The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
' \ TWELFTH FEDERAL RESERVE DISTRICT FEDERAL RESERVE March BANK OF SAN FRANCISCO Review of Business Conditions 30 Member Bank Earnings—1956 , 33 REVIEW OF u s in e s s BUSINESS CONDITIONS activity, fortunately, is inclined to B show less change than business sentiment in any given short period of time. Although busi ness confidence has weakened somewhat since the first of the year, particularly as reflected in the recent “ bearish” stock market, major eco nomic indicators suggest that at worst national business activity is levelling at the high peak reached in the closing months of 1956. Nonfarm employment, industrial production, retail trade, and construction activity showed little change in January and February from the December level, after seasonal adjustment. A ll were at record levels for this time of the year. Other less comprehensive indicators, including unemployment, department store sales, and bank loans outstanding, also point toward a levelling of business activity. F or many months unemploy ment in the nation has shown primarily only sea sonal movements and in February was about the same as in the opening months of 1956. Depart ment store sales, however, have fallen somewhat and in the first two months of 1957 ran at a rate about 3 percent below December sales after ad justment for seasonal variation. Some slackening in the demand for bank credit was also evident in January as loans outstanding at weekly reporting member banks declined nearly three times as much as in January 1956. Unlike last year, how ever, a slight rise occurred in February. There are signs that prices may also be level ling. The weekly wholesale price index rose until mid-February but slipped back to the February 5 level by the first week in March. Recently the over-all price situation has embodied a greaterthan-usual mixture of developments. Some pri mary products, reacting to an improved supply situation and less active demand, declined in price. Prices of most finished products held firm but some rose slightly. In January and February price increases were reported for finished steel and petroleum products, iron ore, pig iron, and newsprint. O n the other hand, prices of steel scrap, copper scrap, and some nonferrous fabri cated metals moved downward. In the nation’s commodity markets prices of raw industrial ma 30 terials slipped about 7 percent from the begin ning of December to the end of February. O rdi narily these quotations are more sensitive than those for finished products and are inclined to move with business sentiment. Business a n d governm ent outlays a re e x p e c te d to rise The source of the present lessening of optim ism cannot be directly related to reductions in either government or business spending. Fed eral outlays, particularly defense expenditures, appear to be rising. State and local governments, faced with a growing need for schools, highways, and other publicly financed construction p ro j ects, are expanding outlays too. Business expend itures for plant and equipment in 1957, according to the Department of Commerce, are expected to rise above the record 1956 total by about 6.5 per cent. However, there have been some postpone ments of proposed expansion plans and it is also possible that production and inventory policies are becoming more cautious. Seasonally adjusted data for manufacturing lines reveal a slight rise in sales and new orders from December to Janu ary. Inventories of trade and manufacturing firms have increased moderately but are not out of line in relation to current sales. Most of the present concern appears to be con nected with the reluctance of the nation’s consum ers to expand purchases of automobiles, house hold appliances, and new housing. N ew car sales in the nation in January and February were 5 percent lower than in the same period a year ago and after seasonal adjustment showed little change from the closing months of 1956. Produc tion in the first two months of this year was about 4 percent greater than in 1956, and dealers’ stocks have been accumulating. Since inventory and production policies in the industry are closely geared to sales this year, it is unlikely that deal ers’ stocks will be permitted to reach the topheavy level attained a year ago. The possibility remains, however, that automobile sales might repeat last year’s pattern and not show the usual spring pick-up. A slowdown in the flow of orders March 1957 MONTHLY REV IEW from the automobile industry contributed to the slight contraseasonal decline in steel production in early March. Production o f household d ura bles rem ains sluggish The demand for other consumer durables, mainly household appliances, has also declined from a year ago and has tended to parallel the reduction in housing starts. Production of major household goods dropped 8 percent from Decem ber to January after seasonal adjustment and continued to decline in February. Current output is about 12 percent less than in the first two months of 1956, with television set production showing an especially sharp decrease. This de cline has contributed to a reduction in the de mand for sheet steel and to a slackening in the