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F EDE RAL R E S E R V E BANK OF SAN F R A N C I S C O M O N T H L Y R E V I E W IN THI S ISSUE Public Treasurers' Money The Budget: Capital and Other Metropolitan Income MARCH 1966 Public Treasurers’ M oney . . . A ggressive bankers and sophisticated public treasurers brought about a sharp rise in b a n k s’ public time deposits. have The Budget: Capital and Other . . . O ve r one-third of the Federal budget is spent for major equipment, research and development, and other types of investment. M etropolitan Income . . . The W e st’s 14 largest centers contain almost three-fourths of the re g io n ’s population and income. Editor: W illiam Burke March 1966 MONTHLY REVIEW Public Treasurers' Money in banking practices creased their holdings of public time deposits have been frequent in recent years as 61 percent, from $1.7 billion in June 1961 to banks have attempted to maintain, or to im$2.7 billion in June 1965. But banks else prove, their competitive position vis-a-vis where recorded an even faster increase, from $3.5 billion to $7.8 billion, so that the Dis other financial institutions. On the asset side, trict’s share dropped from one-third to about banks have increased their penetration into one-fourth of the total over four years’ time. the fields of long-term business lending, mort gages, and municipal financing; on the liability These developments have brought several side, they have been more active in soliciting questions to the fore. Why have Twelfth Dis personal savings deposits and in obtaining trict banks maintained such a large share of funds through negotiable time certificates of public time deposits over the years? Why deposit, capital notes and debentures, and un have banks elsewhere evidenced such strong secured notes. Not surprisingly, the resultant interest in such deposits during this cyclical changes in the composition of banks’ assets expansion? How stable are such funds? And and liabilities have altered the reading of tra what effects do they have on banks’ problems ditional measures of bank liquidity, so that of liquidity? it has become increasingly difficult to assess District dominance the margins within which banks can safely District banks have built up their public and prudently operate. time deposits largely because of deliberate In this situation the past record of the pacepolicy decisions. They have been active in the setting Western banks may provide a useful solicitation of such deposits— as they have guide, since many of the recent developments have not represented as basic a change in Public time deposits grow rapidly, banking practices for them as for banks else but with some seasonal variation where in the nation. In other words, what for some banks have been innovations have been for Western banks simply extensions of longestablished practice— particularly in the timedeposits area. A major case in point is “pub lic” time deposits— that is, time deposits of states, municipalities, and other governmental units (except the Federal Government). N ew d e p a r tu r e s B i l l i o n s of D o l l a r s One-third of the total Early in this cyclical expansion (June 1961) Twelfth District commercial banks ac counted for one-third of total bank holdings of public time deposits. Their share of this category was even greater than their widely noted one-fifth share of savings deposits, and it was in striking contrast to their one-seventh share of total demand deposits. During the current cyclical upturn, District banks in FEDERAL RESERVE BANK in the case of savings deposits and corporate time deposits— in order to meet the strong mortgage-financing demands generated by the rapid growth in the West. This development has been made possible, moreover, by the existence in most District states of legislation permitting the investment of state and local funds in interest-bearing deposits. Specific legislative or regulatory authorization is re quired before the funds of states and political subdivisions may be invested in the form of interest-bearing commercial bank deposits. Each District state, except Idaho, has long authorized such investment, and as a conse quence, banks in practically every District state have substantial holdings of public time deposits. On the surface it might appear that District hanks built up these time deposits at the ex pense of their public demand deposits. In June 1961, for example, public time deposits in District commercial banks were 20 percent greater than public demand deposits, whereas public time deposits amounted to only onehalf of public demand deposits at banks else where. But legislation in all District states, except Arizona and Nevada, permits invest ment of public funds in other forms of in terest-bearing assets (generally United States Government securities and municipal issues). Therefore, by accepting time deposits from public treasurers, District banks retained balances which might otherwise have been withdrawn for investment