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M . 74 Monetary Restraint and Business Loans in the Twelfth District, 1955-57 . • . 76 . What's Happening to Agriculture 1n the Current Recession? this year of recession in the economy, will likely to affect the farm income situation fafarmers maintain the improved income and vorably this year, although such factors have led to a decline in farm income in recent years. record production of the past two years, or In business cycles from 1929 until 1951 can we expect agriculture to follow closely the the income of American farmers was subject ups and downs of the general economy and, to the same ups and downs as the general consequently, to suffer a decline in income in economy. (Chart 1) That year was a signifi1958? There are ma:1j' uncertainties in lookcant turning point because after 1951 farm ing ahead, even to the end of this year, but income failed to share in the growing prosassessments of the farm situation made by the United States Department of Agriculture properity of the nonfarm economy. Although some readjustment from high wartime income vide a useful guide. 1 If the Department's estilevels was to be expected, the setback that mates are realized, we may expect farmers to keep output at high levels this year. Prices occurred in farm cash receipts during the they receive may average slightly above 1957 1953-55 period was quite sharp. Prices delevels, and costs will also be higher. But some clined so rapidly that by 1955 they averaged increase in both gross and net farm income is more than 20 percent below the 1951 warforeseen, because larger cash receipts, augtime peak, and farm cash receipts had fallen by 10 percent. mented by Soil Bank payments, are expected to override increased costs. Farm prosperity was impaired because output increased faster than did demand for It may seem curious that farm income is agricultural products. Farmers' costs climbed likely to stay up in a year which began with a decline in general business CHART 1 activity. One reason is INDEXES OF GROSS NATIONAL PRODUCT AND that demand for food has FARM CASH RECEIPTS not been reduced thus far, 1947-49' 100 1929· 57 as consumers have probably entered the current recession with larger reserves in cash and more liberal unemployment benefits than heretofore. Part of the answer lies also in the fact that farm income is affected by increased capacity, the level of prices with respect to supports, and the phase of the cattle cycle. The impact of these influences is I 1 74 N The United States Department of Agriculture issues perOOic evaluations of supply and demand factors affecting agriculture, and of price and income prospects. The most recent discussion is contained in The D emand and Price Situation, April ! 958. Source: United States Department of Agriculture and United States Department of Commerce. May 1958 MONTHLY REVIEW with the general price level, but prices they received fell, as did income. Farmers were encouraged to increase production to unusually high levels during the period embracing World War II and the Korean War, and rapid technological improvements enabled them to do so. After the Korean War, our requirements for farm products declined to peacetime levels, and export markets shrank, but output continued to expand. Continued high price supports have tended to stabilize crop cash receipts in recent years because increased production offset price reductions. (Chart 2) Prices cannot fall much farther because they are already at or near current support levels. The increase in total meat production which began in 1952 was probably intensified by the availability of ample feed grain supplies. Large quantities of beef and hogs marketed in that year competed for the consumer's dollar. Prices, unprotected by supports, declined steeply. Beef output continued upward and receipts declined through 1955, at which time another spurt in hog production caused a sharp break in hog prices and receipts. As noted above, cash receipts recovered slightly in 1956 and 1957. This, too, was largely due to developments in livestock production. Cattle stocks were depleted by the end of 1955, and since it takes several years to breed, raise, and fatten cattle for market, farmers bega n to withhold animals from slaughter for breeding purposes. The decrease in marketings was small, but cattle prices improved markedly, resulting in increased receipts from sales. T he strengthening influence of cattle prices on farm income may persist until late 1959 or 1960, when larger supplies are clearly visible. District farm economy less affected In recent years Twelfth District farm income has