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M TWELFTH FEDERAL RESERVE O N T H L Y R E V I E W DISTRICT F e d e r a l R e s e r v e B a n k o f S a n F r a n c is c o M arch 1955 REVIEW OF BUSINESS CONDITIONS activity in the opening months of the year continued the uptrend underway since last fall. The over-all gains have been substantial in both the Twelfth District and the nation. District gains have tended gener ally to exceed those for the country as a whole. While it is not possible to draw comparisons between District and national developments in many cases, owing to a lack of comparable statistical sources, the general trend of devel opments appears markedly similar in the two economies, and essentially the same factors dominate the current situation in both areas. District nonagricultural employ ment, particularly in durable goods manufacturing, con struction activity, and retail sales (as reflected by sales of department stores) has risen from the levels established in the late months of last year. Nationally, industrial pro duction, employment, business sales and new orders, and construction expenditures have all moved up, in some cases to new record levels. This is in contrast with developments at this time last year when general levels of business were still declining. As a result the difference in outlook between the present and the same time last year is quite marked. The current period is characterized by a fairly high degree of optimism while last year at this time a considerable degree of un certainty was prominent. Current optimism is heavily in fluenced by the large growth in the prospective needs and requirements of an expanding population and industrial plant. The principal factors behind the continuing improve ment in the level of general business activity are added expenditures on nearly all types of new construction, a continued high level of consumer spending, a favorable turn in the rate of inventory investment, a strong rate of new orders, and an upturn in outlays for capital equip ment. B u s in e s s Employment reaches new high Rising levels of over-all economic activity are reflected in the continued advance in employment in District indus tries. Total nonagricultural employment, after seasonal adjustment, rose to a new high in March, exceeding by a narrow margin the previous peak reached in July 1953. The March gain raised nonagricultural employment to a level more than 2 percent above March a year ago and about 3.5 percent above the recessionary low of last August. In the nation, nonagricultural employment in creased 0.6 percent from March 1954 to March 1955 and 1.7 percent from its low point last year. The principal year-to-year employment advances in the District have occurred in manufacturing, in government, and in the finance, insurance, and real estate group. A modest gain in jobs has also taken place in trade, service, and mining. In March, contract construction employment, which has shown an unfavorable year-ago comparison since early last year, nearly equaled the number at work in March 1954. Moreover, the margin by which employ ment was below the year-ago level had narrowed signifi cantly in the three months preceding March, reflecting the continued growth in construction outlays throughout this period. Among the manufacturing industries, those producing durable goods have shown the sharpest advances. A marked rise in employment at District auto assembly plants following model changeovers and added jobs in the aircraft industry account for a major portion of recent gains. Substantial employment gains in the lumber indus try, especially in the Pacific Northwest, have also been a significant factor in the economic recovery thus far. A d verse weather in early March slowed lumbering activity in Oregon and Washington, a contrast with the favorable cli matic conditions that had prevailed during much of this winter when the woods are normally shut in. A continued record level of new residential construction and the expan sionary influence of order backlogs created during last summer’s prolonged lumber strike account for the basiAlso in This Issue Earnings and Expenses of Twelfth District Member Banks, 19 5 4 . 51 Government Agricultural Supply and Market Expansion Programs for 19 5 5 and Twelfth District Agriculture . . 53 Prospective Field Crop Plantings Indicate a Drop in District Production for 19 5 5 ........................... 55 50 FEDERAL RESERVE BANK OF SAN FRANCISCO cally favorable situation in the District lumber industry. District metal manufacturers have experienced only a modest rise in activity when compared with those of the nation, largely because District steel producers sell a much smaller proportion of their output to the automo tive industry than is the case nationally. Nonferrous met als have generally maintained the high rates of activity achieved following last year’s strike interruptions in cop per, lead, and zinc. The machinery industries, although showing some moderate strength recently, remain an area of significant weakness. However, current indications of an upward shift in the intentions of businessmen through out the nation to invest in plant and equipment, as re vealed in a recent survey by the United States Depart ment of Commerce and the Securities Exchange Commis sion, may presage a recovery in machinery production in the not too distant future. Output of nondurable goods in the District appears well maintained in the early months of the year. These industries were relatively unaffected by the general re cession of 1953 and 1954. After allowing for seasonal ad justments, fluctuations have been moderate and largely offsetting, except for some recent declines in food proc essing. Construction moves ahead sharply in first quarter New construction activity in the Twelfth District in the first quarter of the year surged sharply ahead of the corre sponding period a year ago. Based upon the value of build ing permits issued by local governmental units, the per centage increases from a year ago were 30 percent in Janu ary, 26 percent in February, and 40 percent in March. The value of new dwelling unit authorizations increased even more sharply than total permit valuation, registering gains of 58 percent in January and 30 and 46 percent in February and March, respectively. In terms of number of units authorized, the percentage increases were some what smaller, reflecting the continued trend toward larg er and generally improved housing as well as increased construction costs. Nonresidential construction, while not keeping pace with new residential, has also shown a sig nificant rise from last year, about 25 percent for the first quarter as a whole. In January, however, it was 10 per cent below a year ago. Nationally, expenditures on new construction