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FEDERAL RESERVE BANK OF SAN F R A N C I S C O May 1957 Review of Business Conditions............. 54 The Twelfth District Municipal Securities M a rk e t..............................57 REVIEW OF c o n o m ic BUSINESS CONDITIONS activity in the nation continued at E high levels in the first quarter of the year. Gross national product, however, increased less than 1 percent between the closing quarter of last year and the first quarter of 1957, compared with a rise of nearly 2.5 percent between the third and fourth quarters of 1956. M ost of the gain was attributed to higher average prices in the first quarter of this year as compared to the preced ing three months. The data on gross national product, shown in Table 1, reflect the wide vari ety of crosscurrents which affected business in the early months of the year. Private domestic investment, an important expansionary force last year, fell during the first quarter. The principal factor in this decline was the sharp reduction in new investment in inventories. Investment in residential structures also fell, but by a minor amount. Serving as a partial offset to these de clines were increases in spending on commercial and industrial building and on producers’ dur able equipment. T h e gain in equipment outlays, however, was much smaller than in the average quarter last year. T h e decline in private domestic investment was largely responsible for the failure of business activity to register a greater increase. Spending by consumers rose by a fair amount and was ac companied by rising state and local government outlays, further growth in national security spending, and a substantial gain in private invest ment abroad. Three-fourths of the increase in consumer spending appeared in the nondurable and service segments of consumer outlays. T o the disappointment of durable goods producers, the rise in durable spending was rather small. Sales of automobiles, an important component in consumer durable outlays, increased only slightly from the fourth quarter; and home appliance sales also fell below expectations. Conditions in the consumer durable goods markets affected production schedules and in duced m ore conservative inventory policies in a number of lines. These more cautious inventory practices also reflected, in many instances, in 54 creased availability of primary and sem i-proc essed raw materials. Failure of consumer spend ing on durables to live up to expectations, more abundant supplies of some goods, and weakness in residential construction retarded econom ic activity nationally. In view of these various crosscurrents, the fact that business activity in creased slightly in the first quarter indicates basic strength in the economy. T able 1 G ross N a t io n a l P roduct Seasonally A djusted A nn ual R ates (in billions o f dollars) ....... 195f T h ird F ou rth qu arter quarter 1957 F irst quarter T o t a l G r o s s N a tio n a l P r o d u c t . $ 4 13.8 $ 4 2 3 .8 $427.1 P erson a l C o n su m p tio n E x p e n d i t u r e s ...................... D u ra b le s .................................. N o n d u r a b le s ........................... S e r v ic e s ..................................... 26 6.8 33.0 134.0 99.7 27 0.9 34 .8 134.7 101.4 2 7 5 .0 35.9 136.4 102.7 65.1 15.5 68.5 14.9 63.3 14.2 G ro ss P riv a te D o m e s tic In v e s t m e n t ........................ R e s id e n tia l c o n s tr u c tio n . . C o m m e rcia l and in d u strial c o n s tr u c tio n ...................... A l l o th e r c o n s t r u c t i o n .. . . P r o d u c e r s ’ d u r a b le e q u ip m e n t ........................... C h a n g e in in v e n t o r i e s .. . . 11.7 6.4 11.4 6.6 11.6 6.7 29.5 2 .0 31.5 4.1 32.0 — 1.2 F e d e r a l ..................................... S ta te and lo c a l.................... 80 .2 47 .2 33.0 82.0 48.3 33.7 84.9 49 .8 35 .0 N e t F o r e ig n I n v e s t m e n t . . . . 1.7 2.4 4 .0 Source: United States Department of Commerce. In the Twelfth District there was also a marked change in the pace of business activity. F or the first time in several years, business activ ity in the District appeared to be no stronger than in the nation. Changes in total nonagricultural employment in the District almost paralleled those in the nation after allowing for seasonal forces. In contrast, total nonagricultural employ ment during 1955 and 1956 clearly grew more rapidly in this District than in the nation. F u r thermore, District employment during the first quarter of 1957 barely exceeded that of the fourth quarter of last year, while in 1956 there was a significant rise in every quarter. May 1957 MO N T H L Y REVI EW District employment d ip p ed slightly The loss of the buoyancy that kept business rising in the Twelfth District for more than two years is evident in employment figures. F or two months in succession nonfarm employment has shown small decreases after seasonal adjust ment. The change from February to March amounted to less than one-half of one percent, as slight increases in service, finance, and