followed the pattern described above for the nation, but the decline has been more CIIART2 FLUCTUATI ONS IN CASH RECE I PTS 1946 · 57 120 100 80 0 140 120 100 TWELFTH DISTRICT 80 I 8 1946 I I 1950 Source: United States Department of Agriculture, Farm I ncome Situation. gentle and the recovery earlier and sharper. (Chart 3) This can be attributed to the difference in the composition of farm output between the District and the United States. District agriculture fared better because it is highly diversified. Meat animal production is not so important, contributing on the average 17 percent of cash receipts, whereas meat animals average 30 percent of the United States total. Hogs are not an important product in this district. In addition, the region is not so dependent on price supported commodities, with the exception of cotton, but derives a large share of its cash receipts from fruit and vegetable crops. Strong domestic demand for farm products continues Bearing in mind that these factors, as well as changes in business activity, affect farm output, prices, and income, let us look at the (Continued on page 81 ) 75 FEDERAL RESERVE BANK OF SAN FRANCISCO Monetary Restraint and Business Loans in the Twelfth District, 1955-57 fundamental principle underlying the formulation of Federal Reserve policy holds that credit restraint moderates inflationary impulses during periods of booming business, and credit ease fosters recovery during periods of recession. There is little disagreement over the principle that the Federal Reserve System, in its capacity as regulator of the nation's money and credit supply, should counter what appear to be excesses in business optimism or pessimism. However, the same degree of unanimity does not prevail regarding the impact of this Federal Reserve policy. By impact is meant the ways in which changes in policy affect the cost and availability of credit to different types of borrowers. For example, when money becomes scarce or tight during a boom period, do bank lenders show any preference in their lending operations toward any particular types of borrowers? Do bankers consider certain industries better risks than others? Or do they consider each loan separately on the basis of its merits, regardless of the industry? Do bank lenders become more conscious of the borrower's size during a period of tight money? If so, is the amount of lending reduced to certain size groups by the means of disproportionately increasing the cost of credit to the firms in these groups, or is credit more carefully rationed to these firms? The questions are illustrative only and show some of the ways through which monetary restraint can have a differential impact. Easy money also affects various types of borrowers differently, since a shift in policy toward easy money may benefit certain borrowers more than others. However, monetary policy must operate in an economy subject to many other forces as well, and thus it becomes very difficult to isolate those effects which are due to monetary policy alone. A 76 Such Federal Reserve instruments of monetary control as discount operations, open market operations, and changes in reserve requirements are general in their application, in contrast to such selective instruments as the regulation of consumer or stock market credit. The whole question of the possibility of discriminatory elements inherent in the general instruments of control has puzzled monetary economists and central bankers for some time. Although the general instruments are not discriminatory in their design, their final impact via the market mechanism may affect various types of borrowers differently. More recently, the Congress of the United States bas, for legislative purposes, become interested in the question of the impact of monetary restraint or tight money, with particular reference to its effect on small business financing. As a result of this interest, in 19 57 the Federal Reserve System undertook an extensive study of the adequacy of financing facilities for small business, with particular emphasis on the problem of impact. Business loans surveyed As one part of this study, the Federal Reserve System decided to conduct a nationwide survey designed to provide information on bank loans made for commercial and industrial purposes which were outstanding on October 16, 1957. Since a similar survey was conducted in 1955 pertaining to loans outstanding on October 5 of that year, it is now possible to appraise the changes which have occurred in various loan characteristics between 1955, a year of relatively easy money, and 1957, a year of tight money. In short, it is now possible to arrive