reached a new record rate during the first quarter of the year, more than $41 billion at a seasonally adjusted annual rate. This is a gain of 13 percent over the rate during the first quarter of 1954. As in the case of District permit valuation, most of the year-to-year rise in total expendi tures occurred in new residential outlays. The national expenditure series is more comprehensive and reflects more closely actual construction activity than do District authorization data. The high volume of residential activity in the Twelfth District reflects a number of factors. Of particular im portance is the availability of many houses on very liberal credit terms, a significant proportion being offered with March 1955 no down payment and with 30 year mortgages. Although recent tightening in the market for home mortgages has reduced the supply of funds for future commitments and raised the level of discounts required by lenders, so far it has had only slight effect upon current rates of housing starts. The large volume of commitments obtained by Dis trict builders in the latter part of 1954 will assure that many of the new houses coming on the market in the near future will continue to be offered on the very liberal terms that have prevailed during most of the past year. Current money market conditions may play a more important role later in the year, however, when District tract build ers, who are heavily dependent upon nonlocal sources for a major portion of final mortgage funds, are in need of new commitments. Other housing demand factors have also apparently remained favorable to a high level of con struction activity. Particularly important are the high and relatively stable levels of income and employment, the sustained in-migration of families from out-of-District areas, and the continued internal shifting of population from central cities to suburbs. In nonresidential construction, activity is most intense in the building of commercial and religious structures and in public educational and highway programs. Commercial activity is particularly pronounced in the construction of suburban shopping centers. Continued large and growing needs for school buildings and sustained large require ments for additional or improved highways are the major factors accounting for expansion in expenditures by state and local governments. The high volume of new contract awards, moreover, would appear to assure a continued large amount of such construction in the near future. District department store sales improve Sales at District department stores, reflecting the gains that have occurred in employment levels and in consumer disposable incomes, moved sharply ahead in the first quarter compared with the same period last year. For the quarter as a whole, District sales rose about 9 percent above the first three months of 1954. On a similar basis, sales of department stores throughout the nation in creased less than 7 percent. It should be recalled, how ever, that sales of department stores reached their low point for the recent recession during this period last year. On a month-to-month basis sales in both the District and the nation, after adjustment for seasonal variation, receded in February and March from the record level reached in January. Despite the decline from January, which was about 6 percent in the Twelfth District, after adjustment for seasonal variation, sales were running at a level well ahead of a year ago. Easter sales, that is, cumulative sales volume during the four week period immediately preced ing Easter, were 6 percent higher in the District this year than last. This percentage gain combined with the fact that more of the Easter sales period occurred in the first quarter this year than last may account for part of the 9 percent rise indicated for the first quarter as a whole. The rise in employment and the lengthening of the aver M O NTHLY REVIEW March 1955 age workweek, in some cases to overtime schedules, have contributed to this favorable sales experience. Both of these factors tend to increase the disposable incomes of District consumers and, in turn, their willingness to spend. Consumers have also been induced to step up their 51 rate of purchases by attractive price concessions on some goods, either through generous trade-in allowances or spe cial promotional or clearance sales. This latter factor may have been of particular significance in the unusually high level of January department store sales. EARNINGS AND EXPENSES OF TWELFTH DISTRICT MEMBER BANKS, 19 5 4 District member banks made net profits of $152.9 million in 1954. This figure is unusual in a number of respects. It is the highest member bank profit level on record, and it represents a very sizable increase— more than 19 percent— over the 1953 figure. It is not the result of a record level of net current earnings, however; for net current earnings were 3 percent lower in 1954 than in 1953. Gross current earnings rose from 1953 to 1954, but current expenses rose even more and depressed net earnings. A large portion of the net profit rise is the result of profits from the sale of securities. Without these capital gains, member bank profits would have been lower in 1954 than in 1953. w e lfth T Net current earnings declined slightly The net current earnings of member banks represent the excess of total earnings over total expenditures, ex cluding such items as losses and recoveries on loans, profits or losses from the sale of bonds, and transfers to and from valuation reserves set up against future bad debts. These net current earnings increased in every post war year through 1953, but they declined in 1954. One factor contributing to the decline was the fall in earnings on loans from 1953 to 1954. The volume out standing of commercial and industrial loans and loans to individuals was lower in 1954 than it was in 1953, and the rate of return on loans was also slightly less in 1954 than 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 B a n k s , 1952-54 (millions of dollars) D is tr ic t M em ber 1952 428.3 1953 499.5 1954p 489.4 Percent change 1953-54 — 2 118.1 33.1 43.3 18.7 35.7 130.7 37.5 49.2 20.4 35.2 142.5 38.3 60.6 21.1 38.8 + 9 4- 2 + 23 + 3 + 10 T otal earnings ................................... 677.2 772.5 790.6 + 2 Salaries and wages . . . ........................ 204.3 109.7 116.7 227.1 121.8 128.6 235.9 132.0 137.6 + + + 4 8 7 6 Earnings on l o a n s ................................. Interest and dividends on Government securities .................... Other securities ............................... Service charges on deposit accounts. Trust department earnings ................ Other earnings ..................................... Other expenses ..................................... ................................. 