Arizona and W ashington reported comparatively minor gains over January and February of 1952. Department store sales ahea d of last year Increased income, somewhat less restraint in spend ing by consumers, and the opening of television in a few cities all combined to boost departm ent store sales in the District above last year’s level. In January and February the District sales index averaged about 8 percent more than a year ago. Increased buying of clothes by both sexes added a considerable volume, and television sales in Portland, Spokane, and a few other areas made a sub stantial addition. The fact that pre-Easter sales in M arch ran well ahead of last year contributed to department store executives’ expectation of a record first quarter. Despite the brightness of the over-all picture, appliance and furniture sales had a spotty record. Activity in these lines varied sharply from week to week, and consumers seemed quite bargain conscious in their shopping. Dem and for bank loans greater this year than last In both the Twelfth District and the nation the de mand for bank loans in the first: quarter was greater this year than last. Total loans outstanding at weekly report ing District member banks increased moderately in the first quarter compared with a small decline a year ago. Real estate loans rose more rapidly than last year, and consumer loans continued to increase in contrast to a minor reduction in 1952. Although the volume of com mercial, industrial, and agricultural loans outstanding fell off somewhat, the decline wras considerably less than would be expected on a seasonal basis. A substantial in crease in their volume around mid-M arch probably re flected some borrowing for income tax purposes. A gri cultural loans have risen more this year than last as a result of a greater volume of Commodity Credit Corpo ration loans extended in price support operations. The evidence furnished by weekly reports from Dis trict banks classifying their m ajor loans by industry in dicates that the m ajor expansion in credit has gone to firms in the metals and metals products industries, sales finance companies, and wholesale and retail trade organ izations. Loans to most of the other m ajor industries de clined during the first quarter. In order to satisfy their reserve requirements and meet, the substantial demand for loans, D istrict member banks had to dispose of more Government securities than they did in the first quarter of 1952. The relative decline was not as great in the Twelfth District, however, as in the country as a whole. As a result total loans and invest ments of weekly reporting member banks remained vir tually unchanged during the first quarter in the District but declined about 3 percent in the country as a whole. M arch 1953 43 M O N T H L Y REV IEW CONSUMER CREDIT IN THE CURRENT ECONOMIC SETTING rapid advance in consumer instalment credit dur ing the last several months has come at a time when increasing concern has been manifest regarding the course of economic activity in the next year or so. Special atten tion is directed to that as yet somewhat indefinite time when defense expenditures will level off and may start to decline. These prospects taken in conjunction with the rise in instalment credit have brought forth a flood of comment and criticism regarding the entire question of consumer credit. Questions have been raised concerning the ability of consumers to handle the servicing and eventual retirement of their large outstanding obliga tions. Moreover, considerable concern has been expressed over the potentially adverse effects of a heavy consumer debt position should the trend of business activity turn downward. A decline in business activity would result in a falling off in employment and income, and consequently would increase the burden upon family budgets of pay ing off the instalment debts created earlier. Moreover, the necessity for making these payments would reduce the amount of buying that could be done out of current income, thus aggravating the decline in business activity. The outstanding volume of consumer credit started to rise very sharply immediately after the removal of in stalment credit curbs last May and reached a record of $24 billion at the end of December. In the relatively short space of not quite eight months, consumers added more than $3 billion to their short-term obligations, incurred largely to finance their purchases of automobiles and m ajor items of household durable equipment. Instalment credit, with which this discussion is most concerned, has continued rising in the early months of the current year and in February reached $16.7 billion, up $3.4 billion since April 1952 and more than four times the level out standing at the end of 1946. The questions that this rise in outstanding