at some objective estimate, within the limitations of the surveys, of the impact of monetary restraint on the cost May 1958 MONTHLY REVIEW and distribution of bank credit to various types and sizes of business. In general, boom conditions existed for most of the period between the two surveys, as evidenced by gradually rising prices and heavy demands for credit. As a result, the Federal Reserve System instituted a restrictive credit policy in the latter part of 1955 which was pursued until the latter part of 1957. During this period the Federal Reserve's discount rate rose from 1'h percent to 3'h percent; the interest rate on long-term Government bonds increased from 2.87 percent in October 19 55, to 3.73 percent in October 1957, and that on high grade corporate bonds advanced from 3.10 percent to 4.10 percent during the same period. 1 While it may be true that the boom culminated by the summer of 1957, interest rates did not start to decline until after the survey. Thus the period between the two surveys coincides fairly closely with the period of monetary restraint. The nationwide survey was conducted on a Federal Reserve District basis, both in 1955 and in 1957. In the Twelfth District, seventy banks of all sizes, including a total of 275 offices, were chosen by the method of stratified random sampling, and a questionnaire was sent to each office. In nearly all respects the 1957 survey was the same as the 1955 survey. There was a slightly different selection of banks in the 1957 survey because of changes in the bank population since 1955, as the result of mergers and the formation of new banks. Nevertheless, in both surveys, the sample banks accounted for well over half the dollar amount of all the commercial and industrial loans in the Twelfth District. On October 16, 1957, the total commercial and industrial loans outstanding for all member banks in the Twelfth District was $4.8 billion, compared with $3.3 billion on October 5, 1955. This two-year increase of 45 percent 1 These inte.rest .rates a.re monthly averages of daily figures calculated from closing bid prices. is substantial in comparison with the increase of about 100 percent during the nine-year period from 1946 to 1955. On the basis of this comparison, which shows a relatively large increase in business loans, it would appear to be an exaggeration to refer to the period from 1955 to 1957 as one of tight money, i.e., in the sense of credit being unavailable. As reflected by the general upward trend in interest rates during most of the period, and also by the existence of a fringe of unsatisfied borrowers, the demand for credit exceeded the supply, and in this sense money was tight. The supply-demand relationship bears heavily on the interpretation of the two surveys in another respect. There is no clearcut way of determining which part of any change in aggregate loans outstanding was due to a change in demand and which part was due to a shift in supply. For example, the survey shows that the amount of bank lending to small wholesalers decreased considerably between 1955 and 1957. Did this occur because small wholesalers in the Twelfth District curtailed their expansion plans due to competitive conditions and as a consequence demanded less bank credit, or did bankers decide to reduce the supply of crecUt to this group as part of a credit rationing program? Small business gains and losses This article is devoted to a general analysis of the impact of tight money on small business as compared with its impact on big business. 2 There are difficult problems involved in reaching a definition of small business. For example, in retail trade only firms with assets of less than $50,000 may be considered small, whereas in some industries, petroleum and chemicals for example, a firm may be considered small if total assets are as much as $5 million. However, for the purposes of this general article an industry-by-industry definition of smallness will not be attempted; rather, 2 Additional articles giving more of the details of the study will be published in future issues of the Monthly Review. i May 1958 FEDERAL RESERVE BANK OF SAN FRANCISCO TABLE MONTHLY REVIEW 1 BUSINESS LOANS OF MEMBER BANKS IN THE TWELFTH DISTRICT BY BUSINESS AND SIZE OF BORROWER, OCTOBER 5, 1955 AND OCTOBER 16, 1957 Size of Borrower (total assets in thousands of dollars) Business of Borrower Less than SO 1955 1957 o/o Chg. 50-250 1955 1957 o/o Chg. 250-1,000 1955 1957 1,000-5,000 1955 1957 o/o Chg. % Chg. 5,000-25,000 1955 1957 % Chg. 25,000·1 00,000 1955 1957 % Chg. 100,000 & Over 1955 1957 % Chg. !Number of Loars, in Thousands) Manufacturing and Mining 9.8 10.4 + 6.0 12.0 14.5 + 20.8 5.3 6.6 + 23.5 1.3 2.7 + 114.0 .3 .5 + 40.3 .1 .2 + 75.0 .1 .4 + 145.4 Trade 20.9 27.2 + 30.2 23.9 31.0 + 29.5 5.8 9 .3 + 61.4 1.3 1.6 + 20.7 .3 .4 + 16.3 .1 .1 + 153.6 .1 .1 + 60.6 Other 31.2 37.3 + 19.4 28 .2 36.3 + 28.7 8.1 13.0 + 60.6 1.8 3 .0 + 67.0 .4 .6 + 38.8 .1 .1 + 36.9 .2 .2 + 48.8 All Businesses 62.0 74.9 + 20.9 64.1 81.8 + 27.5 19 .1 28.8 + 50.6 4.4 7.3 + 66.8 1.2 1.6 + 32.8 .3 .5 + 75 .8 .4 .7 + 87.3 !Amo unts Outstandin g in Millio ns of Dollars) Manufacturing and Mining 33 29 - 11.2 157 171 + 9. 