430.6 477.5 505.5 + Net current earnings .......................... N et recoveries and profits (losses— ) On securities ................................... 246.6 295.0 285.0 — 3 Other ................................................... — 9.5 — 16.8 — 2.8 — 22.4 — 17.9 — 4.1 + 28.0 — 15.4 — 6.4 T otal net recoveries and p r o fit s .. + T otal expenses 6.2 — 29.2 — 44.5 Net profits before incom e t a x e s . ... Taxes on net incom e ........................... 217.4 98.7 250.5 122.1 291.2 138.4 + 16 + 13 N et profits after taxes ...................... Cash dividends declared .................... Undistributed profits .......................... 118.8 67.3 51.5 128.4 70.5 57.9 152.9 73.7 79.2 + 19 + 5 + 37 p Preliminary. Note: Because of rounding, component items may not add to totals. in 1953. These two factors together depressed earnings on loans by some $10 million below the 1953 level of $500 million. Earnings on securities, in contrast, were about $13 million higher in 1954 than in 1953 because of a sub stantially higher average volume of securities held by member banks. Other types of earnings also rose from 1953 to 1954 and brought total earnings to 2 percent above the 1953 figure. Total earnings minus total ex penses were 3 percent below the 1953 level, in spite of the rise in total earnings. The reason was that total ex penses were 6 percent higher in 1954 than in 1953, com pared with an increase of only 2 percent in earnings. There was a moderate (4 percent) rise in wages and sal aries. The 50,400 bank employees had total salaries of $167.8 million, while the 8,400 member bank officers in the District had total salaries of $62.8 million. Interest on time deposits, the other big member bank expense item, rose by 8 percent. It has risen by more than 8 per cent in most other postwar years, but even an 8 percent rise meant that it continued to increase its share of total expenditures. In 1946, it was only 20 percent of the total; by 1954, it was 26 percent of the total. Recoveries exceeded losses The net result of all losses, charge-offs, profits from security sales, and transfers to and from valuation re serves was a gain of $6.2 million for District member banks in 1954. For every year from 1946 to 1953, these items added up to a net loss; in 1953, the net loss was nearly $45 million. The 1954 gain from these items was the year’s most striking contrast with 1953. Net recoveries from sales of securities lay behind the contrast. United States Government security prices were higher during the year than they had been during 1953 and several earlier years. A normal turnover of securities resulting from seasonal and random factors would there fore have produced an appreciable book profit, and such turnover doubtless took place during the year. The result ing profit may have been swelled by some banks deliber ately selling securities bought in earlier years in order to realize a book profit and using the proceeds of the sale to buy other securities. The actual net profit on security transactions (excluding transfers to and from valuation reserves on securities) amounted to $31.5 million during the year. Member banks increased their valuation reserves on loans and securities by $15.2 million. Certain valuation reserves on loans are a special category of reserve which the Bureau of Internal Revenue defined and regulated in 52 an order issued in 1947. The order permits a bank to re duce the book value of its loans by a certain percent as the equivalent of a reserve against future losses on loans. This reduction, or valuation reserve, is treated as a loss for in come tax purposes, and therefore the setting up of a valua tion reserve may provide a tax advantage. The 1947 order regulates the maximum amount of valuation reserve on loans and the rate at which a bank may approach the maxi mum. Valuation reserves against future losses on securi ties are also used by some banks, but transfers to these reserves are not deductible for income tax purposes as are the special valuation reserves on loans. Not all banks use valuation reserve accounts, but on balance there have been large transfers to these reserves (that is, deductions from the book value of bank assets) every year since the issuance of the Bureau of Internal Revenue order. Even tually, the yearly amount of transfer to valuation reserves on loans will have to decrease as banks reach their maxi mum permissible amounts, but in 1954 there was evi dently still room for a considerable transfer. One factor stimulating transfers to valuation reserves during the year was an amendment to the 1947 order which had the effect of increasing the maximum allowable amount of reserve against loans. Banks paid high taxes and dividends Taxes amounted to nearly 48 percent of profits during 1954, compared with 49 percent in 1953. The lower rate was due in part to the fact that a greater proportion of net profits before taxes was in the form of a capital gain, which is taxed at a lower rate than current income. The expiration of the excess profits tax also contributed slight ly to the lower tax ratio. Of the net profits after taxes, 48 percent was paid out in dividends compared with 55 per cent in 1953. The $73.7 million of cash dividends during 1954 continued a fairly steady yearly increase in the dol lar amount of bank dividends during the postwar period. P e r c e n t C h a n g e s in S e le c t e d E a r n in g s a n d E x p e n s e Ite m s o f T w e l f t h D i s t r i c t M e m b e r B a n k s b y S i z e G r o u p , 1953-54 Earnings on loans ........... Interest and dividends on Government securities Other securities ........... N et current earnings N et profits after taxes Cash dividends ............. March 1955 FEDERAL RESERVE BANK OF SAN FRANCISCO 15 largest banks — 2 Other banks —* 2 9 2 2 4-13 + 3 4- 3 — 5 0 — 2 + 4 4- 8 4- 6 — 3 4-16 4-13 4-19 4- 5 4- 5 4-10 4- 8 — 1 0 — 1 — + + + + — 2 +21 + 10 + 30 — 2 All banks — 2 R a tio t o C a p ita l A c c o u n ts a n d R a te s o f R e tu r n o n E a r n i n g A s s e t s — T w e l f t h D i s t r i c t M e m b e r B a n k s , 1952-54 Ratios to capital accounts N et current earnings A ll banks ................................................... 15 largest .................................................. 1952 21.1 21.7 18.6 1953 23.8 24.8 20.0 1954 21.7 22.3 19.1 10.2 10.4 9.4 10.3 10.6 9.4 11.6 11.5 12.1 5.3 5.2 5.7 5.5 5.4 5.8 5.4 5.4 5.8 1.8 1.8 1.8 2.1 2.1 2.0 2.0 2.0 1.9 N et profits after taxes lif 15 largest Other . . . Rates o f return on Loans A ll banks .................. 15 largest .................. Other ........................ Governm ent securities A ll banks .................. 