instalment credit has brought to the fore are complex and not easily answered. On the basis of historical relationships be tween consumer debt, incomes, and liquid asset holdings, it does not appear that the rise in outstandings has been excessive. P ast experience may be misleading, however, unless consideration is given to the differing economic climates in the various periods being compared. It is true that the economy absorbed a large rise in instalment credit without upsetting the over-all stability of prices and em ployment during 1952. The prospects of a leveling off and ultimately of a decline in defense spending, however, create uncertainties in the current economic situation which were not so imminent last year. The implied threats to economic stability which are attached to these uncertainties make it imperative to watch with care the current volume of consumer as well as other types of credit and the uses to which the funds are directed. h e T Outstanding credit volume relative to consumer income Much of the concern over the volume of credit ex tended to consumers stems from the tendency on the part of some people to consider only the absolute dollar amount of the instalment debt and to overlook its relationship to other significant factors. Going into debt represents only one source of funds for consumer purchases of wanted goods and services. A t all times the m ajor share of con sumption expenditures is financed out of current income. Also, past incomes not spent and held in the form of liquid assets (currency, deposits, savings and loan shares, and Government securities) are a potential fund for cur rent consumption purposes or for the retirement of out standing obligations. It is important, therefore, that the dollar volume of consumer obligations be considered in relation to the level of current income and the over-all financial situation of consumers. Consumer instalment debt outstanding at the end of 1952 represented about 7 percent of consumer income after taxes during 1952.1 Total consumer credit at the same time was a little less than 10 percent of disposable income. The ratio of instalment debt to income receipts has risen substantially since its low point of W orld W ar II and is now back to the approximate level which was typi cal of the period of the late 1930’s. Much of the postwar rise has been due to the tremendous backlog of demand for durables that existed after the war, coupled with the substantial rise in prices. The high rates of population increase and of family formation with the consequent boom in new residential construction were other impor tant factors affecting the demand for durable goods and therefore the demand for consumer credit. Also of considerable significance is the decline in the total of combined long- and short-term debt of individ uals and unincorporated businesses relative to disposable *A m ore realistic m easure of th e burden of consum er debt would involve relating th e size of m onthly paym ents to the am ount of family income. U n fortunately, how ever, lim itations on the availability of reliable statistical d a ta m ake a system atic tre a tm e n t of this type impossible. C hanges in the prevailing term s of in stalm ent contracts from tim e to tim e have an im p o rta n t bearing upon the size of m onthly paym ents and, consequently, upon the burden of consum er deb t w hen m easured in this m ore realistic way. RATIO OF CON SU M ER C R ED IT OUTSTANDING TO DISPOSABLE PERSONAL IN C O M E — 1939-1952 Percent 81...... 11.... 11 "" ' 1' I r 6 rr 'i.. i r i i.... i i - 4- 2 - Ol.... I 1939 40 I 41 f___ 1-----142 43 44 I 1 1 1 l, \. 1 45 46 47 43 49 50 51 52 S o u rc e : U n ited S ta te s D ep artm en t of Com m erce and B oard of G overnors of the Federal R eserve System . 44 FEDERAL RESERVE B A N K OF SA N FRA N C ISC O personal income (which includes income of unincorpo rated business). Although all classes of these debts, in cluding mortgage debt as well as all forms of short-term obligations, have increased steadily over the postwar years, their total has not grown as rapidly as incomes. Consequently, the ratio of total debt to disposable income has fallen from almost 69 percent in 1939 to 54 percent at the close of 1951. O n the basis of incomplete data, it would appear that this ratio probably has not changed markedly since the end of 1951. If the comparison is lim ited to consumer instalment and residential mortgage debt, then the present ratio of these debts to disposable personal income is approximately at the prewar level. Consum er debt relative to current and accum ulated saving In addition to its size relative to current income, con sumer debt should also be related to such factors as the current rate of saving, holdings of liquid assets, and the distribution of debt