in securities. Thus, at a relatively early date, District banks faced, in connection with public deposits, the type of situation which in 1961 led major banks in the East to introduce negotiable time certifi cates of deposit in an effort to retain their corporate deposits. Solicitation, legislation, and . . . Active solicitation of funds from states and political subdivisions and legislative authori zation permitting investment of public funds OF SAN FRANCISCO in time deposits, therefore, were the basic fac tors supporting the large holdings of public time deposits at District banks throughout past years. In the 1961-65 period, however, several other factors as well contributed to the very rapid growth in these deposits. Suc cessive revisions in Federal Reserve Regula tion O allowed banks to pay higher rates on time deposits and thus to remain competitive in a period of rising money rates. These higher rates induced governmental units to invest more of their idle funds in interest-bearing certificates or open time accounts. In fact, state and local treasurers responded with alac rity to these higher rates and became increas ingly alert to the earnings possibilities inherent in investing tax receipts between the date of collection and the date of disbursement. At the same time, increasing state and local budgets placed additional pressure on public treasurers to obtain interest income as a means of at least partially stemming steadily rising tax rates. Not surprisingly, then, District banks recorded a 61-percent increase in pub lic time deposits as against an 8-percent rise in public demand deposits between June 1961 and June 1965. Over the same period, commercial banks and state and local treasurers elsewhere real ized the mutual advantages of public time deposits and began to follow the Western lead with enthusiasm. These banks outside the Twelfth District actually increased their pub lic time deposits 121 percent over the fouryear period, as against only a 13-percent in crease in their public demand deposits. Throughout the country there existed the same heavy demand for deposit money, the same rate competition among banks, and the same alertness by state-and-local treasurers to the investment possibilities of time deposits. Many banks that had not been interested pre viously in paying interest on corporate and public deposits finally shifted their policy and March 1966 MONTHLY REVIEW actively sought such deposits as a means of augmenting their loanable funds. In the West and elsewhere, banks were increasingly able to attract funds through higher and more com petitive rates. Moreover, public treasurers throughout the country became increasingly sophisticated and enthusiastic about the in vestment of their idle balances. These develop ments influenced a number of states to enact new legislation (or to broaden existing leg islation) regarding the investment of public funds in interest-bearing deposits. Seasonality In view of this growing dependence of banks on public time deposits, the question arises: How stable are such deposits as a source of loanable funds? How has District-bank expe rience differed from that of those banks which only recently have begun to move into this field? An analysis of weekly-reporting bank data shows a strong seasonal fluctuation in such funds at District banks, in contrast to a minor seasonal fluctuation and a very strong secular uptrend at banks elsewhere. Public time deposits at District weeklyreporting banks displayed a distinct seasonal pattern in the 1961-65 period. These deposits generally peaked in late January, then de clined through March, rose again through May, and then dropped steadily until early November. In recent years, the JanuaryM arch decline has averaged about 6 percent while the May-November decline has aver aged almost 18 percent. The regularity of this seasonal movement has given banks leeway to plan any adjust ments in loan and security portfolios needed to meet the withdrawal of these time deposits. (The rising trend in public time deposits of course has eased this task even more.) More over, the seasonal peaks in public time de posits have come at very appropriate points of time, since they coincide with the two periods, in April and December, when passbook-savings accounts decline; in fact, as individuals withdraw their savings to pay income and property taxes, the banks recapture these funds in the form of public time deposits. Public time deposits at banks elsewhere have displayed a smaller seasonal fluctuation, with a 6-percent average decline between April and July being followed each year by a general upward surge from August through March. The strong secular increase in this series has obviously obscured seasonal move ments. But whatever the reason may be for the difference in seasonality, it remains true that Western public treasurers are quite ac customed to placing temporarily idle funds in time certificates. They normally deposit funds as collected and schedule the maturities