trans portation employment were offset by declines in manufacturing, mining, and contract construc tion, Trade and government employment re mained at about the February level after seasonal adjustment. As a result of a 2.5 percent drop, after seasonal adjustment, from February to March, construc tion employment in the District now stands at a level 2 percent below the M arch 1956 level. M ost of the loss is centered in California and O regon, although employment gains reported by other District states were smaller than those usually expected at this time of the year. Manufacturing employment in the District, while down slightly after seasonal adjustment, was at a record M arch level, about 6 percent above the year-ago total. Gains from February to M arch were reported in food processing, lum ber, aircraft, machinery, automobiles, fabricated metals, and electrical equipment. H ow ever, gains in lumbering and food processing were less than seasonal. In addition, monthly increases in air craft employment have recently been smaller than those which characterized last year’s rise. Another development in District manufacturing industries should be noted: Total man-hours worked in Pacific Coast manufacturing indus tries declined slightly after seasonal adjustment from January through M arch because of a reduc tion in the average length of the w ork week in O regon and smaller-than-seasonal employment gains in a number of Pacific Coast industries. Building permit activity rises The decline in construction employment men tioned above reflects, for the most part, the slack ened pace of residential construction. Although preliminary estimates of building permit activity show February-M arch increases of 21 percent for residential valuations and 31 percent for total permits, these are nevertheless down 15 and 12 percent, respectively, from M arch 1956 figures. The more moderate drop in employment than in permits issued stems from several factors. After a period of increases in building permits, con struction underway is at a high level and it takes some time before a decline in permits has a marked effect on employment. Aside from the time lag between changes in permit activity and changes in construction em ployment, activity in heavy construction has served to reduce the adverse effects upon em ployment of the year-to-year decline in building permit activity. H eavy construction projects, especially those connected with the expansion of public utilities— dams, power generation facili ties, and pipelines— remain well above year-ago levels. There are expectations in some quarters that publicly financed building may show in creases in com ing months and could sustain the rate of construction activity. District production shows diverse movements W eekly estimates of steel production in west ern states indicate that operations have been close to 100 percent of capacity. Operations at blast furnaces rose to 104 percent of capacity in March, but activity in steel finishing plants dropped slightly to 98 percent of capacity. In both cases figures for the western area remain significantly above those for the nation. The prospects for continued strong demand for steel in this District have induced one firm to in crease its expansion program from $113 mil lion to $193 million. Lumber production in the Twelfth District continues to reflect the relatively low level of new residential construction. The total of new hous ing starts in the nation for the first four months of 1957 was the lowest since 1949, although April starts rose 11 percent from the low M arch level to an annual rate of 940,000 units. Few signifi cant adjustments in either price or production of lumber have occurred recently. Prices of red wood, western pine, and Douglas fir plywood have remained firm ; but there has been some additional decline in quotations for certain types of Douglas fir in the past month. From the end of February to the middle of April, Douglas fir out 55 F EDERAL RE SE RVE B ANK OF S A N F R A N C I S C O put in some weeks has been running above that in 1956, but for the year so far it is down 7 per cent. Since orders and shipments have declined by a larger percentage, inventories have been in creasing and in m id-A pril were about 13 percent larger than a year ago. Production of western pine is down about 9 percent for the year. De clines in shipments and orders have been smaller, so inventories have receded from the high level reached last December. R edw ood production in the first quarter was down 5 percent from the opening months of 1956. Stocks at the end of M arch were up 11 percent since shipments had decreased 14 percent. Production of plywood has also declined and so far this year is 7 percent below the same period in 1956. In April there were reports that some mills were resuming fiveday-a-week operations after two months on a four-day schedule. Twelfth District retail trade m oderately strong Consumer spending at retail establishments in the W estern Census Region (based on data for stores operating from one to ten outlets) in the first two months