15 largest .................. O t h e r .......................... tially similar earnings and expense relations, but there were a few differences. One difference was that the 15 largest banks had a greater rise in earnings on Government securities and in interest paid on time deposits. Behind this difference lay the fact that the large banks expanded their assets and lia bilities, especially their United States securities and time deposits, during the year. The small banks, in contrast, maintained total assets, security holdings, and time de posits all at almost the same level in 1954 as in 1953. The second important difference between large and small member banks was that the small banks gained more than the large banks, compared with their current net earnings, from net recoveries, profits, and changes in valuation reserves. Contributing to the difference were a greater small-bank gain from security sales (compared to current earnings) and a greater large-bank transfer to valuation reserves. On balance, small banks realized a net profit after taxes 30 percent higher in 1954 than in 1953. For large banks, the gain was only 16 percent. As a percent of capital ac counts, small bank profits also exceeded large bank profits. Small banks decreased their cash dividends to 2 percent under the 1953 level, however, while the 15 larg est banks paid out 6 percent more dividends in 1954 than in 1953. EARNINGS, EXPENSES, AND PROFITS—TWELFTH DISTRICT MEMBER BANKS, 1944-1954 MOffora of dollars + + + 4 15 14 16 6 10001 Taxes Net losses and charge-offs Including transfers to valval' Expense» Total Expenses Largest banks had smaller percent profit rise One convenient way to divide District member banks into two groups is to take the 15 largest banks and the “ others,” smaller banks (there were 211 of them in 1954) measured according to total deposits. The 15 largest banks account for about four-fifths of all member bank deposits and include the extensive branch banking systems of the District. In 1954, these two groups of banks had essen- Total Earnings 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 *This area represents net recoveries on loans and securities. M O NTHLY REVIEW M arch 1955 Mem ber bank profit rate rose The net profits of District member banks during the year were equal to 11.6 percent of average capital ac counts. This figure was above the 1953 figure of 10.3 per cent and it was well above the nation’s 1954 member bank profit rate of 9.3 percent. The District's profit rate has been consistently higher than the national rate for a num 53 ber of years. No one factor is directly responsible for this profitability of Twelfth District banking. Loans, which have a higher rate of return than other assets, comprise a larger share of total assets in District than in national member banks. The average rate of return on loans is also larger in District member banks. And the ratio of capital accounts to total assets is smaller for District than for all member banks. GOVERNMENT AGRICULTURAL SUPPLY AND MARKET EXPANSION PROGRAMS FOR 19 5 5 AND TWELFTH DISTRICT AGRICULTURE he problem posed by the continued growth of stocks of Tcertain agricultural commodities has gradually become more acute during the last few years. These stocks have accumulated largely as a result of a contraction of markets and a continued high level of domestic production at price support levels. A large part of the increase in carry-over . , . , . ,, 1 . stocks has been acquired by the price supporting agency, the Commodity Credit Corporation. Stemming from the operations of the price support program, this agency's commodity under contract , J inventories , and commodities __ to purchase as of February 28, 1955 included 1,786,397 bales of upland cotton, 426,518,521 pounds of refined cottonseed oil, 391,823,866 pounds of butter, 702,019,724 bushels of wheat, and 622,586,730 bushels of corn. It also holds smaller amounts of numerous other commodities. In view of these sizable stocks, agricultural programs related 1 * 1 * m ee i* * j a to surplus control m 1955 are directed primarily toward -rp/'li-ipi'rirr K rjtV i I ’V ip voIhttip 0 " F Q tridrQ iiT irl tV iP fiitiirp reducing DOin me volume OI STOCKS ana tne iuture output of commodities in excess supply. The Government agricultural supply and disposition programs affecting Twelfth District agriculture in 1955 will generally include (1 ) lower levels of price support, (2 ) more stringent acreage controls, and (3 ) am oreaggressive approach toward expanding markets for surplus agricultural commodities than in 1954. These changes result in large part from legislation enacted prior to 1954. Although several programs have been added and some provisions previously in effect have been modified, the bulk of the regulations under which these programs will operate in 1955 remain the same as in 1954. Lower levels of price support . . General reductions m price support levels for major District farm commodities have been made for 1955 (Table 1). Greatest reductions are for feed grains, rye, long staple cotton, dry edible beans, and cottonseed. Increases from last year have occurred only for upland cotton and wool, but the increase for upland cotton is very small and special considerations explain the increase for w0°lAlthough there are sizable declines in the level of support for most price-supported farm commodities, the sup,* «r i • 1j u u port level for certain commodities would have been even ir» if cranial l^cridafinn V iarl nnf lower m It special legislation nact not Deen enacted to cushion the price support reduction. Among such pror r 0 r . Visions were a more generous allowance for carry-over in Table 1 National Average Support Price for Specified Agriculturai Commodities 1954 and 1955 perCent 1955 1954 change 1955 Wheat (bu) ^224 * Cotton, upland (lb.) . .................. 0.3170 0.3158 4- 0.4 Cotton, long staple (lb.) ................ 0.5520 0.6553 —15.4 Rice (cwt.) ............................... 1 4.92 1 oats (bu.’) 1 1 0.61* 0.7 f — f.l Graain^o?gU humV (c;vtin IIII III III! ¡Ts 2.28 - 21.9 Sr y e,(b}V u \.................................. H5 ML t VA Wool (lb.) ............................... 0.62 0.532 4-19-0 Cottonseed (ton) ........................ 46.00 54.00 —14.8 Bu«erfatU(ibf> mi?k. . I .’ .’ I I o.‘562 0I562 0 |e0annes; >edibl.e. . .*.*11! .*!I 0:099 oI?o2 -lli MoSird( i b)U,). . 1111II111 111111III 0.70 o.*643 + sli Soybeans (bu.) ........................... 2.04 2.22 — 8.1 1Not announced. 