demand for fabricated nonferrous metal prod ucts as well. Housing starts in the nation in January, at a seasonally adjusted annual rate of 1,000,000 units, were down 15 percent from January 1956 and were also slightly below the average for the fourth quarter of last year. A further drop to the level of 910,000 units occurred in February, in dicating that the long-awaited upturn has not yet arrived. Weakness in residential construction has especially hit the nation’s tract house builders and the lumber and plywood industries. On the favorable side, however, there are indi cations that purchases of consumer durables may rise. The preliminary findings of the most recent survey of consumer finances conducted for the Board of Governors of the Federal Reserve Sys tem suggest a moderately optimistic outlook for consumer spending. Consumers interviewed in January and February were generally optimistic about their income position and outlook for the current year. Plans of consumers to purchase major items showed little change from early 1956. The proportion of those planning to buy new automobiles during the year was 8.4 percent, the same as a year ago. The intentions with re spect to purchases of used automobiles, furniture and major household appliances, and home im provements were up a bit from a year a g o ; but the proportion of those planning to buy new and existing houses was less than last year. In summary, these various developments indi cate that there has been a slowdown in the rate of growth of the nation’s business activity. For an increasing number of goods, there has been a narrowing of the gap between demand and sup ply. The price and output adjustments that have occurred in recent months are to be expected in a flexible economy. W hile a few industries show signs of slack, these soft spots have not been suf ficient to cause any over-all decline in business activity. Since the upward pressure upon prices and production had been strong during most of 1956, a reduction of this pressure may well be not only an inevitable but also a healthy develop ment, for it will help in achieving the goal of maintaining economic stability. District nonfarm em ploym ent continues to rise In the Twelfth District business activity con tinued to show more vigor than in the nation, even though the December-January rise was smaller than that which occurred a year ago. T o tal nonagricultural employment rose from De cember to January after seasonal adjustment by an amount that equalled the November to De cember gain but was smaller than the 1 percent rise from December to January last year. This season’s gains were widespread as employment declined less than seasonally in manufacturing, construction, trade, and government. O f the ma jo r employment categories, only mining failed to show growth after seasonal adjustment. Weather conditions worsened in the District in the latter part of January and in early February and outdoor activity was curtailed. A s a conse quence insured unemployment rose above yearago levels. A severe cold spell in the latter part of January, coupled with below average precipi tation for the season, reduced stream flow in the Pacific Northwest and led to a cut in interruptible power supplied to industrial users. Begin ning in early February, aluminum production was reduced by about one-fourth from the Janu ary rate and approximately 1,000 employees were laid off. By mid-March some cut-off power had been restored, and industry spokesmen expected to be able to resume capacity production by the end of March. 31 F EDERAL RE SE R VE BANK OF SAN F R A N C I S C O District production patterns show little cha n ge Production in the Twelfth District continues to show the same strength and weaknesses appar ent in the closing months of 1956. Total manhours worked in Pacific Coast manufacturing in dustries in January were below those for Decem ber, owing to seasonal factors, but were 7.2 per cent above the January 1956 level. The gain be tween December 1955 and 1956 was somewhat less, about 5.6 percent. These year-to-year com parisons indicate that seasonal declines in most industries in January were smaller than those which occurred a year ago. In one industry, transportation equipment manufacturing, activ ity rose 1 percent from December to January be cause of increased production of aircraft, missiles, and automobiles. Steel production in the District in February continued at the high January level, but weakness in copper markets has reduced mine output of that metal. Aluminum production in February was down about 25 percent because of the power shortage. Automobile output in February in Cali fornia was at slightly reduced rates as work weeks were shortened in some plants, but activity in aircraft and missiles continued to expand. The situation in lumber and plywood shows little change. Although Douglas fir plywood pro duction in December was the largest for any month in 1956, a drop of 12 percent occurred in January and another decline took place in Feb ruary. Part of the February decline reflected a shorter month. Although several new plants be gan operating in February, total output dropped because of curtailment of activity at other plants. Douglas fir production in January rose 11 per cent above the very low December figure. Until March 2, production in 1957 ran about 7 percent below output in a comparable period last year. Nevertheless, output still exceeded orders and shipments. The situation for western pine is simi lar except that current production is down from last year’s level by a larger amount than either shipments or orders. In addition to reduced activ ity in lumber and plywood, production of pulp has slackened, and some mills in the Pacific Northwest have recently closed in order to re duce inventories. 