of the year rose approxi mately 4 percent above the same period a year earlier. M arch sales at District department stores, after allowance for the fact that the Easter shopping period occurred in M arch in 1956, rose about 4 percent above last M arch and gained 6 percent from the February 1957 level. In the four-w eek period ending April 20, sales were 6 percent above the 1956 pre-Easter period. A ll m ajor areas in the District except Sacramento, San Francisco, and downtown L os Angeles shared in the gain. N ew passenger car registrations in the Twelfth District in the first quarter of 1957 were 5 per cent above the year-ago period. Gains of 40 per cent in A rizona and 12 percent in California more than offset declines in other District states. In the Pacific Northwest registrations were o ff 20 per cent from the same period in 1956. Loans and Governm ent security holdings of District banks expand Loans outstanding at weekly reporting mem ber banks in the District expanded moderately during the four weeks ending A pril 24. The gain of $63 million in total loans was much smaller than in the comparable period a year earlier when they rose by $203 million. Loans to com mercial and industrial firms increased $28 m il lion this year, but the gain was only one-fourth as large as that of a year ago. Security loans, agricultural loans, and “ other” loans also e x panded, while real estate loans declined. In mak ing these year-ago comparisons, however, it should be noted that the increases in both total loans and in commercial and industrial loans in the corresponding period of 1956 were unusually large. A m ong business borrowers, public utilities and transportation companies and wholesale and re tail establishments accounted for the m ajor por tion of the growth in loans. These firms, in fact, had borrowings greater than in the same period in 1956. T h e increase in credit extended to wholesalers and retailers is associated with the financing of Easter inventories, while the rise in net borrowings of utilities and transportation firms may represent interim credit needs arising from expansion plans currently underway. There was also an increase in “ unclassified’’ loans and in net borrowings of “ other mining and manu facturing firms.” M ost other business categories reduced their use of credit. The largest reduc tion was a seasonal decline in loans to food p roc essors. A lso during the four weeks ending A pril 24, District reporting member banks added to their Government securities by an amount almost four times greater than the expansion in loans. M ost of the increase was centered in holdings of Treasury certificates and notes and reflected the cash sale by the Treasury of $3.4 billion in new issues late in March. The purchase of these new issues was attractive to banks since the Treasury per mitted payment by credit to the Treasury’s tax and loan account on the books of the banks. Thus, banks were able to purchase the securi ties by making the equivalent of a partial pay ment equal to the reserves necessary to cover in creases in Treasury deposits. H oldings of both Treasury bills and certificates on A pril 24 stood above those of a year ago, although the total amount of United States Government securities held was still considerably below that on the comparable date a year ago. May 1957 MONT HL Y REVI EW The Twelfth District Municipal Securities Market has been much discussion and debate in the last year or m ore concerning the im pact of tight money upon various types of e x penditures, particularly those forms that rely heavily upon the use of borrowed funds. In a period of boom ing business, the objective of a restrictive monetary policy is to keep the growth in the total volume of spending in line with our ability to increase production, so that spending will not outrun productive capacity and cause prices to rise, thereby creating an inflationary situation. Free market forces are relied on to transmit the effects of monetary policy, and the impact of the policy upon particular types of ex penditures will vary depending upon the particu lar conditions that exist in each of the more spe cialized markets. The purpose of this article is to examine the effect of monetary policy upon the municipal securities market, with primary reference to conditions in the Tw elfth District during 1956. A s a result of large over-all credit demands and a limited supply of funds, interest rates of all types have risen in the last year or two. This rise in rates is one of the factors that serve to allo cate the available supply of funds among com peting uses. In the sale of their securities, state and local governments compete with other de mands for long-term funds such as mortgage credit and the sale of corporate securities to finance capital expansion. These demands for long-term credit also impinge upon the supply of funds available to meet demands for short term credit of various types, since there is no hard and fast rule at any particular time as to how the total supply of lendable funds is to be divided between short- and long-term credit