among individuals relative to their holdings of liquid assets. Although consumers in the past eight or nine months have been expanding their debt in record amount, they have also been adding heavily to their savings accounts and holdings of other liquid assets. In addition they have increased their equities in other asset forms, such as resi dential real estate, life insurance, automobiles, and other durable consumer goods. This seeming paradox of debt and savings rising sharply side by side—although there is no reason why they cannot—has been fortunate from the standpoint of economic stability over the past six to nine months. The rate of consumer expenditures out of current income has remained low, 92 percent, relative to the experience of most other post-W orld W a r II years and has been a factor of m ajor importance in the stability of 1952. A t the same time consumer expenditures on dur able goods have picked up from earlier periods and have provided a needed stimulus toward increased activity in the consumer durable industries, which were relatively depressed during the latter half of 1951 and the early months of 1952. The proportion of the sales of durable goods financed by new credit extensions rose sharply during 1952 and explains, at least in part, the parallel rise of debt and savings. Personal holdings of liquid assets have also expanded substantially in the years since W orld W ar II. A t the end of 1951 these assets amounted to $186 billion, more than $30 billion greater than at the end of W orld W ar II and nearly four times the holdings in 1939. These assets have been augmented further since the end of 1951, re flecting the high rate of personal saving that has taken place since then. The ratio of liquid asset holdings to personal disposable income, while considerably lower than in the immediate post-W orld W ar II period, is still well above the level of 1939 and 1940. This would indi M arch 1953 cate that consumers are well supplied with potential pur chasing power or are able to convert these holdings for the retirem ent of their outstanding financial obligations should that be necessary. The question naturally arises in any discussion of con sumer credit and liquid assets as to what extent holders of the stock of liquid assets are also the possessors of the outstanding debt. Complete data are not available to an swer this question precisely, but im portant clues are fur nished by the information collected in the Survey of Con sumer Finances conducted annually by the Board of Gov ernors of the Federal Reserve System. These data indi cate that spending units (excluding farmers and business owners) with annual money incomes before taxes of from $3,000 to $7,500 owed 65 percent of all consumer debt in early 1952. All spending units falling within this income range held 43 percent of total personal liquid assets and accounted for 60 percent of total money incomes before taxes. The fact also emerges from the survey that about 30 percent of all consumer spending units had liquid assets equal to or greater than their outstanding con sumer debt. The remaining 70 percent of the spending units had more debt than liquid assets, but holdings of liquid assets were widely distributed among all income levels. Little change is expected in these findings in the 1953 survey recently completed. One very significant pre liminary finding of the 1953 survey, however, is the fact R A T IO S O F P E R S O N A L L IQ U ID A S S E T H O L D IN G S A N D O F T O T A L P R IV A T E N O N C O R P O R A T E D E B T T O D IS P O S A B L E P E R S O N A L I N C O M E — 1939-1951 Percftnt N o te : P ersonal liquid a sse t holdings include currency, dem and deposits, tim e deposits, savings and loan shares, and U n ite d S ta te s G overnm ent securities. T o tal private noncorporate d eb t com prises m o rtg ag e and n o n m o rtg ag e debt of individuals and unincorporated enterprises. S o u rce : U nited S ta te s D ep artm en t of Com m erce and B oard of G overnors of th e F ederal R eserve System . M arch 1953 M O N T H L Y REV IEW that the proportion of consumers who feel their financial situations have improved is somewhat larger than it was in any previous postwar survey. Historical comparison of the ratios of instalment debt to income and to liquid asset holdings does not necessarily imply that all is well just because the ratios have been as high or higher at some earlier date. There are signifi cant differences in the economic climates of the prewar and postwar periods. Considerable unemployment of re sources, both in manpower and machines, existed in the late 1930’s, while in the current period there is full em ployment and relatively fewer people are out of work than at any other time in our history. Aside from some isolated instances, plant