32 Sales of District department stores in Janu ary were 3 percent above the year-ago figure but showed no change from December after adjust ment for seasonal variation. February sales, ac cording to preliminary information, declined slightly from the December-January level. New automobile registrations in California in January were higher than for any month since last June but were, nevertheless, 9 percent below the Janu ary 1955 level. Indications are that registrations in February dropped by the usual seasonal amount. G re a te r d ro p in b an k loans this y e a r Bank loans outstanding at weekly reporting member banks in the Twelfth District dropped sharply in January in contrast to almost no change in January a year ago. Another decline, about half as large, occurred in February; where as last year loans expanded in February. All types of loans showed a drop in January, al though security and agricultural loans recovered a fraction of their losses in February. In 1956 only commercial and industrial loans declined in both months. About 80 percent of the reduction in total loans outstanding from January 2 to F eb ruary 27 was accounted for by commercial and industrial loans. M ost types of business loans participated in the decline, although borrowings o f metal and metal products producers and “ other manufacturing and mining” firms increased slightly during this period. C h a n g es in b uildin g perm its a n d contract a w a rd s a re dissim ilar Preliminary estimates of building activity in the Twelfth District show that total permits granted in January rose about 7 percent from the December value. Residential authorizations show a value increase of about 20 percent but remained 11 percent below the year-ago figure. Nonresidential permits dropped 6 percent from Decem ber to January and were 5 percent below the value of permits issued in January 1956. Heavy construction contract awards, many of which are not covered by building permit statistics, were up substantially in January and February from the same two-month period in 1956. In spite of the weakness in permits, contract award data in dicate that nonresidential construction in the March 1957 MONTHLY REV IEW Twelfth District will continue fairly strong for at least several months. This brief review of Twelfth District business conditions indicates that expansive forces gener ated by increased activity in aircraft, missiles, and heavy construction still outweigh weakness in other sectors. The District economy should continue to expand, although gains in the near future may not match those experienced a year ago. Member Bank Earn in g s-1956 an ks in the Twelfth District in 1956 had an B experience which was common to business nationally: they had to run faster and faster to maintain their same profit position. The demand for funds was stronger than ever while the sup ply expanded only moderately, so allocation of available funds became a prime and ever-present task. During 1956 funds were shifted by banks from security holdings to the higher-yielding loan portfolios, with accompanying increases not only in earnings on loans but also in net chargeoffs, losses, and transfers to reserves on loans. Increases in expenses as well as in taxes on in come further decreased operating earnings so that net profits after taxes, viewed as a percent of capital accounts, remained unchanged from 1955 to 1956. Total operating earnings of Twelfth District member banks during 1956 were $110 million higher than in 1955 (Table 1 ), with greater earnings on loans primarily responsible for this growth. A s indicated in Table 2, loan portfolios at District member banks were $1.5 billion larger on December 31, 1956 than at the end of 1955. W hile this expansion was not so great as the $1.7 billion increase in 1955, demands for credit were strong all during 1956. Member banks in creased their loans outstanding by more than $400 million during each of the first three quar ters. Efforts by the Federal Reserve System to restrain too rapid credit expansion by restricting the availability of reserves seemed to show in creasing results in the fourth quarter, since total loans rose only $200 million then compared with gains during the same period of $400 million in 1954 and $600 million in 1955. A ll loan categories, except agricultural, ex panded ; but business loans accounted for more than half of the increased indebtedness to Twelfth District banks during 1956. According to a sample of weekly reporting banks, all types of businesses except textile, leather and apparel producers, and sales finance companies increased their borrowings. Most of the growth was in the manufacturing and mining sector, especially by those firms engaged in the production of metals and metal products and food, liquor, and tobacco. The experience of sales finance companies, re flecting the lower volume of automobile sales, was in sharp contrast to the previous year, when T E a r n in g s and M E able 1 x p e n s e s of em ber T w elfth D is t r ic t B a n k s , 1 95 4 -1 95 6 (in millions of dollars) Percent change 1955-56 1954 1955r 1956p Earnings on lo a n s .................. $494.7 Interest and dividends on Government securities .. . 