needs. Yields on municipal securities are now higher than they have been for almost two decades. M oreover, because of present high income tax rates, the tax exemption advantages which mu nicipal securities offer to investors in the higher income tax brackets make their current yields compare more favorably with other debt security yields than they did during the 1930’s. Their at tractive yields have tended to create a more fav T h e r e orable supply of funds in the municipal than in the mortgage market, for example. M arket for municipal securities has been favorable The evidence available for both the Twelfth District and the country as a whole suggests that state and local governments have had relatively little difficulty in selling their securities during the last year or more. The Investment Bankers Association of Am erica has estimated that about 93 percent of the $4,370 million of municipal bonds offered for sale throughout the country in the nine months ending M arch 31, 1957 were sold upon initial offer. O f the remaining 7 per cent, about two-fifths were subsequently reof fered and sold during the period. Four large issues— all highway issues— accounted for about two-thirds of the $321 million of issues that had been offered and were still unsold by M arch 31, 1957.1 In fact, about one-third of all the highway and bridge bonds that were offered for sale re mained unsold during the period. In contrast, less than 3 percent of the school bonds were un successful upon initial offer. Since schools, in general, probably have higher social priority than highways, the w orking of free market forces in this case tended to allocate funds in accordance with this scale of priority. These data for the United States relate only to those issues that were actually offered for sale. N o adequate data ’ E arly in A pril $75 m illion o f these four postponed issues were sold, consisting o f one entire $2 5 m illion issue and $50 m illion o f a pro posed $75 m illion issue. T a b le S ales of T w e l f t h by 1 D is t r ic t M u n ic ip a l S e c u r it ie s r„ e r d is tri bution S t a t e s , 1 9 5 4 -5 6 (in thousands of dollars) centage 1955 1956 1956 A r iz o n a ............... $ 31,060 C a l i f o r n i a ............ 530,083 5,942 16,465 46,592 U ta h ...................... 19,785 W a s h in g to n . . . . 102,401 $ 20,355 777,362 11,176 7,455 4 7 ,350 8,587 143,813 $ 41,024 527,979 10,485 5,577 41,262 18,676 304,605 4.3 55.6 1.1 0.6 4.3 2.0 32.1 T w e lft h D is tr ic t . 752,32 8 1,016,097 949,60 8 100.0 1954 N o te : Figures m ay not add to totals because o f rounding. Source: T h e data on volum e of sales were obtained from the m onthly supplem ent o f T he D a ily B ond B uyer. 57 F EDERAL RE SE RVE B ANK OF S A N F R A N C I S C O exist for those issues that might have been contem plated but were not o f fered because the poten tial borrowers considered the market conditions to be adverse. C P E R C EN T P E R ANNUM 1 5.0 •m b b b h h h h h h b b _ | |_ b h ^ 1 9 5 2 -5 7 W hile data exactly com p a r a b le to th o s e c ite d a b o v e f o r th e U n it e d States were not available for the Tw elfth District for 1956, the facts obtained fro m sta tistical sou rces and the opinions of dealers 1952 in municipal securities in * N e w series. dicated that there were S ource: Board of G overnors o f r e la t iv e ly fe w ca ses in which Tw elfth District issues were not sold upon initial offer during 1956. Data are available for California which indicate that approximately 26 issues out of a total of nearly 600 issues marketed during 1956 were not sold upon original offer. In about one-third of the cases the failure to sell was due to technical difficulties such as improper ad vertising of the bid. About one-third of the un sold issues were subsequently reoffered and sold during the year. In some cases throughout the District the issu ing authority rejected the original bids because it felt that the rate was too high. The issuing authorities in many of these instances were lo cated in small, remote communities and the re sponsible persons were not particularly familiar with current conditions in the money markets, U pon becom ing better informed about the situ ation, they frequently reoffered the securities for sale. In the meantime, however, there had been some deferment in carrying out their plans which could be attributed to the effects of monetary policy. Approxim ately $950 million of Twelfth D is trict state and local government securities were sold during 1956, as indicated in Table 1. This total was 6.5 percent less than the $1,016 million sold in 1955, but over one-fourth more than the $752 million sold in 1954. Total municipal sales in the United States have been declining from a 58 h art BOND Y I E L D S | 1954 1956 the Federal R eserve System , F ederal R eserv e B ulletin. record level set in 1954, so District sales have become an increasing proportion of the total— 10.8 percent in 1954, 17.0 percent in 1955, and 17.4 percent in 1956. These percentages in 1955 and 1956 are substantially larger than the Tw elfth