of their certificates to meet expenditure needs. Treasurers elsewhere have been more con servative in this regard, but the increasing sea sonality in their deposits in 1965 suggests that they now are beginning to emulate their West ern colleagues, depositing funds for shorter time periods than heretofore. Collateral and liquidity Public time deposits create few worries when allowance is made for the predictability of their seasonal fluctuations. Nonetheless, one aspect of public deposits— collateral re quirements — raises important problems of liquidity. Most state and local governments, along with the U. S. government, require commer cial banks to maintain certain specific types of securities as collateral against their depos its. All Western states permitting such deposits (except U tah) require collateral ranging from 100 to 120 percent of the amount of public deposits. The state of California, which ac counts for one-fifth of the national total of public time deposits, requires 110-percent collateral against deposited funds. Most Dis trict states accept a wide variety of securities for collateral purposes — direct and guaran teed obligations of the U. S. government, Fed- FEDERAL RESERVE BANK District co llateral requirem ents immobilize half of security holdings TWELFTH DISTRICT JUNE I9S5 OTHER U.S. JUNE as collateral for deposits. eral agency securities, state, county, municipal and special district bonds, and state and mu nicipal registered warrants. The amount of the collateral demanded sometimes varies with the type of security or with the measure of value (m arket or par value). Collateral requirements are no problem when banks are highly liquid, with a high ratio of securities to deposits. But each successive business expansion over the postwar period has entailed a reduction in banks’ excess cushion of securities, especially short-term governments. In the Twelfth District the pro portion of banks’ security holdings immobil ized as collateral against Federal and public deposits increased from one-third in June 1961 to one-half in June 1965. (This assumes a 100 percent collateral requirement, although some states require more.) The increase in this ratio was largely due to the increase, from 62 OF SAN FRANCISCO 15 to 22 percent, in the proportion of banks’ security holdings pledged as collateral against public time deposits. Elsewhere in the nation the amount of collateral required against all Federal and public deposits increased from one-fourth to one-third of total security hold ings in the 1961-65 period. Thus, by mid1965, banks elsewhere approached the onethird involvement that District banks had al ready reached in 1961. At a time like the present— with loan de mand strengthening even after a five-year-long expansion, and with the loan-deposit ratio at the highest point since the 1920’s— any factor that reduces banks’ flexibility in handling their security portfolios also impinges on their liquidity. A security portfolio functions not only as a source of earnings or as a potential source of loanable funds, but also as a liquid ity reserve available to meet large and unex pected demands on bank resources. For any individual bank, the margin of liquidity re quired varies with its asset and liability struc ture. But any prior demand on a bank’s secu rity holdings automatically reduces the flexi bility needed for meeting potential liquidity requirements. Meanwhile, from the standpoint of public treasurers, bank time deposits continue to serve as a worthwhile repository for temporar ily idle funds. By placing these funds with banks, treasurers earn an attractive interest return— and, in view of the recent revision in Regulation Q, interest rates offered by banks should remain attractive because banks are presently able to offer rates competitive with other money-market instruments. — Ruth Wilson. March 1966 MONTHLY REVIEW The Budget: Capital and Other gories, with each category broken down into budget for fiscal 1967 is civilian and military components. truly an awesome document, with its 440 pages of text and its 1,308 pages of appen A capital budget? dices. But although the bulk of the document Special Analysis D permits a distinction— is in keeping with its purpose— after all, it although not a clear-cut one— between invest deals with the raising and spending of over ment-type expenditures and current operating $100 billion— a close reading of the entire expenditures. The classification hinges upon budget document is limited to the dedicated the question whether outlays provide benefits few. beyond the current year. The distinction is To help focus attention on precisely where self-evident in several cases; for example, the money goes, the Bureau of the Budget in capital investment includes public works and recent years has compiled a number of special other development expenditures which pro analyses giving detailed expenditure break vide long-run benefits, and current expendi downs. One especially useful treatment is pre