1 224 322 + 44.0 278 557 + 100.1 189 314 + 66.1 140 264 + 88 .8 123 374 + 205.1 Trade 67 64 - 3.8 250 286 + 14.2 255 461 + 80.8 154 200 + 29.5 198 151 - 23.7 24 53 + 124.3 61 84 + 38.2 Other 86 105 + 22.3 286 384 + 34.3 301 554 + 84.3 290 368 + 26.8 177 280 + 57.9 62 124 + 99.1 173 264 + 185 198 + 7.0 693 841 +2 1.3 780 1,338 + 71.6 722 1, 125 + 55.6 564 745 + 37.1 226 441 + 95.4 356 722 + 102.8 All Businesses T ABLE 52.9 2 AVERAGE INTEREST RATES ON BUSINESS LOANS BY BUSINESS AND SIZE OF BORROWER, OCTOBER 5, 1955 AND OCTOBER 16, 1957 Siz e of Bo rrower !total assets in thousands of dolla rs) Business of Borrower Under 50 1955 1957 % Chg. 50-250 1955 1957 Chg. 250-1,000 1955 1957 1,000-5,000 1955 1957 % Chg. % Chg. 5,000-25,000 1955 1957 % Chg. 25,000·1 00,000 1955 1957 % Chg. 100,000 & Over 1955 1957 % Chg. Manufacturing and Mining 6.54 7.28 + 11.3 5.59 6.29 + 12.5 5.22 5.78 + 10.7 4.65 5.53 + 18.9 3.98 5.04 + 26.6 4.00 4.41 + 10.3 3.19 4.19 + 31.3 Trade 6.35 7.07 + 11.3 5.31 6.19 + 16.6 5.04 5.66 + 12.3 4 .53 5.45 + 20.3 4.20 4.87 + 16.0 3.51 4.71 + 32.2 3.17 4.61 + 45.4 Other 6.48 6.93 6.9 5.49 5.99 + 9 .1 5.00 5.71 + 14.2 4 .52 5.45 + 20.6 4 .1 8 4.84 + 15.8 3.67 4.66 + 27.0 3.22 4.48 + 39.1 All Businesses 6.44 7.03 + + 9.2 5.45 6.12 + 12.3 5.08 5.71 + 12.4 4.57 5.40 + 18.2 4. 12 4.93 + 19 .7 3.86 4.52 + 17.1 3.20 4 .34 + 35.6 comparisons will run in terms of the smallest firms as against all other size groups. The smallest firms are defined as those with total assets of less than $250,000, or the first two size categories of Table 1. As an indication of the relative magnitude of the demand for bank loans by the smallest firms, it may be observed that those firms having total assets of less than $250,000 accounted for 83 percent of the total number of Twelfth District bank loans outstanding in 1955, and for 80 percent of the 1957 total. Therefore, changes which occur in the "smallest" category affect the bulk of individual borrowers. J Table 1 shows the number and amounts of Twelfth District business loans outstanding on October 5, 1955, and October 16, 1957, by business of borrower and size of borrower. From 1955 to 1957 the smallest firms, those with total assets of less than $250,000, lost ground to bigger firms, i.e., they had a smaller percentage increase in both number of loans and amounts outstanding. Although this result does not apply without exception to each category of business, it does apply to a comparison of the two smallest size groups with the two largest. In every business category, borrowers with total assets exceeding $25 mil- 79 FEDERAL RESERVE BANK OF SAN FRANCISCO lion made significant gains over those with total assets of less than $250,000. On the other hand, Table 2 shows that the cost of bank credit to the smallest borrowers rose less than that for all larger borrowers, i.e., the smallest borrowers gained relative to all other size groups of borrowers. Again, there are some exceptions within the categories of business, but aside from borrowers in manufacturing and mining with total assets between $25 million and $100 million, the two largest size groups in all business categories found that their interest rates increased substantially more during the tight money period than did the rates charged the smallest borrowers. These survey findings can be summed up in general as follows: during the period of monetary restraint from 1955 to 1957, large-scale business gained relative to small-scale business in terms of the number and amount of bank loans outstanding, but at the price of a more rapid increase in the cost of borrowing. 