144.1 38.5 Other securities ................ Service charges on deposit 61.3 a ccou n ts.............................. 22.2 Trust department earnings. . 39.7 Other earnings ...................... 800.5 Total earnings.................... Salaries and wages .............. 239.2 Interest on time deposits. . .. 133.5 Other expen ses...................... 139.1 Total expenses .................. 511.8 Net current earnin gs............ 288.7 Net recoveries and profits (— losses)1 On securities...................... + 28.2 On loa n s.............................. — 14.7 — 7.0 Total net recoveries and + 6.5 Net profits before income 295.2 Taxes on net in c o m e ............ 139.5 Net profits after t a x e s .......... 155.7 Cash dividends declared........ 74.3 Undistributed p r o fits ............ 81.4 $546.7 $650.6 + 19.0 160.0 42.5 152.7 43.9 — 4.6 + 3.3 66.3 25.7 41.9 883.1 258.0 148.1 155.5 561.6 321.5 74.6 29.7 41.7 993.1 287.2 163.7 177.1 628.0 365.1 + 12.5 + 15.6 — 0.5 + 12.5 + 11.3 + 10.5 + 13.9 + 11.8 + 13.6 — 25.9 — 25.3 — 3.4 — 28.2 — 35.7 — 3.7 — 54.5 — 67.6 267.0 118.4 148.6 85.0 63.6 297.5 133.6 164.0 90.0 74.0 +24.0 + + + + + 11.4 12.8 10.4 5.9 16.4 r Revised. Preliminary. 1 Including transfers to ( — ) and from ( + ) valuation reserves. p 33 FEDERAL RESER VE BANK OF SAN F R A N C I S C O they increased their borrowings by substantial amounts. The percentage increase in real estate loans was almost as much as total loans, with V A guaranteed loans increasing at a slower rate than all other types of real estate loans. Loans to in dividuals grew at a rate only one-third as rapid as during 1955, primarily because of the very moderate growth in retail automobile instalment loans outstanding. Farmers decreased their in debtedness to Twelfth District banks in all types of borrowing— real estate and non-real estate loans and those guaranteed by the Commodity Credit Corporation. T able 2 P r in c ip a l R e s o u r c e a n d L ia b ility Item s o f A l l M em b er B a n k s in t h e T w e l f t h D is tr ic t 19SS and 19561 (in millions of dollars) Dec. 31. 1955 Loans and investments ........ Loans and discounts n e t ... Commercial and indus trial loan s...................... Agricultural lo a n s .......... Real estate lo a n s ............ Loans to individuals........ U. S. Government obliga tions .............................. Treasury b ills .................. Treasury certificates of indebtedness................ Treasury n o t e s ................ U. S. b o n d s ...................... Other securities.................. Total assets ............................ Demand d ep osits.................... Time d ep osits........................ Total deposits ........................ Capital accoun ts...................... Dec. 31. 1956p Percent change $20,401 11,125 $20,949 12,616 + 2.7 + 13.4 3,793 489 4,351 2,155 4,631 448 4,859 2,308 + 22.1 — 8.4 4-11.7 4- 7.1 7,236 267 6,454 396 —-10.8 4-48.3 320 1,815 4,834 2,038 25,580 14,427 9,120 23,547 1,507 124 1,323 4,611 1,879 26,512 14,818 9,427 24,245 1,675 — 61.3 — 27.1 — 4.6 — 7.8 4- 3.7 4- 2.7 4- 3.4 4- 3.0 4-11.1 p Preliminary. 1A preliminary tabulation of all items of condition of Twelfth Dis trict member banks as of December 31, 1956 is now available for distribution. Requests for copies should be directed to the Federal Reserve Bank of San Francisco, 400 Sansome Street, San Francisco 20, California. A v e ra g e interest return on loans rem ains stable The record high earnings on loans reflect greater income from more loans outstanding rather than any significant change in the rate of return to banks in this District. The over-all rate of return on outstanding loans increased from 5.47 percent in 1955 to 5.49 percent in 1956. 34 This small increase reflects the fact that most of the loans involved were made in an earlier pe riod. However, as is well known, loan expansion in 1956 has been curbed by decreased availability of funds as well as by interest rate increases. P o tential borrowers have been granted amounts less than originally requested, they have been re quired to meet more rigid financial standards, and the maturity of some loans has been short ened. Some increase in interest rates on new loans has occurred, however, as evidenced by quarterly surveys of selected short-term business loans. Rates on these loans, at 4.25 percent in Decem ber 1955, averaged 4.65 percent in December 1956. Because the over-all rate of return is com puted on all loans outstanding, the addition of even a substantial volume of new loans at higher rates raises the over-all return only slightly. The effect of shifts in interest rates upon