District’s share of the nation’s popula tion (12 percent) and somewhat larger than its share (15 percent) of state and local expendi tures in 1955 (latest data available). C alifornia and Washington sell largest share of District municipals A s indicated in Table 1, California accounted for 56 percent of Twelfth District sales of m uni cipal securities in 1956, and W ashington was second with 32 percent. This reflects the fact that they are the two most populous states of the District. Relative to California, W ashington’s share is substantially greater than would be expected on the basis of population alone. The principal explanation for this lies in the fact that much of W ashington’s electricity is provided through Public Utility Districts which are or ganized under state law and whose obligations are classified as municipal securities. M ore than two-thirds of the $305 million of municipal secu rities sold by W ashington borrowers during 1956 consisted of large issues of Public Utility D is tricts. In the second quarter, one issue alone, that of the Columbia River-Priest Rapids H yd ro- MONT HL Y REVI EW May 1957 Electric System, was for $166 million, or more than half of the over-all total for the state for the full year. Utility Districts in 1956, 26 percent of the dollar amount and 0.8 percent of the number. Security purchases by types of buyer Generally, one of the distinctive features of the municipal bond market, in contrast to the cor porate bond market, is the small size of the aver age issue. In the Twelfth District the median size of issue in 1956 was about $250,000. O ver 17 percent of the issues were under $50,000, and only 3 percent were over $5 million, as indicated in Table 2. In dollar volume, however, issues under $250,000 accounted for only 5.7 percent of the total, while the dollar share of the total of those issues over $5 million in size was 57 percent. Data as to the purchasers on original bid of municipal issues in 1956 revealed some interest ing differences among Twelfth District states. Prim ary attention was paid to purchases by com mercial banks and by brokers and dealers who might be regarded as primarily local or regional rather than national in character. Secondly, only those purchasers of these types were singled out who accounted for a significant volume of pur chases. Data were compiled only on the actual purchasers or successful bidders ; statistics on all bidders, successful as well as unsuccessful, were not developed. In every District state except Nevada and Utah at least one-half of the total number of issues in 1956 was for school district financing. In California, for example, school district issues were 71 percent of the total number of issues. Except for a few large-city school districts, most of these issues were for relatively small amounts, so that the average size of issue was considerably below that for all types of issues ; and total school district issues accounted for only 27 percent of the total dollar amount, as shown in Table 3. Another important type of municipal issue in the District is that used to finance water and sewer systems. These bonds accounted for 14 percent of the number of issues and 13 percent of the total amount. Large issues of State governments accounted for 11 percent of the dollar amount but only 1 percent of the num ber; and Public In all of the District states except W ashington a small number of purchasers of the types de scribed above accounted for one-third or more of the dollar volume of securities sold in 1956. The exception in the case of W ashington was partly the result of the predominant influence upon the dollar total of the one large Public Utility Dis trict issue for $166 million, which was purchased by a syndicate headed by a national security dealer. Commercial banks were important purchasers on original bid in several Twelfth District states in 1956, particularly in California, Oregon, and Utah. The data as compiled show banks as pur chasers either when they bought by themselves or when they were heads of a syndicate. In for TAB LE 2 T w elfth D by is t r ic t S iz e S ize o f issue of M u n ic ip a l I ssu es I s s u e , 1 956 N um ber of issu es j P ercentage D olla r am ouat P ercentage d istribu tion (by number) o f issues (in thousands) d istribu tion (by amount) 169 17.3 $50,001 t o $ 1 0 0 ,0 0 0 ..................................................................................... 154 15.8 11,629 1.2 $100,001 t o $250,000 ................................................................................... 229 23.5 37,935 4 .0 66,437 95,041 $250,001 to $ 5 0 0 ,0 0 0 .................................................................................. 179 18.3 $500,001 to $1 ,0 0 0 ,0 0 0 .............................................................................. 126 12.9 $1,000,001 to $ 5 ,0 0 0 ,0 0 0 ......................................................................... 89 O v e r $ 5 ,000 ,000 ............................................................................................ 