capacities are being utilized at a high rate. Also, in the prewar period we were just em barking upon a build-up of our defense establishment with a very favorable outlook for expanded incomes and production. In contrast, the current outlook contains a fairly large element of uncertainty over the course of eco nomic activity after the defense program no longer exerts its upward impetus. Consum er credit fluctuations fend to amplify swings in business activity The basic factor underlying the present concern about consumer credit is its tendency to accentuate the swings in business activity. Consumer instalment credit outstand ing, in the absence of shortages of goods such as occurred during W orld W ar II, expands as income expands and contracts as income contracts. The fluctuations in the outstanding volume of instalment credit, in addition, tend generally to be relatively larger than changes in income from one year to the next. In the years before W orld W ar II there was a close parallel between the annual percent changes in the two indicators, with the percent change in instalment credit exceeding the percent change in income by a small margin. During W orld W ar II and the postwar period, however, this parallelism has not been continued. The disappearance of most durable goods from consumer markets during the w ar caused the vol ume of credit outstanding to decline substantially while at the same time incomes rose. Following the w ar con sumer instalment credit rose sharply as durable goods once again became available, and the annual percentage increases in the outstandings exceeded by a wide margin the percentage growth in personal income. Generally speaking, an increase in the volume of con sumer credit outstanding (that is, where new credit ex tensions exceed repayments on existing debt) represents a net addition to aggregate demand for goods during the period of debt expansion. Conversely, a decline in out standings represents a reduction in the level of demand during the period of debt contraction. Therefore, in a period of declining business activity, the drop in demand for durable and other consumer goods that is associated 45 with the fall in personal income is accentuated by the necessity to make payments on debts previously con tracted. Repayments on the outstanding consumer debt will exceed new credit extensions, which means a con traction of an already falling level of aggregate demand. Furtherm ore, the impact of the decline in demand due to the decreased volume of credit outstanding will fall largely upon the durable goods market, in which sales already will have fallen more than in other sectors of the economy owing to the postponable nature of the demand for such goods. This, very briefly, is the danger involved in the exist ence of a large volume of consumer debt, particularly in stalment debt, at a time when the level of economic ac tivity may decline. It is unfair, however, to single out con sumer credit alone in this regard. Judging from past ex perience, debt owed by the business sector of the economy, particularly term loans, has a similar cyclical behavior and is likely to affect the economy in somewhat the same way as consumer debt. Selective credit controls A number of suggestions have been advanced to elim inate the co-cyclical behavior of the amount of consumer credit outstanding. Since the level of rates charged for consumer credit is such as to make it not especially responsive to changes in over-all monetary policies as reflected in changed reserve requirements, discount rates, and open-market operations, these suggestions generally revolve around the use of some selective credit control mechanism. These selective controls would be utilized so as to tighten credit in an upswing of business activ ity by means of higher down-payment requirements and shortened maturities and the reverse in the case of a downswing. The use of consumer credit controls has met with some resistance arising from questions of their desirability or political feasibility. They have, neverthe less, been used with some success in restraining the growth of credit in past periods of high demand. In the declining phase of economic activity, however, easier credit terms by themselves are not likely to meet with much success in bringing forth a greater volume of con sumer buying. This reflects the fact that consumer pur chasing is based largely upon the level of consumer in come and expectations concerning the future course of that income along with expectations concerning prices and other factors. W hatever form of monetary control is used, whether general or selective, the central problem involved in at tempting to influence the amount of consumer credit ex tended is essentially the same as for other types of credit. Its volume should not rise to such heights as either to stimulate undue inflationary price advances or to restrict future purchases unduly should there be a slackening of business activity. 