tures include outlays for operating purposes. sented in Special Analysis D ( “Investment, The difference is less obvious, however, in the Operating and Other Expenditures” ). This case of some current disbursements for grantsanalysis arranges administrative budget ex in-aid; for example, welfare payments are cur penditures functionally in several broad caterent outlays, but pay IN V E S TM E N T, O P ER A TIN G , AND O TH ER EX P E N D ITU R E S ments for urban renew FED ER AL A D M IN IS TR A TIV E B U D G E T, F IS C A L Y E A R S 1965-67 al have an investment (millions of dollars) flavor because they 1965 1966 1967 promise future bene A d d itio n s to Federal assets fits. C iv il Loans an d fin a n c ia l investm ents 1,873 67 — 2,338 At any rate, Special 2,603 3,309 3,208 P h ysical assets Analysis D presents a N a tio n a l defense 14 , 00 / 16,272 17,854 Total 18,483 19,648 18,724 rough approach to the D evelopm ental expenditures type of capital budget 10,502 C iv il 8,084 12,538 ing which is common 7,884 N a tio n a l defense 8,045 8,090 18,547 Total 15,968 20,628 in business and wide A d d itio n s to no n -federal a sse ts: Total 1,554 1,711 2,191 spread among govern Current expenses fo r a id s an d mental units. (Sweden sp ecial services 17,807 C iv il 18,986 20,370 for the past generation N a tio n a l defense 1,333 1,330 1,149 has operated with cap Total 19,140 20,316 21,519 ital budgets.) The pur O ther services an d current-operating expenses pose of capital budget C iv il ing is to ensure that as 11,435 12,104 Interest 12,854 3,878 O ther 3,773 3,865 sets which have a useful N a tio n a l defense 30,897 26,920 33,426 life of many years are 42,233 Total 46,774 50,145 financed over the life A llo w a n ce s an d contingencies of such assets, so that a n d interfund tran saction s — 870 — 572 — 362 96,507 this financing is segre G ran d total 106,428 112,847 gated from current opSource: The Budget of the United. States Governm ent, 1967, D a ta for 1966-67 are estimates. he F ederal T FEDERAL RESERVE BANK erating expenditures. The classification of ex penditures in this fashion recognizes the dif ference in character and purpose between investment and current spending. Although Special Analysis D segregates capital items as those with a life expectancy beyond the year in which outlays are made, this analysis — unlike a strictly defined cap ital budget — does not distinguish between the budget year in which expenditures are made and the year or years in which benefits are received. In this respect, all budget ex penditures are viewed essentially as currentexpenditure items; for example, the same treatment would be accorded the construction of a new post office, the day-to-day mainte nance of that facility, and the salaries of postal workers employed therein. All expenditures would enter the budget on the same footing and would have equal weight in determining budget surpluses or deficits. This approach ignores the fact that benefits from the con struction of the capital facility would be spread out over a number of years, while maintenance spending would confer benefits only in the current period. The analysis thus tends to present a somewhat misleading pic ture of the distribution of government benefits in relation to costs at any point of time. OF SAN FRANCISCO How much for investment? Despite these qualifications, Analysis D presents a very useful distinction between in vestment-type spending and current expendi tures. In fiscal 1965, investment-type spend ing included $18.5 billion for additions to Federal assets and $17.5 billion for other developmental expenditures, while current ex penditures included $19.1 billion for current aids and services and $42.2 billion for other current expenditures. (“Investment” is defined broadly to include financial as well as real investment.) Additions to Federal assets provide the best approximation to gross investment. This cate gory includes spending for major equipment, public works, loans, and commodity inven tories. Each of these four elements amounted to roughly $2 billion or less in the pre-Korean period, but since Korea two of them have increased substantially while the other two have stabilized or declined. Spending for major equipment has risen sharply under the stimulus of military hardware procurement. Public works spending also has expanded over time, but with an especially large upsurge in 1949-53 associated with Korean War mili tary construction. On the other hand, Federal Investm ent-type spending rises sh a rp ly under stimulus of m iiitary-hardware procurement and research-and-development B illio n s of Dollars B illio n s of D o llo n ADDITIONS TO A S S E T S AIDS AND SP E C IA L S E R V IC E S V E TER A N S Agriculture*®*^ Other Development Commodity Inventories a— ■Loam OTHER CU RREN T E X P E N S E S Additions la Assets GEN ER A L ADM IN ISTRATION OTHER DEVELO PM EN T A i4 i and Special Sarvici Interest Education Health 64 March 1966 MONTHLY REVIEW loans have fluctuated