30 T o t a l ............................................................................................................... 976 1 $ 4,830 0.5 7.0 10.0 20.0 9.1 189,631 3 .1 544,104 57.3 949,608 100.0 100.0 Source: T he m onthly supplem ent of T h e D aily B ond B uyer. 59 F EDERAL RE SE RVE BAN K OF S A N F R A N C I S C O mation was not developed as to purchases by banks when they were participating in, but were not heading, a syndicate. One large bank in Cali fornia has a policy of bidding on all California municipal issues that are eligible for bank invest ment. General obligation bonds are eligible. Spe cial assessment bonds are not generally eligible, nor are a good many revenue bonds. The policy of that bank assures issuers of eligible bonds of at least one bid, except in cases where the issue T T w elfth by D T able is t r ic t ype of M I 3 u n ic ip a l ssu e, I ssu es 1956 Number T y p e o f issue of issu es S c h o o l d is tr ic ts (in c . te m p o r a r y n o t e s ) . . 618 W a t e r , s e w e r , an d s a n i t a t i o n ................. 137 H o u s in g a u th o rity (te m p o r a r y n o t e s ) . . . 51 M is c e lla n e o u s ...................................................... 47 M u n ic ip a l im p r o v e m e n t ................................ 41 P u b lic b u i l d i n g s ................................................. 20 F ir e p r o t e c tio n .................................................... 17 F lo o d c o n t r o l and c o n s e r v a t i o n ................. 12 S t a t e ......................................................................... 10 P u b lic u tility d i s t r i c t s .................................................8 E le c tr ic p la n t ........................... .......................................6 P o r t and h a rb o r d e v e l o p m e n t .................................5 B r id g e au th o ritie s .........................................................4 T o t a l .................................................................. 976 Dollar amount o f issues (in thousands) $2 59,431 122,885 31,040 21 ,102 32,975 2 5 ,514 2,891 2 9 ,770 104,405 24 3,70 0 43,600 11,620 20,675 94 9,60 8 Source: T h e m onthly su pplem en t o f T h e D a ily Bond B uyer. may be unacceptable to the bank for technical or legal reasons. Banks are similar to most other brokers or dealers in that they act as merchan disers of the municipal securities they buy on original offer, though, of course, they may keep some of their purchases for their own portfolios. One interesting and significant feature of the Twelfth District municipal bond market is that the State government stands ready to bid on original sales of securities of local issuing author ities in all District states except O regon and California, with W ashington and Nevada being especially active in this regard. Securities so acquired are held as investments for State funds. The States in their bidding are guided less by strictly money market considerations than are private investors and consequently tend to bid at low er rates. In fact, part of the purpose of State bidding is to assure the issuers a more fav orable market situation than might otherwise exist. In Nevada, which had the smallest volume of issues in 1956 of any state in the District, the 60 State bought 85 percent of the total amount sold. The State was also the largest single buyer of municipal issues in W ashington. Partly because of the large $166 million P U D issue, the State’s share of the dollar total in 1956 was not large, 7.8 percent. Its share in terms of the number of issues, however, was substantial, 43 percent. All school districts in W ashington are required by law to submit a copy of their calls for bids to the State Finance Committee at least 30 days in advance. Other state and local government agen cies are also privileged to submit to the Com m it tee copies of their calls for bids. The Committee may enter bids only for general obligation bonds, although revenue bonds may be purchased on the secondary market. In Utah also, bond issues must be offered to the State Finance Commission, but during 1956 it did not purchase any of the issues sold. Interest rates on m unicipal issues rise The principal reason that an issuing authority would reject the bids received on its offering would be that the rate of interest was higher than it was able or willing to pay. So far as could be determined, such legal limitations as exist on maximum rates that particular borrowers in the Tw elfth District may pay were above market rates and constituted no barrier to the sale of securities during 1956. A s mentioned earlier, there were some instances in which original bids were rejected because the borrow er thought the rate was too high. In many of these cases, how ever, the issue was subsequently reoffered and sold, often at a rate higher than the one quoted on the first bid. The interest costs to state and local govern ments on their bond issues are dependent on many factors in addition to conditions in the money market. The size of the issue, just as in short-term borrow ing from banks, is one of the important