80 Bankers extended fewer loans to smaller borrowers How can these results be explained? In interpreting the results, there is not only the possibility of discrimination by lenders among different size groups of borrowers, but also the possibility of differential changes in the demand for loans by these size groups over the period of rising interest rates. Thus both the supply of and the demands for loans must be considered, as was noted earlier in this article. If we could assume that the demand for bank loans expanded at the same rate for all size groups of borrowers, then the outcome of the surveys could be attributed to the policies of the lenders. However, the demand for bank loans can be expected to vary among different size groups of borrowers, for such reasons as differential growth rates and changes in methods of financing expansion. On the other hand, as was noted above, during the boom period from 1955 to 1957 the demand for loans by all size groups exceeded the supply (in the case of bank lending demand and supply cannot always be equated by changing the price--interest rate--because the price is strongly influenced by convention and by maximums derived from law). Therefore, beyond a certain increase in demand, loans are usually rationed among borrowers, to a large extent on the basis of credit-worthiness. This would suggest that during the period of tight money the banks rationed a smaller number and amount of loans to the smallest borrowers than they did to the largest borrowers. Is there any further evidence which would support, modify, or controvert the above conclusion? A charge of discrimination against the smallest borrowers would seem to be modified by the fact that interest rates rose relatively less for the smallest borrowers than for the largest. This constituted an improvement in market position for those small borrowers who actually received loans. However, the paradoxical fact that interest rates did rise relatively less for the smallest group can be interpreted as meaning that bank lenders were reluctant to lend to the smallest borrowers during the period. That is, instead of increasing interest rates as an expression of their reluctance, they raised their standards of credit-worthiness and scrutinized small borrowers more closely. This means, as indicated in interviews which accompanied the survey, that bankers eliminated the riskiest small loans on which they were charging the highest rates in 1955, and raised the rates on credit-worthy small borrowers by a larger factor than shows in the cold figures for 19 57. However, there is no reliable way of ascertaining the percentage increase in the cost of borrowing to small borrowers who possessed the same degree of credit-worthiness in both 1955 and 1957; it could have been more, less, or the same as the percentage rise in the rates charged to large borrowers. MONTHlY REVIEW May 1958 Conclusion In sum, the data support the general conclusion that during the period of monetary restraint from 1955 to 1957 the smallest borrowers lost ground relative to the largest in terms of the number and amount of bank loans outstanding. However, this survey could not measure the demand for loans. If the yardstick were the proportion of the total demand for loans fulfilled in each size group, it would be impossible to draw any conclusion whatsoever as to how small borrowers fared relative AGRICUlTURE (Continued) to large ones during this period. The data show that the smallest borrowers gained in terms of the cost of borrowing, although as a consequence of the upgrading of loans as bankers' credit standards tightened, some small borrowers had more difficulty obtaining bank credit. 1 1 A comprehensive discussion of the cost and availability of all forms of credit to small business during the period of credit restrain t is found in: U. S., Congress, Finan cing Small Business, Report to the Committees on Ba,king and Currency and the Select Committees on Small Business by the Federal Reserve Sys· tern, Parts 1 and 2, 85th Cong., 2d Sess., Aprilll, 1958, pp. xxvi and 549. poultry products, fruits, vegetables, potatoes, wheat, and other food commodities. District cotton producers should find ready markets for their output. Although the textile industry is in a slump, and United States consumption of cotton in 1958 will go down from the 1957 level, there is a shortage of good quality cotton because of damage to last year's crop. 1958 farm prospects as they appear from information supplied by the Department of Agriculture. The present high level of demand for food is unlikely to be affected during the first few months of setbacks in consumer income. Since our growing population must always eat, the quantity of CHART 3 food in demand does not INDEXES OF CASH RECEIPTS FROM FARMING respond readily to changes UNITED STATES AND TWELFTH DISTRICT in income. People can, however, shift to lower priced foods if their incomes decline. This has not been an important factor to date because consumer purchasing power is still high. There may be some resistance to the rising level of meat prices later in the year if consumer incomes continue to decline. Indications are that markets will continue to be strong for the District output of dairy and Source: !.inited States Departmen t of Agriculture, Farm Income Situation. 