at a relatively low level because of changes in the agricultural support program, and commodity inventories have trended downward because of reductions in stockpiles of strategic materials and agricul tural commodities. (Loan programs and com modity inventories are related, of course, since the Commodity Credit Corporation adds to its inventories when crop loans are not repaid.) Other development spending has risen sharply in recent years as a consequence of the research-and-development boom. R & D spending rose gradually over the 1951-58 pe riod, but it subsequently skyrocketed in both military and civilian fields. The remaining components of this category have entailed considerably smaller amounts. Spending for education, training, and health declined dur ing the 1949-52 period as G.I. Bill education benefits came to an end, but it is now rising rapidly as disbursements have begun for the economic opportunity program, vocational education, and manpower training. Additions to state-local assets resulting from Federal expenditures have shown no discernible trend, with the exception of a 1957 decline associ ated with the transfer of Federal highway ex penditures to the highway trust fund. And for current spending? In the current expenditure category, some funds are allocated in the form of current aids and special services. Most of these consist either of transfers to veterans and welfare recipients or of subsidies to farmers, business men, and homeowners. Agricultural subsidies have exhibited the most rapid growth, with the bulk of the payments being made by the Commodity Credit Corporation under the special export program and the commodity price-support program. Veterans’ benefits have remained large but relatively stable, ex cept for a 1950-54 decline due to the drop in G.I. Bill subsistence allowances. Foreign aid expenditures, on the other hand, have dropped sharply as grant programs have been replaced by lending programs. (Loans are included in Federal asset accumulation rather than in cur rent spending.) Other current expenditures, which account for over 40 percent of the total administrative budget, represent mostly outlays for general government administration. This category in cludes payrolls and supplies, maintenance of equipment and facilities, and interest pay ments on the public debt. Both general ad ministration and repair-maintenance increased sharply in the Korean period and then de clined, but recently they have moved sharply upward again. Interest payments have ex panded rapidly over the years, partly because of the growth of the public debt but mostly because of the increasing interest rate on the debt, from 2.24 percent in 1949 to 3.68 per cent in 1965. Impact of defense The growth of military spending has been probably the most important structural change in the administrative budget in the post-1949 period. The military sector accounted for less than one-third of the administrative budget in the 1949-50 fiscal years, but it rose to twothirds of the total in 1952-54 before tapering off. Military spending even now accounts for over half of the administrative budget, and military demands are diverse as well as large, encompassing as they do substantial require ments for personnel, equipment, and the de velopment and evaluation of weapons sys tems. In the investment category— additions to assets plus other development spending— military spending of $21 billion in fiscal 1965 substantially exceeded the civilian total, while in the current-expenditure category, the $28billion military total fell somewhat below the civilian total. Over the years, military investment has in creased rapidly. Expenditures for military FEDERAL RESERVE BANK OF SAN FRANCISCO D iverse m ilitary req uirem ents —for personnel, equipment, and weapons-systems development—account for half of total spending B illio n s of Dollars B illio n s of Dollars 30 20 ADDITIONS TO A S S E T S P*rc«nt 100 . M ILITA R Y E X P E N D ITU R E S P E R C E N T OF BUDGET C ivil OTHER CU RREN T E X P E N S E S OTHER DEVELOPM ENT i . it I, 11.1 I960 1965 1955 hardware and for military pubHc-works facil ities jumped from $2 billion to $22 billion over the 1949-53 period, and since then they have remained in the range of $14-$ 18 billion a year. Civilian investment meanwhile has fluctuated around the $4-billion level, except for a 1959 bulge associated with an increase in crop-support loans. In the other-development category, military spending has increased substantially to a level of about $8 billion to day, but civilian spending recently has risen even more sharply to $ 10 billion, on the basis of the post-1957 boom in space spending. In one current-expenditure category, aids and special services, military spending has been overshadowed by civilian transfer and subsidy payments; outlays recently have to taled about $1 billion for the military as against $18 billion in civilian payments. But other current expenditures— that is, general operating expenses— have become dominated