factors; that is, within groups of issues of comparable quality, the net interest cost to the borrower tends to decline as the size of the issue increases. This type of differential is due almost entirely to the fact that handling and processing costs per $1,000 of issue decline as the size of the issue increases. May 1957 MONT HL Y REVI EW T o develop satisfactory information on trends in effective interest rates on new issues of muni cipal securities, it is necessary to be able to rate the individual issues with reference to quality. A m ong the factors determining the quality of a particular issue are whether it is a general obliga tion or a revenue bond, the other indebtedness of the issuing authority, past payment records on its other bond issues, and future possible growth of the area which the facility is to serve. Official ratings, such as M ood y ’s, are available for only a limited number of the bond issues of Twelfth District state and local governments, so that com parisons of interest costs on this basis are im practicable. Some informal ratings obtained for California and W ashington indicate that interest costs tend to increase as the quality rating de creases and that, within groups of comparable quality, interest costs tended to increase in each quarter of 1956. The increase from the first to the fourth quarter of 1956 in median rates for particular quality groupings was approximately 1 percent in California and about 0.75 percent in Washington. Ranges of interest costs in District states without reference to ratings or size, shown in Table 4, also indicate this upward trend. eral election in Novem ber, a record volume at a time of a general election. In California alone, $1.2 billion of new issues were approved last November. W hile not all of these issues will come to market in 1957, borrowing on issues authorized in earlier elections and non-referendum borrow ing will add to the total amounts scheduled for sale. Considering the continuing need for additional school, highway, and public service facilities— particularly in an area of rapid population growth such as the Twelfth District, the prospect for sales of municipal securities re maining at relatively high levels seems certain. Conclusion In summary, the available evidence seems to indicate that the restrictive effect of the tight money situation upon the sale of municipal secu rities has been less noticeable in the Twelfth Dis trict than in the country as a whole. A s indicated earlier, on a national basis large highway issues, including those for toll roads, accounted for roughly two-thirds of the issues that were offered for sale but were unsold in the nine months end ing M arch 31, 1957. Since these issues met more market resistance than other types and since they were relatively unimportant in the Twelfth District during 1956, this may account, in part, for the District’s better over-all sales record. Volume of municipal bond offerings to continue large M ore than $2.5 billion of municipal securities were approved throughout the nation at the gen T able 4 R a n g e o f In te r e s t C o sts on T w e lfth D is t r ic t M u n ic ip a l Is s u e s , b y Q u a r t e r s , 1956 (p ercen t per annum ) State C a lifo r n ia (4 6 1 ) ............................................ ......................... O r e g o n ( 9 7 ) ................................................. .........................1 W a s h in g to n (1 0 6 ) ....................................... O th e r D is tr ic t states ( 6 2 ) .................... F irst quarter S econ d quarter T h ird quarter F ourth quarter 1.4 0-4.88 2 .2 9 -4 .9 6 2 .3 1 -4 .3 2 2 .2 5 -4 .9 9 2 .7 9 -5 .2 3 2.7 0 -4 .1 3 2.7 6 -4 .6 1 2 .7 6-4 .36 3.0 0 -4 .4 5 3 .3 5 -4 .7 4 2 ,4 9 -4 .4 6 2 .2 7 -4 .7 0 3 .2 8 -4 .2 4 2.2 9 -3 .5 9 2 .5 0-4 .43 .......... 2 .2 5 -4 .1 9 N o t e ; T h e numbers in parentheses refer to the num ber o f issues included in the ranges shown. Interest costs were n ot available for all issues sold since some sales were arranged privately. S ource: T h e m onthly supplem ent o f T h e D a ily B ond B u y er. 61 FEDERAL RE SE RVE B ANK OF S A N F R A N C I S C O BUSINESS INDEXES — TWELFTH DISTRICT1 ( 1 9 4 7 -4 9 a v e ra g e — 1 0 0 ) T o ta l C arn o n a g r i- T o t a l m f 'g i o a d in g s c u ltu r a l E l e c t r i c e m p l o y g m p lo y * ( n u m m e r .t b er)* C op per* p o w e r m ent I n d u s tr ia l p r o d u c t io n (p h y s ic a l v o lu m e )1 Y ear and m on th L um ber P e tr o le u m 3 R ef i ned C e m e n t C ru d e 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 1956 M a r ch A p ril M ay June Ju ly A u g u st S ep te m b e r O c to b e r N ovem ber D ecem ber 116 117 119 121 120 117 112 110 111 112 1957 Ja n u a ry F ebruary M a r ch 108 115 115 L ead* 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 93 113 115 112 111 101 117 118 29 26 40 101 108 119 136 144 161 172 192 210 102 99 103 112 118 121 120 127 134 105 105 105 105 105 105 104 104 104 103 128 122 129 125 132 128 136 128 135 132 149 100 173 161 160 171 168 163 146 139 76 82 74 82 75 84 78 81 79 