bank earnings from loans is not so evident in this Dis trict as in other parts of the nation because of the greater importance of real estate loans in bank portfolios here. W ith the nominal rates on F H A and V A loans fixed, the over-all rate of return on all real estate loans reacts only slowly to rising interest rates. Rates on consumer loans also showed little change last year. Furthermore, the share of commercial and industrial loans was somewhat larger in 1956 than in 1955 ; and these loans, although their rates respond more readily to general money market conditions, commonly are extended at a lower rate than the average to all types of borrowers. Earnings on securities fa ll as ho ld in g s d ecline In contrast to the earnings record on loans, interest and dividends on securities held by Twelfth District member banks declined 3 per cent. This resulted entirely from reduced hold ings of securities. During the first half of 1956, member banks in the District reduced their hold ings of United States Government securities by $780 million. T o keep losses to a minimum, and in keeping with their ordinary procedures, most of the securities sold were bills, certificates, notes, or other short-term securities. During the last half of 1956, the yields on Treasury bills be came even more attractive and banks were able to increase their holdings of these secondary re March 1957 MONTHLY REVIEW serves, thereby improving their liquidity posi tion. Although member bank holdings declined, Government security yields rose and the aver age rate of return increased from 2.11 percent in 1955 to 2.27 percent in 1956. C hart 1 E A R N I N G S , E X P E N S E S , AND P R O F I T S T W E L F T H D I S T R I C T M E M B E R BANKS MI LLI ONS OF O O L L A R S Higher yields on municipal securities, which constitute the major share of the other securities held, as well as those on corporate issues, were responsible for increased interest and dividends in this category. However, holdings of these se curities by member banks declined in every quar ter of 1956, although new flotations in 1956 of corporate and municipal issues combined were somewhat larger than in 1955. Earnings from service charges on deposit ac counts continued at record levels in 1956. These charges generally are levied on specified mini mum demand deposit balances and number of entries to these accounts, and on so-called “ Spe cial Checking Account” plans. Increased busi ness activity and a record demand for funds, combined with the Federal Reserve System’s at tempt to restrain an inflationary expansion of money, forced each dollar to do more work. Bank debits to demand deposits in the District were 10 percent greater in 1956 than in 1955, and total demand deposits at the end of the year were 3 percent higher than a year earlier. Thus, consid erably more checks were written on a somewhat larger volume of deposits, and revenues from service charges on checking accounts increased. Banks also added to their income by provid ing more fiduciary services. Trust department earnings were up almost 16 percent over 1955; however, other earnings, which include income from the title and foreign departments, rentals from the banking house, other real estate, and safe deposits, and interest on time balances at other banks, declined by one-half of 1 percent. Bank e x p e n se s rise sharply Accompanying record earnings were record expenses. Total expenses in 1956 increased $66 million or 12 percent over those of 1955, with all categories of expenses contributing to the growth. A s banking services expanded, aproximately 7,000 more officers and employees were required in 1956 than in 1955. Nearly 10,000 of ficers received about $82 million and 62,000 em- 1945 1951 1953 1955 Key to chart: 1 Profits. 2Taxes. 3 Net losses and charge-offs, including transfers to valuation reserves. *In 1945 and 1954 this area represents net recoveries on loans and securities. 4 Expenses. ployees about $205 million in salaries during 1956, a total increase in salary payments of 11 percent over 1955. Time deposits at District banks increased $300 million in 1956, somewhat less than the $420 million gain in 1955. W ith higher yields available in other channels of investment, some funds were undoubtedly diverted from member bank time deposits. The increased level of time deposits, however, cost Twelfth District banks 10 percent more in interest payments in 1956 than in the preceding year. Interest costs related to total time deposits increased from 1.66 percent in 1955 to 1.77 percent in 1956. In an effort to maintain a competitive position for savings dollars, many banks in the District raised the interest rate on time deposits to 3 percent, effective at the be ginning of 1957. Other expenses grew even faster. Interest and discount on borrowed money more than tripled as Federal Reserve and interbank borrowing costs rose. Higher operating costs for occupancy and maintenance of banking quarters, light, heat, 35 FEDERAL R ESERVE BANK OF SAN F R A N C I S C O supplies, and repairs also contributed to the 14 percent rise in “ other” expenses. N et lo sse s, ch a rg e -o ffs, and tran sfers to re se rve s a lso rise Net current earnings, the