2The support rate for those areas designated by the United States Department of Agriculture as commercial areas. . Source: U n ited S ta tes D epartm ent of A griculture, PricB Programs, Agricultural Information Bulletin No. 135 and various periodic United States Department of Agriculture publications. determining the level of support for wheat and corn and an increase in the minimum level of support from 75 percent to 82 y2 percent of parity for basic commodities1 except tobacco. Moreover, “ set-asides” 2 were authorized for certain farm products and these amounts are not ineluded in the calculation of the support level. These additional provisions, however, did not raise support prices above the 1954 level except for a slight increase for upland cotton. In states which grow wheat on a commercial basis, the level of support will be 82y> percent of parity in 1955 compared with 90 percent in 1954. The national average support price for wheat has been set at $2.06 per bushel which ¡s lg cents per bushd less than for the 19S4 crop and 15 cents less than in 1953 With the designation of Arizona and Nevada as noncommercial wheat producing states, the level of support for wheat in these states has droppe<i fr0m 90 percent of parity in 1954 to about 62 percent3 of parity in 1955 Legislation in 1954 provided a new type of price support program for wool. Under the new provisions the level of support for wool in 1955 will be above that of the ------1Basic commodities include tobacco, cotton, peanuts, corn, wheat, and rice, 2“Set-asides” were authorized to remove the threat of huge surpluses of farm commodities to current markets by insulating these surpluses from the commercial markets. Disposition of supplies included in the “ set-aside” is to be accomplished in such a way as not to disturb normal markets for these commodities. 8Technically, the level of support in these states is 75 percent of the 82l/i percent of parity for states producing wheat commercially. 54 preceding year. The program for wool is now classified as an incentive program and is designed to stimulate do mestic production of wool up to a total of about 300 mil lion pounds per year. As annual domestic production is now below this level, the support price for 1955 has been set at a comparatively high level, 106 percent of parity, to stimulate additional output. With this high level of support, direct payments to producers will be used as the method of supporting wool prices in 1955. When price supports are provided above the 90 percent of parity level, direct payments to producers are to be used. At lower levels of support, however, other methods of support such as loans and purchases may be used. Changes in the method of support for wool in 1955— the use of direct payments— may be a forerunner of fur ther changes or modifications in the techniques used to support other farm products. Indicating the possibility of further changes in the method of extending price sup ports is the provision in the Agricultural Act of 1954 which explicitly instructs the Secretary of Agriculture to study the feasibility of various two-price systems for rice. Furthermore, a resolution was recently reported out of the Agriculture Committee of the House of Representa tives which included a proposal for a two-price plan for wheat. More stringent production controls Production controls authorized under the price support program are of two types : ( 1 ) acreage allotments and (2) marketing quotas. Acreage allotments are a method of allocating the desired national acreage among individual farms and may be applied to both basic and nonbasic crops. The farmer’s penalty for producing the commodity on acreage in excess of the prescribed acreage is the loss of price supports. In addition to acreage allotments, mar keting quotas may be initiated for all basic commodities except corn. A marketing quota is generally the produc tion on the acreage allotment. With marketing quotas in effect, production on acreage in excess of the allotted acreage is subject to a penalty payment. Hence, market ing quotas in addition to acreage allotments may be con sidered as a stronger type of production control. Acreage controls have been extended to additional Dis trict field crops in 1955 and have been made more restric tive for those crops covered by such controls last year. About a million acres of District farmland will be affected by planting controls for the five field crops subject to these controls, providing farmers comply with acreage allotments (Table 2 ). The more restrictive acreage con trols will necessitate the diversion of additional acreage to alternative crops, probably feed grains and hay. Although acreage allotments and marketing quotas were in effect in 1954 for wheat, upland cotton, and long staple cotton, these production restrictions did not curb output enough to justify their removal, under current legislation, for the 1955 production period. In fact, the allotted acreages for wheat and upland cotton production in 1955 are 11 per cent and 18 percent less, respectively, than in the preced- March 1955 FEDERAL RESERVE BANK OF SAN FRANCISCO T a b le 2 A creage A llotted C rops— T w e l f t h for the P r o d u c t io n of D e s ig n a t e d D is t r ic t a n d U n it e d S t a t e s , 1954 F ie l d and 1955 ( -------------------------------- A llo tte d acreage---------------------------------N t -------T w e lfth D istrict------- /•---------------U nited States------------ \ P ercent change P ercent change 1955 1955 1954 (in thousands) W heat .................... 4,811 Cotton, upland . . . 1,115 Cotton, long staple 19 R ice ........................ 343 Sugar beets ......... 341 T otal .................. 6,629 5,402 1,353 17 4852 4082 7,665 1955 from 1955 1954 1954 (in thousands) — 10.9 — 17.6 + 1 1 .8 — 29.3 — 16.4 — 13.5 55,000 18,113 46 1,859 850 75,868 from 1954 62,000! 21,379 41 2,4622 9632 86,845 — 11.3 — 15.3 + 1 2 .2 — 24.5 — 11.7 —4 2.6 1 Excludes increased allotments for Durum wheat. 2 As acreage allotments were not in effect for these products, the 1954 acreage figure is for planted acreage. Source: United States Department of Agriculture. ing year. Thus, 1955 will be the second consecutive year that marketing quotas and acreage allotments have been in effect for wheat and upland cotton. Compared to the acreage planted in 1953 when no planting restrictions were in effect, the 1955 District acreage allotments are down 35 percent for wheat and 45 percent for upland cotton. In addition to the continuation of produc tion controls for wheat and upland cotton, similar con trols will remain in effect for long staple cotton, although the allowable acreage for this crop has been increased slightly. Furthermore, 1955 acreage allotments and mar keting quotas have been added for rice, and acreage allot ments have been installed for sugar beets. Although acreage controls nationally are generally more stringent in 1955 than in 1954, they are, in most cases, even more restrictive in the District than in the nation (Table 2 ). This difference results in part from basing the allowable acreage on a historical production record. Under such a provision, areas of rapidly expand ing production, such as exist in parts of the Twelfth Dis trict, are subject