72 131 140 135 135 110 123 122 127 123 123 219 203 211 215 212 212 209 217 216 210 102 102 101 131 130 132 79r 88 86 125 136 220 211 W a te rb o rn e fo r e ig n t r a d e 3’ s R e t a il D ep ’t store fo o d s a le s p r ic e s i, < (v a lu e )2 ' 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 47 103 100 100 113 115 113 113 112 114 132 133 133 134 134 135 135 136 137 138 150 150 152 153 152 153 153 154 156 159 103 105 107 105 102 101 107 102 100 106 128 131 122 126 132 131 131 130 132 131 112 113 113 114 115 114 114 115 116 116 139 138r 138 160 159r 159 105 96 100 131 127 133 116 117 116 E x p o rts Im p o rts 190 110 163 86 85 91 186 171 140 131 164 195 124 72 95 98 121 137 157 200 308 260 308 444 150 175 183 204 215 207 212 256 242 234 395 397 519 427 559 500 459 563 401 436 r 421 BANKING AND CREDIT STATISTICS — TWELFTH DISTRICT (a m o u n t * in m i l l i o n s o f d o l l a r s ) M e m b e r b a n k r e s e r v e s a n d r e la t e d i t e m s C o n d i t i o n i t e m s o f a ll m e m b e r b a n k s* Y ear and m on th U .S . L oans G o v 't and d is c o u n t s s e c u r it ie s T o ta l D em and d e p o s its tim e a d ju s t e d 7 d e p o s its 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 9,4 24 1958 A p ril M ay June J u ly A u g u st S ep te m b e r O c to b e r N ovem ber D ecem b er 11,669 11,837 12,030 12,157 12,173 12,423 12,384 12.504 12,804 6,730 6,566 6,482 6,396 6,439 6,491 6,4 68 6,431 6.383 11,530 11,144 11,262 11,392 11,356 11,581 11,747 11,867 12,078 9,099 9,139 9,294 9,233 9,286 9,305 9,326 9,235 9,356 1957 Ja n u a ry F eb ru a ry M arch A p ril 12,488 12,556 12,576 12,649 6,505 6,3 56 6,177 6,5 20 11,812 11,279 11,129 11,622 9,5 87 9,690 9,794 9,839 1929 1933 1939 1949 1950 1951 1952 1953 1954 1955 1956 B ank ra tes o n s h o r t -t e r m b u s in e s s lo a n s* F a c to r s a ffe c tin g reserves: R eserve ban k c r e d it * _ — ' 3^20 ‘ 3.35 3.66 3.95 4.14 4.09 4.10 4.50 + + + + + + — + '4 .4 4 ' 4.5 7 ' 4.0 5 + — + + — — + + 4.74 — C om m er c i a l 10 T reasu r y i“ 34 2 2 13 39 21 7 14 2 38 52 0 110 192 930 - 1 ,1 4 1 - 1 ,5 8 2 -1 ,9 1 2 -3 ,0 7 3 -2 ,4 4 8 -2 ,6 8 5 -3 ,2 5 9 + 23 + 150 + 245 + 378 + 1 ,1 9 8 + 1 ,9 8 3 + 2 ,2 6 5 + 3 ,1 5 8 + 2 ,3 2 8 + 2 ,7 5 7 + 3 ,2 7 4 82 22 5 6 4 3 5 0 17 - 270 233 405 143 315 454 417 143 303 + + + + + + + + + 371 217 341 240 247 466 312 209 451 33 41 37 35 - 558 816 170 445 + + + + 249 494 170 430 M o n e y In c ir c u la t io n * _ — + — + + + + — — + + — — — — + + — „ — B ank d e b its 1n d e x 31 c i t i e s 3’ >1 R e s e r v e s 11 ( 1 9 4 7 - 4 9 100}* 6 18 31 65 14 189 132 39 30 100 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 154r 172 189r 7 47 32 8 103 59 2 38 33 2,578 2,498 2,401 2,519 2,5 65 2,6 40 2,542 2,579 2,654 189r 181r 185r 195r 198r 182r 195r 195r 200r 144 139 9 31 2,548 2,517 2,495 2,560 206r 200/199r 202 1 A d ju s te d fo r season al v a r ia tio n , e x c e p t w h ere in d ic a te d . E x c e p t fo r d ep a rtm e n t store sta tistics, all in d exes are ba sed u p on d a ta fro m ou tsid e sou rces, as fo llo w s : lu m b e r, C a lifo r n ia R e d w o o d A sso c ia tio n an d U .S . B u reau o f the C e n su s; p etroleu m , cem en t, co p p e r , an d lead, U .S. B u rea u o f M in e s ; ele ctric p ow e r. F e d e ra l P o w e r C o m m issio n ; n o n a g ricu ltu ra l a n d m a n u fa ctu rin g e m p lo y m e n t, U .S. B u rea u o f L a b o r S ta tistics an d co o p e r a tin g sta te ag en cies; reta il fo o d p rices, U .S . B u re a u o f L a b o r S ta tistics; carload in g s, v ariou s railroad s an d railroad a sso cia tio n s; a n d fore ig n tra d e, U .S . B u rea u o f th e C ensu s, * D a ily a v e ra g e . s N o t a d ju s te d fo r seasonal v a ria tion . * L os A n geles, S an F ra n cisco, an d S ea ttle in d exes c o m b in e d . 6 C o m m e r cia l ca r g o o n ly , in p h y sica l v o lu m e , fo r L o s A ngeles, San F ra n cisco, S an D ieg o, O regon , an d W a sh in g to n cu stom s d is tr ic ts ; sta rtin g w itb Ju ly 1950, “ sp e cia l c a t e g o r y ” e x p o r ts are e x c lu d e d b eca u se o f se cu rity reason s. • A n n u al figures are as o f en d o f y ea r, m o n t h ly figures as o f la st W e d n e sd a y in m o n th . 7 D e m a n d d e p o sits, e x clu d in g in te rb a n k an d U .S . G o v ’t d e p osits, less cash item s in p rocess o f c o lle ctio n . M o n t h ly d a ta p a rtly esti m a te d . • A v e ra g e rates on loan s m ad e in five m a jo r cities. * C h a n g es fr o m en d of p re v io u s m on th o r y ea r. 10 M in u s sign in d ica te s flow o f fu n d s o u t o f the D is tr ic t in th e case o f com m ercia l op era tion s, an d excess of r eceip ts o v e r d isb u rsem en ts in th e case o f T rea su ry o p e ra tio n s. 11 E n d o f y e a r an d end o f m o n th figures. n D e b its t o to ta l d ep osits e x c e p t in te rb a n k p rio r t o 1942. D e b it s t o d em a n d d e p o sits e x c e p t U .S . G o v e r n m e n t an d in te rb a n k d e p o sits from 1942. f)— P relim in a ry . r— R ev ised . Digitized for62 FRASER
@FedFRASER