46 M arch 1953 FEDERAL RESERVE B A N K OF SAN FRANCISCO MEMBER BANK EARNINGS AND EXPENSES — TWELFTH DISTRICT, 1952 I N 1952 the member banks in the Twelfth District en countered the same problem which faced industry in general—they had to keep running faster and faster to stay in the same profit position. Although dollar earnings in 1952 were $79.9 million above 1951, net profits after taxes rose only $3.8 million. Nearly two-thirds of the in creased earnings, or $51.6 million, were taken up by in creased expenses. Over one-fourth of the increase in earnings, or $21.1 million, was absorbed by income taxes. Another 4 percent of the increased earnings was required to pay for losses on loans and investments. Of the $3.8 million increase in profits after taxes, less than $1 mil lion went to stockholders in dividends, the rest being re tained by the banks. Although the rate of return on mem ber bank capital declined slightly, it continued to exceed 10 percent. This decline was confined to the larger banks; the smaller banks had a somewhat higher rate of return than in 1951. The problem of running faster to stay in the same place is pointed up by the fact that since 1950 total earnings have increased by $141.9 million while net profits after taxes have risen by only $5.8 million. Expenses absorbed 64 percent of total current earnings of member banks in the Twelfth District last year com pared with 61 percent in the country as a whole. Net losses on loans and investments, including transfers to reserves, were equivalent to 4 percent of total earnings, both in the Twelfth D istrict and the nation, but the changes from 1951 were in opposite directions in the two areas. W hile losses in the D istrict increased by $3.3 million above 1951, they declined in the United States by $17 million. Income taxes absorbed approximately 15 percent of total current earnings both in this D istrict and nationally, but net profits after taxes were 18 percent of earnings in this District compared with 20 percent in the nation as a whole. the total dollar volume of profits has increased during this period. Total earnings have increased very greatly since 1945, but most of this increase has been taken up by increased expenses, increased provision for losses on loans and securities, and particularly by taxes. Expenses have actually been well controlled in relation to earnings, with the result that they are the same percent of total earn ings today as they were in 1945. There has been little vari ation in this relationship throughout the postwar period. Net profits before taxes, on the other hand, have declined from 38 percent of total earnings in 1945 to 32 percent last year. This decline has resulted primarily from the creation of larger reserves for losses during the period, particularly in the setting up of a tax-free reserve for bad debt losses provided for under a Bureau of Internal Rev enue ruling of December 1947. The most significant change has occurred in net profits after taxes which have declined from 28 percent of total earnings in 1945 to 18 percent in 1952. Because bank capital accounts have been built up during the postwar period and because profits as a percent of total earnings have declined as reserves for losses and taxes have increased, there has been a down ward drift in the rate of return on capital from approxi mately 12 percent to about 10 percent. In the nation as a whole, the rate of return on capital has similarly declined from the record year of 1945, most of the decline having taken place from 1946 to 1947. Earnings on loans continue to rise The m ajor increase in Twelfth District earning assets during the past year has been in loans. The higher rate earned on this larger volume of loans was reflected in an increase of more than $50 million in earnings on loans. Holdings of Government securities, on the other hand, Rate of return on capital has declined since 1945 E a r n in g s a n d E x p e n s e s o f T w e l f t h D is t r ic t M em ber B a n k s The rate of return on capital earned by District mem ber banks has generally declined since 1945, although E A R N IN G S , E X P E N S E S , A N D P R O F IT S (m illio n s o f dollars) Percent change 1951-52 + 13 1950 320.7 1951 377.2 1952p 427.8 106,5 24.6 36.3 15.4 30.1 100.4 28.5 39.8 16.3 33.4 118.0 33.1 43.3 17.9 35.5 T o tal earnings ......... ........................ .. 533.6 595.6 675.5 + 13 Salaries and w a g e s ................................ In te re s t on tim e d e p o sits..................... O th e r e x p e n s e s ......................................... 