to more severe acreage reductions than areas in which production has been comparatively stable or declining. The effect of this method of allocating acre age is illustrated by the comparative changes in cotton acreage from 1953 to 1955 in the District and in the United States. Cotton acreage has declined 45 percent in the District compared with 28 percent in the country as a whole. More programs to expand markets for surplus agricultural commodities Despite the use of production deterrents, sizable stocks of storable commodities have accumulated in the hands of the Commodity Credit Corporation as a result of the operation of the price support program in the past. Since District agricultural producers have participated in these price support programs, they have a direct interest in programs to reduce the size of these stocks by expanding the markets for surplus agricultural commodities. These programs, however, are not confined to storable commodi ties or commodities acquired by the price supporting agency through the operation of conventional price sup port programs. For instance, perishable products which 55 M O NTHLY REVIEW M arch 1955 are periodically in large supply receive preferential treat ment under such market expansion programs as the Sec tion 32 programs.1 Among the commodities included in Section 32 programs during fiscal 1954 were raisins, vari ous forms of citrus products, fresh pears, honey, and cot tonseed oil. Hence, these programs too are of interest to agriculturists of the District. Agricultural disposal programs or some variation of them have been authorized in the past, and supplemental legislation to facilitate the further expansion of markets for surplus agricultural products was enacted in the latter part of 1954. This legislation included the Agricultural Trade Development and Assistance Act of 1954, Section 402 of the Mutual Security Act of 1954, and a special school milk program. Considerable quantities of surplus agricultural commodi ties are expected to be moved into export markets under the provisions of the Agricultural Trade Development and Assistance Act of 1954 and Section 402 of the Mutual Security Act of 1954 (Table 3 ). Products valued at more than a billion dollars are expected to be authorized for shipment between July 1954 and July 1955. A large pro portion of these authorizations is slated for the purchase of grain, cotton, fats and oils, and tobacco. Several of the products in these classifications are important to agricul tural producers in the District. However, since only about 10 percent of the authorizations will be available for the sale of all other agricultural products, these export pro1Programs authorized under Section 32 of Public Law No. 320, enacted August 24, 1935, include export, purchase, and diversion programs. Funds for carrying on the various Section 32 programs are derived from annual appropriations equal to 30 percent of customs receipts plus a carry-over of unused funds from previous years not to exceed $300 million. T able 3 A p p r o x im a te V a l u e o f A g r i c u l t u r a l E x p o r ts A u t h o r iz e d a n d E x p e cte d t o be A u th o r iz e d U n d e r N e w E x p o rt P r o g r a m s f o r D e s ig n a t e d P e r io d s B e g in n in g J u l y 1, 1954 End of fiscal 1955 End of 1954 Mutual Security A ct of 1954 million dollars) (foreign currency sales) ............................. 103 Agricultural Trade Developm ent and Assistance A ct o f 1954 T itle I (foreign currency s a le s )........... Title I I (relief) ........................................ Title I I I (barter) ................................... 180 68 93 T o t a l .................................................................. 444 (in million dollars) 350 453 150 931 1,046 xDoes not include an estimate for the January-June 1955 period. Source: United States Department of Agriculture, Agricultural Marketing Serv ice, The Demand and Price Situation, January 1955. grams apparently will be of limited value to District pro ducers of these other types of agricultural products. Despite efforts to adjust agricultural output and to re duce Government stocks of price supported commodities, actions along these lines during 1955 will not fully accom plish either objective unless agricultural production is drastically reduced by production hazards. Prospective production restrictions are not severe enough and the funds available to facilitate the movement of surplus com modities into secondary outlets are not large enough for these objectives to be accomplished in a single year. Fur thermore, opinions vary as to the most desirable type of price support program and also as to the level at which prices are to be supported. Hence, further legislative changes may be forthcoming which could strengthen or weaken current provisions for supply control and surplus removal. PROSPECTIVE FIELD CROP PLANTINGS INDICATE A DROP IN DISTRICT PRODUCTION FOR 19 5 5 r e d u c tio n of about 2.5 percent in total planted acre age of 16 principal field crops is in prospect for the A District in 1955. This indicated drop in acreage may be offset by an increase in yields, but with average weather and growing conditions a slight drop in total District field crop production is indicated. In addition, of the crops listed in the table, greatest acreage reductions are indicated for crops with comparatively high unit values — wheat, rice, and sugar beets. Acreage intention re ports for cotton, another high valued crop, are not avail able, but plantings probably will conform closely to the acreage allotments which were established for 1955. These call for another large drop in cotton acreage. It therefore appears that acreage restrictions this year on wheat, rice, sugar beets, and cotton may lead to a drop in the total value of District crop production and a slightly reduced level of cash income for District crop producers this year.1 There is little prospect for significant increases in farm prices of most of the price supported field crops despite somewhat reduced levels of production. Nation ally, total acreage of 16 field crops of interest to District 1For a more detailed discussion of acreage allotments, marketing quotas, and price supports affecting District crops in 1955, see article on p. 53 of this Review. farmers will be about the same this year as in 1954, indi cating a greater severity of acreage restrictions in the Dis trict than in the nation. Foocf grain acreage to drop substantially District acreage of the food grains, which include wheat, rice, and rye, will drop about 11 percent in 1955 from last year’s level if District farmers’ March 1 intentions are realized. California rice acreage is expected to be only about two-thirds as great as in 1954, and a drop of nearly one-fourth is indicated in