difference between current operating earnings and current operat ing expenses, were further reduced by nearly $68 million in net losses, charge-offs, and transfers to valuation reserves, an amount $13 million greater than in 1955. Security prices fell in both yea rs; and, as banks sold investments to obtain funds for lending, the transfers to valuation re serves, losses, and charge-offs amounted to $40 million in 1956 and $36 million in 1955. These sums were only partly offset by recoveries, profits, and transfers from reserves of $12 mil lion in 1956 and $10 million in 1955. Because of larger loan portfolios and fuller use of the laws regarding reserves for bad debts, member banks were able to increase valuation reserves for loans. Losses, charge-offs, and transfers to these reserves amounted to $40 million in 1956 compared with $28.5 million in 1955. Recover ies, profits, and transfers from reserves came to $4 million in 1956 and $3.2 million in 1955. T R a t io s to on E C a p it a l A a r n in g M A able 3 ccou nts a n d ssets— em ber B T an ks, Ratios to capital accounts All b a n k s.................................... 13 largest.................................... Net profits after taxes All b a n k s.................................... 13 largest .................................. Rates of return on Loans 13 la r g e s t .................................. O t h e r .......................................... Government securities All banks .................................. 13 largest .................................. O t h e r .......................................... R ates of w elfth D R eturn is t r ic t 1 9 5 4 -5 6 1954 1955 1956 21.7 22.3 19.1 22.1 22.5 20.7 22.8 23.0 21.6 11.6 11.5 12.1 10.2 10.6 8.7 10.2 10.6 8.4 5.4 5.4 5.8 5.5 5.4 5.9 5.5 5.4 6.0 2.0 2.0 1.9 2.1 2.1 2.1 2.3 2.3 2.3 Note: Capital accounts, loans, and Government securities items on which ratios are based are averages of Call Report data on De cember 31, 1955, June 30, 1956 and September 26, 1956. D ollar amount o f net profits sets new re co rd A s a result of higher income, taxes on net in come increased by $15 million from 1955 to 1956 36 and accounted for 44.9 percent of net profits be fore taxes in 1956 compared with 44.3 percent in the previous year. In dollar amount, net profits after taxes reached an all-time high of $164 mil lion, an increase of 5 percent over 1954, the pre vious record year. H owever, these higher dollar profits did not represent a greater return on the investment in District banking. Capital accounts increased sharply ($104 million) in the first quarter of 1956 but more gradually during the final three quarters. The total gain over the year was $168 million. Thus, the ratio of net profits after taxes to capital accounts was unchanged from 1955 to 1956, as is shown in Table 3. Cash dividends declared in 1956 amounted to 54 percent of net profits after taxes, with the re maining $74 million in undistributed profits con tributing to the growth in capital accounts. In 1955, 57.2 percent of the net profits had been returned to stockholders in cash dividends, com pared with 47.7 percent in 1954. Bank p rofits rise fa ste r in District than in nation Preliminary figures indicate that the earnings experience of all member banks in the United States was similar to that of Twelfth District banks. Earnings reached a record $6 billion, with earnings on loans providing most of the increase. Total loans outstanding in the nation increased 10 percent during the year; commercial and in dustrial loans, 17 percent; real estate loans, 9 percent; and consumer loans, 19 percent. The rate of return on loans of all member banks in the United States increased from 4.77 percent in 1955 to 5.01 percent in 1956, narrowing the cus tomary gap between rates in this District and the nation. Earnings from interest on Government securities did not decrease relatively as much in the nation as in the District, and the average rate of return on Governments rose more sharply. Total expenses increased somewhat more rap idly for all banks than for District banks, but no breakdown by type of expense is yet available. The most significant difference between United States member banks and those in the District appears in the section pertaining to losses, charge-offs, and transfers to valuation re serves. A ll member banks increased charges to these accounts by almost 44 percent, twice the March 1957 MONTHLY REVIEW percentage increase at District banks. N ew Y ork City member banks, which doubled charges to these accounts, were responsible for almost onefourth of the losses and charge-offs of all mem ber banks in the nation. Thus, profits before taxes, taxes on net in come, and net profits after taxes were each 4 per cent greater in the nation in 1956 than they had been in 1955, an increase considerably less than that shown by District banks. W hile District banks maintained the same ratio of net profits after taxes to total capital accounts, the ratio of all member banks in the nation decreased from 7.9 percent in 1955 to 7.7 percent in 1956. Cash dividends declared as a percent of net profits were similar in the District and the nation. O utlook fo r 7 9 5 7 Banks in the