162.8 71.4 97.1 182.2 92.3 103.1 203.5 109.5 116.3 + 12 + 19 + 13 T o tal e x p e n s e s .................................... 331.3 N e t cu rre n t earnings ........................... 202.3 N e t recoveries and profits (losses— ) O n s e c u r itie s ......................................... — 0.4 O n loans ................................................— 17.7 O th e r ...................................................... + 1.3 377.7 217.9 429.3 246.2 + 14 — 6.4 — 19.3 + 0 .3 — 10.0 — 16.7 — 2.4 T o tal n e t recoveries and p r o f its .. . — 16.8 E arn in g s on l o a n s .................................. In te re s t and dividends on G overnm ent s e c u r itie s ....................... O th e r s e c u r it ie s .................................. Service charges on deposit acco u n ts. T ru s t dep artm en t e a r n in g s .................. O th e r e a r n in g s ......................................... + + + + + 17 16 9 10 6 + 13 — 25.4 — 28.7 N e t profits before income t a x e s . . . . T axes on n e t incom e ........................... 185.5 72.5 192.5 77.5 217.4 98.6 + 13 + 27 N e t profits afte r t a x e s ......................... Cash dividends d e c l a r e d ....................... U n d istrib u ted profits ............................ 113.0 57.5 55.5 115.0 64.7 50.4 118.8 65.6 53.2 + + + p 3 1 6 Prelim inary. N o te : B ecause of rounding, com ponent item s m ay no t add to t o t a l s p e r c en t changes are based on the original unrounded figures. M arch 1953 R to C a p it a l a r n in g A sse t s a t io s E 47 M O N T H L Y REV IEW A — T c c o u n ts w e l ft h a n d D R a tes is t r ic t M R of em ber R atios to capital accounts N et c u rre n t earnings All banks ................................................................................. 15 larg est .................................................................................. O t h e r .......................................................................................... N et profits after taxes All banks ................................................................................. 15 l a r g e s t ................................................................................. O t h e r .......................................................................................... R ates of re tu rn on Loans All banks ................................................................................. 15 l a r g e s t ................................................................................. O t h e r .......................................................................................... G overnm ent securities All b a n k s ................................................................................... 15 l a r g e s t ................................................................................. O t h e r .......................................................................................... e t u r n B o n 1Q_1 1Q„ 19.9 20.4 17.7 21.1 21.7 18.6 10.5 10.8 9.2 10.2 10.4 9.4 5.1 5.0 5.4 5.3 5.2 5.7 1.7 1.7 1.7 1.8 1.8 1.8 N ote : R atios com puted from dollar totals, n o t by averaging individual bank ratios. B alance sheet item s used are averages of am ounts rep o rted as of D ecem ber 31, 1951, Ju n e 30, 1952, and S eptem ber 5, 1952. expanded relatively little and the impact of higher inter est rates during the year was not marked. As a result, earnings from Government securities increased by only $18 million. The same earning pattern is apparent for all member banks, two-thirds of the national increase in earnings having come from loans. Nationally, loans con tributed 55 percent of member bank earnings in 1952 compared with 63 percent in the Twelfth District. Expenses and faxes increase All components of expenses rose in 1952, with interest on savings deposits having the largest percentage in crease. The largest dollar gain occurred in salaries and wages. Net losses, primarily on securities, also increased. This may have originated in the necessity to sell Gov ernment bonds on a declining market in order to obtain loanable funds and reserves or to establish tax losses. Despite the more rapid increase in expenses than earn ings, net profits before taxes increased by $24.9 million. The reason for only the moderate gain of $3.8 million in net profits is the rise in income tax payments which took 85 percent of the increment in net profits before taxes in 1952. Taxes on net income have increased so sharply as a result of a variety of factors. Additions to valuation re serves for loan losses have in many cases reached the al lowable ceiling for tax purposes, that is, three times the average loss experience over the past twenty years. In P erc en t E a n k s x p e n se C h a n g e s It e m s , of 1951-52, T by S iz e S in D w e l ft h G elected is t r ic t E a r n in g s em ber B a n d a n k s ro up All banks In te re s t and dividends on G overnm ent securities .................. O th e r s e c u r it ie s ................................ T o tal earnings ....................................... Salaries and w a g e s .............................. In te re s t on tim e deposits ................ .............. .............. .............. .............. .............. .............. N e t cu rre n t earnings ......................... .............. Profits before tax es ........................... .............. T axes on net in c o m e ......................... .............. Cash dividends .................................... .............. 15 largest banks + 13 +17 +16 +13 +12 +19 +14 +13 +13 + 3 + 1 + + + + + + + + + + + 17 16 13 11 17 13 13 13 29 2 0.4 O ther banks + 15 +20 + 18 + 15 + 13 +28 + 16 + 13 + 14 +21 + 9 + 9 future years such reserves for losses will not decrease tax able income since the ceiling is based upon a twenty-year moving average. This average presently includes the highloss years of the early thirties and as these years drop out and the low-loss years of the forties and early fifties are included, the reserves already accumulated will permit current losses to be absorbed without any corresponding replacement in reserves since the reserve ceiling will de cline. Taxes also increased over 1951 because of greater volume of income, a higher normal tax rate, and, for some banks, the impact of the excess profits tax. Although in come taxes took 85 percent of the increase in profits before taxes in 1952, only 45.4 percent of total net profits was paid out in such taxes. This compares with the average of 40 percent in 1951. On a national basis member banks paid income taxes averaging 42 percent of their total net profits but only 62 percent of the increase in profits over 1951. Differences between large and small banks The experience of the 15 largest banks in the Twelfth District differed somewhat from that of the smaller banks. The larger banks have a higher rate of profits on capital. This reflects the fact that they have a greater proportion of their assets invested in loans, which yield more than other types of investments. The margin between profits of small and large banks narrowed last year as a result of a more rapid increase in earnings and a smaller increase in taxes on net income for the smaller banks. The most con spicuous difference in expenses last year was the very large increase in interest payments on time deposits by the smaller banks. SOURCES AND USES OF EA CH DOLLAR OF IN CREA SE IN EARN IN G S T W E L F T H D ISTRICT M EM BER BANKS. 1951*1952 Sources of Earnings M Ui m of Earnings 48 M arch 1953 F E D E R A L R E S E R V E B A N K O F S A N F R A N C IS C O BUSINESS INDEXES—TWELFTH DISTRICT1 (1947-49 average = 100) In d u s tria l p ro d u c tio n (p h y s ic a l v o lu m e )2 t ear Da4>na Iai a»% < % 1 and m o n th Lum ber 1929 1931 1933 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 97 51 41 54 70 74 58 72 79 93 93 90 90 72 85 97 104 99 112 114 107 87 57 52 62 64 71 75 67 67 69 74 85 93 97 94 100 101 99 98 106 107 78 55 50 56 61 65 64 63 63 68 71 83 93 98 91 98 100 103 103 112 116 1952 Jan u a ry F ebruary M arch A pril M ay Ju n e Ju ly A ugust Septem ber O ctober N ovem ber D ecem ber 93 107 108 110 94 117 108 106 109 116 105 99 106 106 106 107 108 107 107 107 107 107 107 108 1953 Jan u a ry 116 107 C ru d e W heat flour* T o ta l nonagri T o ta l C a r R etail D e p 't m f ’g loadings store TO O C I c u lt u r a l E le c t r ic e m p lo y e m p lo y ( n u m sales prices •» 5* 14 power ber)* m ent m e n t4 (v a lu e )2 Lead* Copper* 54 36 27 33 58 56 45 56 61 81 96 79 63 65 81 96 104 100 112 128 124 165 100 72 86 96 114 92 93 108 109 114 100 90 78 70 94 105 101 109 89 86 105 49 17 37 64 88 58 80 94 107 123 125 112 90 71 106 101 93 115 115 112 90 86 75 87 81 84 81 91 87 87 88 98 101 112 108 113 98 88 86 95 96 29 29 26 30 34 38 36 40 43 49 60 76 82 78 78 90 101 108 119 136 144 111 113 115 114 114 116 116 122 122 117 118 114 94 112 113 120 129 126 125 131 131 142 133 126 88 104 96 95 89 87 68 81 78 80 85 78 109 109 115 117 116 112 106 105 112 115 116 111 112 105 90 88 87 84 90 103 99 96 97 96 115 105 78 109 99 R e fin e d C e m e n t ÌÓÓ 101 96 95 99 102 99 103 110 114 **47 54 60 51 55 63 83 121 164 158 122 104 100 102 98 105 119 127 102 68 52 66 77 81 72 77 82 95 102 99 105 100 101 106 100 94 97 100 101 30 25 18 24 28 30 28 31 33 40 49 59 65 72 91 99 104 98 105 109r 114 64 50 42 4S 48 50 48 47 47 52 63 69 68 70 80 96 103 100 100 113 115 142 139 142 141 147 150 150 153 145 146 141 138 113 113 112 112 112 113 114 114 114 115 116 116 122 124 125 126 125 126 127 129 128 130 130 130 86 101 100 106 98 108 96 101 108 98 102 100 106 108 103 106 118 114 110 116 114 118 