by the military, with spending now at the $27 billion level as against $15 billion for the civilian sector. Military expenditures in this category were higher in 1965 than at the Kor I960 i— i I 1965 Io ean War peak. Most of this spending is related to the maintenance and repair of military equipment and facilities; the total stock of such facilities has increased over the years, even in the face of declining expenditures for military hardware, so maintenance costs have grown apace with the rising stock. Investment's growing role Although current expenditures continue to grow and to account for the bulk of administrative-budget spending, investment-type pro grams have become increasingly important over time. In relation to the pre-Korean pe riod, a definite shift has occurred in the budget in favor of investment spending. Investmenttype programs accounted for less than onefourth of total spending in 1949, but they now account for about three-eighths of the total. At the present time, investment-type pro grams are showing divergent movements. In the category of asset expansion, military spending is scheduled to increase from $14.0 to $17.9 billion between fiscal 1965 and fiscal 1967, but this increase should be offset by a MONTHLY REVIEW March 1966 shift in civilian loans, which grew by $1.9 bil lion in 1965 but are due to drop by $2.3 billion in 1967. In the category of other-development expenditures, on the other hand, military spending is budgeted to rise slightly from $7.9 to $8.1 billion, but civilian spending is budg eted to soar from $9.6 to $14.7 billion. Sub stantial gains are scheduled for education, training, and health, as well as for the expan sion of Federal grants that will increase statelocal government assets. — Herbert Runyon. Twelfth District Business Condition items of all member banks (millions of dollars, seasonally adjusted) Year and Month 1959 I960 1961 1962 1963 1964 1965 1965: Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. 1966: Jan. Bank debits 31 cities (1957-59 = 100) Bank rates: short-term business loans Total nonfarm employment (1957-59 = 100) 5.36 5.62 5,46 5.50 5.48 5.48 5.52 Loans and discounts U.S. Gov’t. securities Demand deposits adjusted Total time deposits 15,908 16,612 17,839 20,344 22,915 25,561 28,115 6,514 6,755 7,997 7,299 6,622 6,492 5,842 12,799 12,498 13,527 13,783 14,125 14,450 14,663 12,502 13,113 15,207 17,248 19,057 21,300 24,012 109 117 125 141 157 169 182 25,853 26,120 26,539 26,525 26,755 27,059 27,327 27,283 27,409 27,595 27,796 28,115 6,337 6,659 6,538 6,212 6,183 6,010 5,813 5,881 5,894 6,203 6,103 5,842 14,430 14,453 14,714 14,405 14,365 14,832 14,532 14,521 14,730 14,705 14,653 14,663 21,669 21,878 21,996 22,184 22,211 22,492 22,718 22,805 23,084 23,261 23,596 24,012 179 176 181 180 182 168 186 180 187 188 184 187 28,497 5,840 14,761 23,869 195 5.44 5.47 5.53 5.62 Industrial production (1957-59 = 100) Lumber Refined Petroleum Steel 104 106 108 113 117 120 124 109 98 95 98 103 109 101 104 108 111 112 115 120 92 102 111 100 115 130 138 122 123 123 123 124 124 124 125 125 126 127 128 110 109 119 101 103 104 112 108 113 115 111 116 117 119 120 122 120 125 122 121 122 123 116 138 144 151 149 147 147 143 139 134 126 125 121 128 128 67 FEDERAL RESERVE BANK OF SAN FRANCISCO Concentration in the Cities IN C O M E B illio n s of D ollar* 350 300 I Nonmetropolitan 250 P O P U L A T IO N M illions 200 O ther U.S. 150 M e t r o p o lit a n 100 I I 50 0 Nonmetropolitan Me tr o po lita n 1959 1963 1959 1963 The West’s 14 largest metropolitan areas accounted for 70 percent of the region’s total population and for 73 percent of its total income in 1963. M etropolitan con centration was less marked elsewhere, since the rest of the nation’s 100 largest centers accounted for 53 percent of the total pop ulation and for 61 percent of the total in come outside the Twelfth District. . . . Between 1959 and 1963, the large W est ern centers recorded a 15-percent increase in population and a 28-percent gain in in come. Metropolitan areas elsewhere scored a 12-percent population increase and a 20percent income gain in the same period. (The charts show Census population data and Internal Revenue income data.) Concentration in Higher Brackets Metropolitan-area taxpayers in both Northern and Southern California were more strongly concentrated in high-income brackets in 1963 than were their counter parts elsewhere. Almost 21 percent of Northern California city-dwelling families, and 19 Vi percent of those in Southern California, received $10,000 or more in adjusted gross income in that year, while only 15 percent of metropolitan-area fami lies elsewhere were above that income line. . . . A t the other end of the scale, about 35 percent of the city families in California and other District areas reported incomes of less than $4,000 in 1963. The propor tion was 38 percent in metropolitan areas P e rc e n t D i s t r i b u t i o n (1963 ) 20 M E T R O P O LIT A N AREAS Other D is t r ic t S. C A L IF . 