District and the nation moved into 1957 with the prospects of high dollar earn ings before them but with expenses definitely rising. The yields from higher interest rates should be more fully reflected this year than last and losses on Governments should be less as banks have so reduced their stock of liquid assets as to make further large reductions in their hold ings of Government securities unlikely in the fu ture. The largest single element of increased ex penses already definitely in view for District banks is the higher interest paid on time de posits. W ith such deposits totaling nearly $9.5 billion at the end of 1956 and about two-thirds of these subject to a full 1 percent increase, the T P E ercent xpense C hanges Item s Banks of by in able 4 S elected E a r n in g s T w e l f t h D is t r ic t M S i z e G r o u p , 1 9 5 5 -5 6 Earnings on lo a n s .................... Interest and dividends on Government securities.......... Other securities.................... Service charges on deposit accounts.................................. Trust department earnings . . . . Total earnings........................ Salaries and wages .................. Interest on time deposits........ Total ex pen ses...................... Net current earnings................ Profits before t a x e s .................. Taxes on net in com e ................ Net profits after t a x e s ............ Cash dividends decla red .......... and em ber All banks 13 largest banks Other banks + 19.0 +20.5 + 12.8 — 4.6 + 3.3 — 6.4 + 0.8 + 2.4 + 16.8 4-12.5 + 15.6 + 12.5 + 11.3 + 10.5 + 11.8 + 13.6 + 11.4 + 12.8 + 10.4 + 5.9 + + + + + + + + + + + + + + + + + + + 13.1 16.7 13.0 11.7 11.0 12.1 14.4 13.6 15.7 11.9 5.3 10.3 9.5 10.4 9.8 8.5 10.6 10.0 1.3 + 2.8 + 9.7 Note: Figures presented in this table for the 13 largest and the other banks are not entirely comparable, particularly for components of total earnings and expenses, because during 1956 a number of smaller banks went out of existence, some of which were consoli dated with banks in the 13-largest group. Adjustments for this factor would probably have little effect on the 13-largest figures but might mean significant changes in the figures for the other banks. dollar volume of interest cost will be substan tially larger than in the year just past. Few peo ple expect any reduction in wages and salaries or in other bank costs. Part of these increased expenses may be reflected in higher service charges as well as interest rates but, by and large, bank management will have to work just as hard and perhaps harder than last year to earn the same percentage return on the capital invested in banking. CONSUMER INSTALMENT CREDIT STUDY PUBLISHED The Council of Economic Advisors, on direction of the President, requested the Board of Gov ernors of the Federal Reserve System early in 1956 to undertake a broad study of consumer instalment credit and a review of the arguments for and against some form of government regulation of such credit. In order to contribute to a wider understanding of the role of consumer credit in the economy and its bearing on the problems of economic stability and progress, the results of this study are being published; and the first five of the six books are now available. This study is in four parts. Part I deals with the growth and import of consumer instalment credit in the economy. Volume 1 of Part I presents an integrated study of instalment credit and credit institutions, credit terms, characteristics of users, and issues of regulation, prepared by the research staff of the Federal Reserve System. The second volume is composed of six special studies which amplify and extend Volume 1. A set of analytical and discussion papers by outstanding scholars in the consumer credit field constitutes Part II of the survey. The two volumes of Part II are the outcome of a conference held 37 FEDERAL R ESERVE BANK OF SAN F R A N C I S C O last October at which 46 academic authorities from 28 universities met to examine the data and knowledge needed for effective public policy in the field of consumer instalment credit. These reports were prepared under the independent auspices of the National Bureau of Econom ic Research. Volume 1 discusses the position of consumer credit in the economy, and Volume 2 covers the pros and cons of regulation. Industry and consumer views on regulation are summarized in Part III. This is a one volume digest of opinions and judgments of such industry representatives as manufacturers, retailers, banks, and finance companies. The public is represented by the views of several consumer, labor, and farm organizations. Part IV , a volume on the financing of new car purchases, has not yet been completed. The date of publication and price will be announced in a later issue. The volumes which are available may be purchased from the Superintendent of Documents, Government Printing Office, Washington 25, D. C. The prices of the books are: Part I Part II Volume 1, $1.25 Volume 1, $1.75 Volume 2, $1.00 Volume 2, $ .60 Part III $1.00 March 1957 MONTHLY REV IEW BUSINESS INDEXES — TWELFTH DISTRICT1 (1947-49 a vera g es: 100) Y ota l C ar nonagri T o ta l D ep ’ t m f’g loadin gs cu ltu ra l E le c tr ic e m p