District acreage of spring wheat, production of which is centered in the Pacific Northwest. Acreage of winter wheat, according to estimates made on November 1, 1954, is down much less— about 6 percent. A small increase in rye acreage is expected in the District. Acreage allotments and marketing quotas in effect on wheat last year resulted in a 1954 acreage drop from the previous year of about 28 percent. Additional acreage cuts were made mandatory on the 1955 crop with the result that District spring wheat acreage this year, according to the intentions reports, will total about 40 percent of the acreage planted to wheat for harvest in 1953 and only slightly more than one half the 1944-53 average annual FEDERAL RESERVE BANK OF SAN FRANCISCO 56 E x p e c t e d F ie l d C ro p A c r e a g e a s I n d ic a t e d b y F a r m e r s o n M a r c h 1, 1955— T w e l f t h D i s t r i c t a n d U n i t e d S t a t e s Indicated acreage /--------- 1955---------- N Percent change T w elfth U nited P ercent change 1955 from D istrict States /—1955 from 1954-^ t ----------- 1944-53 avg.-------\ (in thousands T w elfth U nited T w elfth U nited of acres) D istrict States D istrict States B arley .................. Beans, dry edible Corn ...................... F la x s e e d ................ H ay, all ............. Oats ...................... Peas, dry fi e l d ... Potatoes, all1 . . . Potatoes, early. Potatoes, la te .. R ice ...................... R y e 2 ...................... Sorghum s ........... Sweet potatoes . . Sugar beets ____ W heat, all ......... W heat, spring. W heat, winter2. 4,517 572 405 62 6,069 1,564 267 362 75 300 330 249 446 13 331 4,867 810 4,057 15,776 19,981 82,033 5,743 74,360 47,664 295 1,435 258 395 1,800 5,052 21,322 354 833 57,402 13,960 43,442 — 1.5 - f 1.1 + 1 6 .7 + 3 7 .8 + 1.8 — 1.7 + 3.5 + 7.8 + 2 1 .1 + 4.6 — 32.0 + 1.2 + 3 0 .0 +10*0 — 18.9 — 9.5 — 23.7 — 6.0 + 8.7 + 6.5 + 0.2 — 3.6 + 2.2 + 0.8 + 2.8 + 0.8 + 7.6 — 0.6 — 26.9 + 2 5 .6 + 7.2 + 0.1 — 13.5 — 7.4 — 12.1, — 5.7 + 49.0 + 15.1 + 85.8 — 51.6 — 1.0 + 0.5 — 25.6 + 3.6 — 0.7 + 4.3 + 13.4 + 8.7 + 1 5 0 .6 + 18.2 + 8.9 — 23.8 — 48.5 — 15.8 + + — + 35.1 45.4 14.2 41.1 0 + 8.4 — 28.9 — 28.4 — 31.4 — 25.9 + 0.9 + 31.9 + 1 5 0 .0 — 29.6 + 2.4 — 22.0 — 31.8 — 18.1 1 For United States this includes potatoes in “ intermediate” states in addition to those in “ early” and “ late” states. 2 Based on December 1 estimates. Source: United States Department of Agriculture, Agricultural Marketing Serv ice, Crop Production, “ Prospective Plannings for 1955,” March 18, 1955. acreage. Nationally, indicated reductions in acreages of wheat, as shown in the table, are somewhat less severe, particularly for spring wheat. On the average, United States wheat farmers are expected to plant 22 percent fewer acres to wheat for harvest in 1955 than they did annually during the period 1944-53. Marketing quotas go into effect on rice this year for the first time. Despite a severe reduction from last year, how ever, 1955 California rice acreage in California will ex ceed the average annual acreage of the period 1944-53 by more than 13 percent. Rice production increased rapidly in California in the postwar period in response to high prices and high levels of demand in export markets. In the last year or so, however, the combined forces of in creased production at home and more adequate supplies abroad have led to lower prices and increased stocks of rice in the United States. United States supplies of all food grains are large, with those of wheat and rice at record levels, and that of rye the largest since 1944. But even with large supplies, wheat prices are at relatively high levels reflecting support price operations. Prices of rice and rye in 1954-55 are averag ing below support levels for these commodities and large quantities of both rice and rye have been placed under Government support programs. District acreages of feed grains will remain large in ? 955 A large proportion of the District acreage removed from wheat and cotton production in 1954 was planted to feed grain. District and national acreages of corn, oats, barley, and sorghums increased greatly last year with the result that, currently, feed grains as well as food grains are in oversupply. March 1955 Indicated for 1955 are very large percentage increases from last year in District acreages of corn and sorghums for grain and forage. Slight District reductions from 1954 are in prospect for oats and barley. Compared with 1953, however, District farm acreage devoted to these crops will remain unusually large despite scheduled price sup port reductions. Nationally, small acreage increases are indicated for all feed grains except barley, and for it a relatively large gain is indicated. Reduced domestic acreage in sugar beefs may prevent a sugar glut Harvested acreages of sugar beets for the District and the United States in 1954 were 12 and 18 percent larger than in 1953. Nationally, sugar beet production increased 16 percent in 1954. The domestic sugar cane crop was about 9 percent above the average of the previous 10 years. This produced a situation in which indicated sugar supplies from mainland cane and beet areas appeared greater than the quantity needed to fill quotas and pro vide a normal carry-over. Consequently, acreage allot ments will be in effect in 1955 for both sugar cane and sugar beets. In compliance with these restrictions, District producers intend to plant 19 percent less land to sugar beets than in 1954. For the United States, a drop of about 14 percent is in prospect. Compared with average acre ages of the period 1944-53, however, sugar beet produc tion within the District and nationally will remain large. Acreage increases are indicated for most other District field crops For the District and for the nation, acreage increases in 1955 are indicated for hay, potatoes, dry edible beans, dry edible peas, and flaxseed. Most of these increases will occur as a result of circumstances which have led to the imposition of acreage allotments and marketing quotas on other crops. Only a small change is expected in the num ber of hay land acres in the District but flaxseed produc tion, at a very low level in recent years, appears to be mak ing a comeback in Arizona and California. Early potato production in Arizona and California ap parently is scheduled for a considerable increase this spring after dropping substantially in 1954 in response to a low price situation. Total early potato acreage in the two states is indicated at 75,000 acres, up 13,000 acres from last year and about equal to the annual average of the 10-year period 1944-53. Late potatoes grown in northern and northeastern areas of the District also may be grown in larger volume this year than last. A 5 percent increase from last year in