15 10 O th er U.S 5 0 L*— i— «— i— i----------- 1------------------------ j ________________i___________ I 0-2 2-4 4-6 6-8 8-10 T h o u s a n d s of D o l l a r s 10-15 15*25 25andOv*r March 1966 MONTHLY REVIEW L. A.: The Second City The nation’s second largest city grew faster than either of its two major competi tors during the 1959-63 period. Metropoli tan Los Angeles (Los Angeles and Orange counties) increased its population 15 per cent (to 7.6 million) and its income 27 percent (to $19.2 billion) over that fouryear timespan. L. A.’s percentage gains were roughly twice as great as those of New York and Chicago. . . . Metropolitan Los Angeles, as a consequence of this rapid growth, accounted for 4 percent of the na tion’s total population and over 5 percent of total income in 1963. But New York still remained about half again as large as the California metropolis. Cain in Family Income Average family income in the 14 largest Western centers grew from $5,990 to $6,720 between 1959 and 1963. In metro politan areas outside the District, average income increased from $5,610 to $6,330 over the same period. . . . The San Fran cisco Bay Area led other Western centers in 1963 with a $7,150 average per family. The Southern California metropolitan av erage was $6,780, and this was followed by $6,530 for Puget-Willamette cities, $6,300 for California’s Central Valley cities, and $5,920 for the major inland centers. . . . Average family income, after payment of Federal income tax, ranged from $6,120 in the San Francisco Bay Area to $5,210 in the major inland centers. -—Paul Ma. .-W ■ ’ < " : ' M e t r o p o l i t a n P e r F a m ily In c o m e ( T h o u s a n d s o f D o l l a r s ) 1 9 6 3 FEDERAL RESERVE BANK OF SAN FRANCISCO Western Digest Banking Developments F or the first two months of 1966, total bank credit at Twelfth District weekly reporting member banks declined $500 million. This decrease, which was about four times greater than the year-ago decline, was due mainly to large reductions in holdings of short-term Government securities. . . . The loan expansion in the first two months of 1966 roughly matched the early-1965 increase. In particular, the $ 130-million business-loan increase approximated last year’s contra-seasonal rise. Other plus factors were loans to securities dealers and mortgage financing. Consum ers, however, reduced their borrowings. . . . The early-! 966 reduction in demand deposits adjusted was slightly less than the decline in the first two months of last year. District banks, however, showed a decline of $13 million in total time-andsavings deposits, as contrasted with last year’s substantial $643-million gain. The reduction was centered in public time deposits and passbook savings; negotiable time certificates and savings certificates both rose in response to higher interest rates. Employment and Unemployment Labor demands created by the rapid pace of business activity continued to reduce the ranks of the unemployed in early 1966. In February, for example, the jobless rate dropped sharply, from 5.4 to 5.1 percent in California and from 4.0 to 3.7 percent in the nation as a whole (seasonally adjusted). . . . Aerospace employment continued its recovery in January, as District manufacturing facilities added about 8,000 workers during the month. With 602,000 employees at work in the industry, about two-thirds of the 1963-65 employment decline has now been offset. In fact, a growing shortage of qualified aerospace workers now appears to hamper the industry’s attempts to expand employment further. Production Developments Accelerated strike-hedge buying and heavy Government purchases boosted West Coast lumber and plywood prices to near-record levels in early March. With union contracts expiring June 1, and with Vietnam construction demands increasing, lum ber prices were 13 percent and plywood prices 28 percent above year-ago levels. . . . Strikes at Chilean copper mines and Government set-asides restricted the supply of copper for civilian purposes during February. Beginning in the second quarter, 10 percent of the copper refined from domestic ore will be set aside for defense purposes; the limitation to domestic copper is to ensure that Defense Department purchases will be based on the domestic 36 cents-a-pound price quotation. . . . In aluminum, set-asides for defense purposes were increased in January to about 10 percent of total industry shipments. In view of the industry’s recent boom, one major aluminum pro ducer announced plans to spend about $100 million over the next several years in expanding its primary reducing facilities at Longview, Washington, and Troutdale, Oregon. Publication Staff: R. Mansfield, Chartist; Phyllis Taylor, Editorial Assistant. Single and group subscriptions to the Monthly Review are available on request from the AdminAdmin istrative Service Department, Federal Reserve Bank of San Francisco, 400 Sansome Street, San Francisco, California 94120 71
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