lo y e m p lo y ( n u m sales C op p er3 p ow er ber)* m ent m ent (value)* In d u stria l p ro d u c tio n (p h y sica l v o lu m e )1 Y ea r and m o n th L um ber P e tro le u m 3 C ru d e R e fin e d C e m e n t Lead1 1929 1933 1939 1948 1949 1950 1951 1952 1953 1954 1955 1956 95 40 71 104 100 113 113 116 118 111 121 116 87 52 67 101 99 98 106 107 109 106 106 105 78 50 63 100 103 103 112 116 122 119 122 129 54 27 56 104 100 112 128 124 130 133 145 156 165 72 93 105 101 109 89 87 77 71 75 77 105 17 80 101 93 113 115 112 111 101 118 128 29 26 40 101 108 119 136 144 161 172 192 210 1956 January February March April May June July August September October November December 125r 119r 116r 117r 119r 121r 120r 117r 112r llOr lllr 112 106 106 105 105 105 105 105 105 104 104 104 103 130 128 128 122 129 125 132 128 136 128 135 132 135 145 149 160 173 161 160 171 168 163 146 139 71 79 76 82 74 82 75 84 78 81 79 72 134 129 131 140 135 135 110 123 122 127 123 123 1957 January 108 102 131 74 W a te rb o rn e fo re ig n tra d e 3** R etail To o a prices *, 4 E x p o rts Im p o r ts i02 99 103 112 118 121 120 127 134 ' 55 102 97 105 120 130 137 134 143 152 102 52 77 100 94 97 100 101 100 96 104 104 30 18 31 104 98 105 109 114 115 114 122 129 64 42 47 103 100 100 113 115 113 113 112 114 190 110 163 86 85 91 186 171 140 131 164 124 72 95 98 121 137 157 200 308 260 307 199 204 219 203 211 215 212 212 209 217 216 210 131 132 132 133 133 134 134 135 135 136 137 138 149 150 150 150 152 153 152 153 153 154 156 159 107 99 103 105 107 105 102 101 107 102 100 106 130 124 128 131 122 126 132 131 131 130 132 131 112 111 112 113 113 114 115 114 114 115 116 116 136 126 150 175 183 204 215 207 212 256r 242 354 323 395 397 519 427 559 500 459 563 401 220 139 160 105 131 116 BANKING AND CREDIT STATISTICS — TWELFTH DISTRICT (am ounts in m illions o f dollars) C o n d itio n item s o f all m e m b e r banks* Y ea r and m o n th L oans U.S. and G o v ’t d is c o u n t s s e c u r it ie s D em a n d T o ta l d ep osits tim e a d ju s te d 7 d ep osits 2,239 1,486 1,967 5,925 7,093 7,866 8,839 9,220 9,418 11,124 12,613 495 720 1,450 7,016 6,415 6,463 6,619 6,639 7,942 7,239 6,452 1,234 951 1,983 8,536 9,254 9,937 10,520 10,515 11,196 11,864 12,169 1,790 1,609 2,267 6,255 6,302 6,777 7,502 7,997 8,699 9,120 9,424 1956 February March April May June July August September October November December 11,323 11,476 11,669 11,837 12,030 12,157 12,173 12,423 12,384 12,504 12,804 6,819 6,731 6,730 6,566 6,482 6,396 6,439 6,491 6,468 6,431 6,383 11,233 11,112 11,530 11,144 11,262 11,392 11,356 11,581 11,747 11,867 12,078 9,095 9,103 9,099 9,139 9,294 9,233 9,286 9,305 9,326 9,235 9,356 1957 January February 12,488 12,556 6,505 6,356 11,812 11,279 9,587 9,690 1929 1933 1939 1949 1950 1951 1952 1953 1954 1955 1956 M e m b e r ban k reserves an d related te m s B ank rates on short-term b usin ess loa n s8 F actors a ffe ctin g reserves: Reserve b ank cr e d it9 _ — 3 20 ’ 3.35 3.66 3.95 4.14 4.09 4.10 4.50 + + + — + + + — 4.34 4.44 + + + 4.57 + +— 4.65 - + + C om m er cial^ T rea s u ry10 + + + 4* +i +i 34 2 2 13 39 21 7 14 2 38 52 0 - 110 - 192 - 930 -1,141 -1,582 -1,912 -3,073 -2,448 -2.685 -3,259 23 150 245 378 198 983 +2 265 +3 158 +2 328 +2 757 + 3 ,274 87 71 82 22 5 6 4 3 5 0 17 - 76 178 270 233 405 143 315 454 417 143 303 + + + + + + + + + + + 33 41 - 558 816 + 249 + 95 188 371 217 341 240 247 466 312 209 451 494 M on ey In c ir c u lation* B ank d e b its Index 31 cities3* u R eserves11 (1947-49100)* 6 18 31 — 65 — 14 + 189 + 132 + 39 — 30 -4- 100 96 175 185 584 1,924 2,026 2,269 2,514 2,551 2,505 2,530 2,654 42 18 30 102 115 132 140 150 168 172 191 + + 7 35 7 47 32 8 103 59 2 38 38 2,488 2,516 2,578 2,498 2,404 2,519 2,565 2,640 2,542 2,579 2,654 179 183 190 182 186 197 201 184 197 197 202 — 144 2,548 2,517 208 202 _ — + — + + + — — — — 139 1Adjusted for seasonal variation, except where indicated. Except for department store statistics, all indexes are based upon data from outside sources, as follows: lumber, California Redwood Association and U.S. Bureau of the Census; petroleum, cement, copper, and lead, U.S. Bureau of Mines; 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. a Daily average. * Not adjusted for seasonal variation. 4 Los Angeles, San Francisco, and Seattle indexes combined. 6 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and Washington customs districts: starting with July 1950, “ spe cial category” exports are excluded because of security reasons. • Annual figures are as of end of year, monthly figures as of last Wednesday in month. 7 Demand deposits, excluding interbank and U.S. Gov’t deposits, less cash items in process of collection. Monthly data partly esti mated. * Average rates on loans made in five major cities. • Changes from end of previous month or year. 10 Minus sign indicates flow of funds out of the District in the case of commercial operations, and excess of receipt* over disbursements in the case of Treasury operations. 11 End of year and end of month figures. u Debits to total deposits except interbank prior to 1942. Debits to demand deposits except U.S. Government and interbank deposits from 1942. p— Preliminary. r— Revised. 39
@FedFRASER