128 119r 116 114 114 116 115 115 114 114 114 113 114 115 141 117 131 94 116 114 W a te rb o rn e foreign trade*’ * E x p o r ts Im p o r ts 190 138 110 135 131 170 164 163 132 124 80 72 109 116 119 87 95 101 ‘ *89 129 86 85 91 186 ‘ *57 81 98 121 137 157 199 183 208 210 185 207 187 144 153 142 145 135 146 138 157 143 143 182 187 293 253 319 194 232 BANKING AND CREDIT STATISTICS—TWELFTH DISTRICT (amounts in millions of dollars) C o n d itio n Item s of all m e m b e r b a n k s 7 Year and m o n th Loans U .S. D em and and deposits G o v ’t d is c o u n ts s e c u ritie s adjusted* To ta l t im e deposits 1929 1931 1933 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 2,239 1,898 1,486 1,537 1,682 1,871 1,869 1,967 2,130 2,451 2,170 2,106 2,254 2,663 4,068 5,358 6,032 5,925 7,105 7,907 8,844 495 547 720 1,275 1,334 1,270 1,323 1,450 1,482 1,738 3,630 6 ;235 8,263 10,450 8,426 7,247 6,366 7,016 6,392 6,533 6,627 1,234 984 951 1,389 1,791 1,740 1,781 1,983 2,390 2,893 4,356 5,998 6,950 8,203 8,821 8,922 8,655 8,536 9,244 9,940 10,504 1,790 1,727 1,609 2,064 2,101 2,187 2,221 2,267 2,360 2,425 2,609 3,226 4,144 5,211 5,797 6,006 6,087 6,255 6,256 6,720 7,522 1952 F eb ru ary M arch A pril M ay June Ju ly A ugust Septem ber O ctober N ovem ber D ecem ber 7,760 7,787 7,850 7,921 8,062 8,114 8,270 8,444 8,605 8,805 8,844 6,413 6,378 6,313 6,238 6,258 6,507 6,469 6,473 6,765 6,808 6,627 9,420 9,426 9,408 9,306 9.501 9,643 9,679 9,908 10,125 10,281 10,504 6,900 6,915 6,924 6,985 7,083 7,143 7,197 7,249 7,336 7,331 7,498 1953 J an u a ry F eb ru ary 8,816 8,838 6,633 6,474 10,390 9,911 7,490 7,551 Bank rates on s ho rt-term business lo an s' M e m b e r b a nk reserves an d related Ite m s 10 Reserve ba nk c re d it11 __ + 3.20 3.35 3.66 3.95 3.94 3.95 3.96 3.95 34 21 2 2 + 6 + — 1 — 3 2 + 2 + 4 + + 107 + 214 98 + 76 9 + — 302 17 + 13 + 39 + — 21 7 + C o in and C o m m e rc ia l T re a s u ry c u rre n c y In op e ra tio n s 13 o p eratio ns1* c ir c u la t io n 11 0 - 154 - 110 - 163 - 227 90 - 240 - 192 - 148 - 596 -1 ,9 8 0 -3 ,7 5 1 -3 ,5 3 4 -3 ,7 4 3 -1 ,6 0 7 - 510 + 472 - 930 -1 ,1 4 1 -1 ,5 8 2 -1 ,9 1 2 + 23 + 154 + 150 + 219 + 454 + 157 + 276 + 245 + 420 +1,000 +2,826 +4,486 +4,483 +4,682 +1,329 + 698 - 482 + 378 +1,198 +1,983 +2,265 + — + + — + + — + + — 180 309 176 52 211 45 213 230 236 72 299 - 109 17 237 174 97 208 126 153 294 29 240 + + + + + + + + + + Ill 272 102 185 190 288 163 213 267 79 422 + + 138 83 - 263 119 + - 136 13 + + + + + + + + + + + + + + + + B a n k deblts Index 31 eitles*» »* Reserves (1 9 4 7 -4 9 100)* 6 48 18 14 38 3 20 31 96 227 643 708 789 545 326 206 209 65 14 189 132 175 147 185 287 479 549 565 584 754 930 1,232 1,462 1,706 2,033 2,094 2,202 2,420 1,924 2,026 2,269 2,514 42 28 18 25 30 32 29 30 32 39 48 61 69 76 87 95 103 102 115 132 140 20 7 13 49 29 7 49 4 32 34 12 2,365 2,313 2,341 2,347 2,209 2,333 2,535 2,363 2,527 2,616 2,514 138 139 135 128 144 134 134 144 146 141 157 77 22 2,565 2,491 146 148 1 A djusted for seasonal variation, except where indicated. Except for departm ent store statistics, all indexes are based upon d a ta from outside sources, as follows: lum ber, various lum ber tra d e associations; petroleum , cem ent, copper, and lead, U.S. B ureau of M ines; w heat flour, U.S. B ureau of the Census; electric power, Federal Power Commission* nonagricultural and m anufacturing em ploym ent, U.S. B ureau of Labor S tatistics and cooperating state agencies; retail food prices, U.S. B ureau of Labor Statistics; carloadings, various railroads and railroad associations; and foreign trad e, U.S. B ureau of the Census. * D aily average. * N o t ad ju sted for seasonal variation. 4 Excludes fish, fruit, and vegetable canning. 8 Los Angeles, San Francisco, and Seattle indexes combined. * C om m ercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and W ashington custom s d istricts; s tartin g w ith Ju ly 1950, “ special category” exports are excluded because of security reasons. 7 A nnual figures are as of end of year, m onthly figures as of la st W ednesday in m o n th or, where applicable, as of call report date. 8 D em and deposits, excluding in terb an k and U.S. G ov’t deposits, less cash item s in process of collection. M onthly d a ta p a rtly estim ated. 8 Average rates on loans m ade in five m ajor cities during the first 15 days of th e m onth. 10 E n d of y ear and end of m o n th figures. 11 C hanges from end of previous m onth or year. 11 M inus sign indicates flow of funds o u t of the D istrict in th e case of commercial operations, and excess of receipts over disbursem ents in the case of T reasury operations. “ D ebits to to ta l deposit accounts, excluding in ter-b an k deposits. 14 R etail food prices reflect Jan u a ry 1953 Consum er Price Index revisions. r—revised.
@FedFRASER