intended acreage of late pota toes has been reported for the District, while for the United States as a whole a slight drop in late potato acreage is indicated. Similarly, United States acreage of all potatoes, early, intermediate, and late, will be about the same this year as last. March 1955 FEDERAL RESERVE BANK OF SAN FRANCISCO 56A BUSINESS INDEXES— TW ELFTH DISTRICT1 (1947-49 average—100) In d u s t r ia l p ro d u ctio n (p h y sic a l v o lu m e )2 Year and m o n th Lum ber P e tro le u m 3 C ru d e R e fin e d C e m e n t Lead3 W heat C o p p e r3 flou r3 T o ta l C ar n on agri T o t a l D e p ’t R e ta il m f ’g c u ltu ra l food lo a d in gs store sales E le c t r ic e m p lo y e m p lo y ( n u m prices 8| 6 power ber)2 m e n t4 (va lu e )2 m ent 80 42 34 45 61 60 65 77 77 74 74 61 80 94 102 104 116 115 111 119 lllr 87 57 52 62 71 67 67 69 74 85 93 97 94 100 101 99 98 106 107 109 106 78 55 50 56 65 63 63 68 71 83 93 98 91 98 100 103 103 112 116 123 119 54 36 27 33 56 56 61 81 96 79 63 65 81 96 104 100 112 128 124 130 132 165 100 72 86 114 93 108 109 114 100 90 78 70 94 105 101 109 89 86 74 70 105 49 17 37 88 80 94 107 123 125 112 90 71 106 101 93 115 115 112 111 101 90 86 75 87 84 91 87 87 88 98 101 112 108 113 98 88 86 95 96 96 99 29 29 26 30 38 40 43 49 60 76 82 78 78 90 101 108 119 136 144 161 173 1954 January February M arch April M ay June July August September October Novem ber December 118r 117r 115r 116r 123r 97r 79r 87 r 109r 124r 117r 130r 109 109 108 107 107 107 106 104 105 104 104 105 121 120 118 119 123 119 118 115 121 116 119 119r 114 117 116 134 143 140 143 137 138 143 132 132 62 80 76 71 67 69 63 73 69 70 73 69 107 102 99 98 103 105 91 75 97 110 116 114 99 97 98 96 96 96 92 101 108 105 104 101 1955 January 133 105 116 119 74 118 103 1929 1931 1933 1935 1937 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 W a te rb o rn e fo re ig n tra d e 3» 6 E x p o r t s Im p o r t s 30 25 18 24 30 31 33 40 49 59 65 72 91 99 104 98 105 109 114 116 113 64 50 42 48 50 47 47 52 63 69 68 70 80 96 103 100 100 113 115 113 113 190 138 110 135 170 163 132 'ÍÓÓ 101 96 95 99 102 99 103 111 118 122 120 ' '47 60 55 63 83 121 164 158 122 97 100 102 97 105 122 132 139 136 102 68 52 66 81 77 82 95 102 99 105 100 101 106 100 94 97 100 101 100 96 89 129 86 85 91 186 171 140 131p ’ ’ ¿7 81 98 121 137 157 200 308 260p 163 160 171 168 174 183 179 174 174 176 177 173 121 120 120 120 120 119 119 119 120 120 121 121 137 136 136 136 136 137 131 130 136 137 138 139 95 90 94 99 97 96 88 90 97 102 98 106 109 107 111 111 114 114 115 115 110 116 114 118 114 114 113 113 114 114 113 113 113 113 111 111 108 156 156 157 158 141 144 96 115 112 118 113 210 271 233 232 271 237 331 282 262 277 196 313 173 122 139 99 124 112 124 80 72 109 119 95 101 BANKING AN D CREDIT STATISTICS— TW ELFTH DISTRICT (amounts in millions of dollars) C o n d itio n ite m s of a ll m e m b e r b a n k s 7 Y ear an d m o n th 1929 1931 1933 1935 1937 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 Loans U .S. an d G o v ’t d is c o u n t s s e c u r it ie s Dem and T o ta l d ep osits t im e ad ju ste d 8 d e p osits 2,239 1,898 1,486 1,537 1,871 1,967 2,130 2,451 2,170 2,106 2,254 2,663 4,068 5,358 6,032 5,925 7,093 7,866 8,839 9,220 9,418 495 547 720 1,275 1,270 1,450 1,482 1,738 3,630 6,235 8,263 10,450 8,426 7,247 6,366 7,016 6,415 6,463 6,619 6,639 7,942 1,234 984 951 1,389 1,740 1,983 2,390 2,893 4,356 5,998 6,950 8,203 8,821 8,922 8,655 8,536 9,254 9,937 10,520 10,515 11,196 1,790 1,727 1,609 2,064 2,187 2,267 2,360 2,425 2,609 3,226 4,144 5,211 5,797 6,006 6,087 6,255 6,302 6,777 7,502 7,997 8,699 1954 February M arch April M ay June July August September October Novem ber December 9,176 9,106 9,045 9,001 9,049 8,989 8,977 9,054 9,048 9,343 9,422 6,667 6,500 6,903 6,991 6,981 7,190 7,574 7,610 8,014 8,089 7,973 10,138 9,922 10,190 10,045 10,087 10,310 10,257 10,463 10,749 10,937 ll,1 5 8 r 8,071 8,175 8,234 8,306 8,428 8,444 8,501 8,555 8,651 8,596 8,663 1955 January February 9,510 9,612 7,998 7,693 11,246 10,945 8,725 8,765 Bank rates on short-term b u sin e ss lo a n s 9 M e m b e r b a n k reserves a n d related ite m s 10 Reserve bank cre d it11 _ + + + + + + + + _ + 3.20 3.35 3.66 3.95 4.14 4.01 4.12 4.14 + + + + + + + + + 4.08 + + 4.01 — + C o in an d C o m m e rc ia l T r e a su ry cu rre n cy in o p é ra tio n s12 o p e ra tio n s12 c irc u la tio n 11 34 21 2 2 1 2 2 4 107 214 98 76 9 302 17 13 39 21 7 14 2 0 154 110 163 90 192 148 596 —1,980 —3,751 -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 -3 ,0 7 3 -2 ,4 4 8 23 154 150 219 157 245 420 + 1 ,000 + 2 ,826 + 4 ,486 + 4 ,483 + 4 ,682 + 1 ,329 + 698 482 + 378 + 1 ,198 + 1 ,983 + 2 ,265 + 3 ,158 + 2 ,328 98 125 5 9 21 29 18 16 9 1 0 + - 245 213 324 148 254 307 28 170 138 244 127 + + + + + + 34 15 + 150 26 + + + + + + + 4“ + + + 80 315 381 136 277 170 12 196 142 342 175 77 57 __ Reserves B a n k d e bits In d e x 31 eitles3* ia (1947-49=* lOO)2 6 + 48 18 14 3 31 + 96 + 4- 227 + 643 + 708 + 789 + 545 326 — 206 __ 209 __ 65 _ 14 + 189 + 132 39 + 30 175 147 185 287 549 584 754 930 1,232 1,462 1,706 2,033 2,094 2,202 2,420 1,924 2,026 2,269 2,514 2,551 2,505 42 28 18 25 32 30 32 39 48 60 66 72 86 95 103 102 115 132 140 150 153 _ __ 2 29 7 36 15 3 7 8 23 27 23 2,398 2,413 2,477 2,432 2,413 2,308 2,317 2,368 2,364 2,440 2,505 153 158 150 143 157 145 154 152 150 158 173 79 13 2,481 2,447 161 166 + + + + + + -f + 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, various lumber trade associations; petroleum, cement, copper, and lead, U.S. Bureau of Mines; wheat flour, U.S. Bureau of the Census; 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. 2 Daily average. 8 N ot adjusted for seasonal variation. 4 Excludes fish, fruit, and vegetable canning. 6 Los Angeles, San Francisco, and Seattle indexes combined. 6 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and Washington customs districts; starting with July 1950, “ special category” exports are excluded because of security reasons. 7 Annual figures are as of end of year, monthly figures as of last Wednesday in month or, where applicable, as of call report date. 8 Demand deposits, excluding interbank and U.S. G o v ’t deposits, less cash items in process of collection. M onthly data partly estimated. » Average rates on loans made in five m ajor cities during the first 15 days of the month. 10 End of year and end of month figures. 11 Changes from end of previous month or year. 12 Minus sign indicates flow of funds out of the District in the case of commercial operations, and excess of receipts over disbursements in the case of Treasury operations. 13 Debits to total deposits except interbank prior to 1942. Debits to demand deposits except Federal Government and interbank deposits from 1942. p— Preliminary. r— Revised.
@FedFRASER