81 FEDERAL RESERVE BANK OF SAN FRANCISCO Large harvests but less meat from United States agriculture ... Indications based on weather and farmers' planting intentions as of March 1 are that the 1958 harvest may be only slightly below the record established in 1948 and matched in 1956 and 1957. 1 And the composition of production will be different. Across the country plantings are reverting to the 1956 pattern. In 1957 farmers put large amounts of wheat, cotton, corn, and rice acreage into the Soil Bank, and harvests of these crops were reduced. They planted and harvested a record acreage of the non-corn feed grains, which boosted total harvests to the peak level. This year, with large stocks of feed grains on hand, farmers are shifting back to wheat, as shown in Table 1. However, estimates of com, rice, and cotton acreage cannot be evaluated until more is known about Soil Bank participation. After March 1 Congress increased authorizations for this program, bringing available funds up to last year's level of $750 million. This would take care of applications now on the waiting list amounting to an additional 4.5 million acres, including about 2 million acres each of com and cotton, and another half million acres of wheat. 2 The nation's 1958 total meat output is expected to be about 1 percent below 19 57. Feeding and slaughter of red meat-producing animals will again be smaller this year, with the exception of pork. Feed prices are favorable for hog raising as a result of the 1957 bumper feed grain crop, and reports indicate that farmers expect to produce about 6 percent more pigs this spring. These hogs will come to market next fall and winter. Although United States Department of Agriculture, Crop Producticn, March 18, 1958, reports farmers' planting intentions as of March I. These intentions are preliminary and subject to change. 'Last year about 19 million acres of these four crops, including 12.8 million acres of wheat, were put into the Soil Bank.. Farmers received total payments of almost $700 million . Estimated offer· ings as of March 26, 1958, including those on waiting lists, amount to about 16.6 million acres, of which only 5.4 million are wheal Total payments this year could be approximately $660 million. 1 82 pork has been in light supply tbis spring, the expected increase may bring total supplies of hogs above last year's level. And district output follows the same pattern In the Twelfth District similar changes are in prospect. Total crop production will probably be abundant again this year, although it appears that harvests may be later than usual because of recent field-soaking rains. There will be some changes in the relative acreage devoted to different crops. Last year, field crops attained a record high in production in this district, and about the same total acreage will be devoted to them in 19 58. Reports of March 1 planting intentions indicate that farmers will plant about 6 percent more acreage to food grains and miscellaneous field crops, and 4 percent less to feed grains than they did last year. Not included is the important District cotton crop, but production is likely to exceed last year's level, barring unfavorable weather. Acreage allotments were increased slightly, and this year California farmers banked 40 percent less cotton acreage than in 19 57, according to preliminary reports. District wheat and rice farmers have also shown less interest in the Soil Bank this year than last, even when acreages on waiting lists are considered. Weather is the most unruly and unpredictable governor of crop production, and by midApril, what had appeared to be an early and most favorable growing season was modified by heavy rains during the preceding three weeks. These storms interfered with farming in California to a greater extent than in other District states. However, some observers think that the recent bad weather will be reflected more in late harvests than in smaller harvests, with the possible exception of some California fruits. Much depends on the weather during the rest of the growing season. Rain has enlarged water supplies to their most plentiful MONTHLY REVIEW May 1958 TABLE 1 ROPSl OR DISTRICT Fl LD ROSPECTIV PL TINGS ED STATES TWELFTH (thousands of acres) Food Grains Rice Wheat, all2 Winter3 Spring2 Twelfth District 1958 1957 (actual) (indicated) 269 4,965 4,046 919 5,234 Total Feed Grains and Hay Hay, aiJ4 6,208 Barley 4,396 Oats 1,331 Corn 502 Sorghums 390 Total 12,827 Other Beans, dry edible 493 Potatoes 406 Sugar beets 379 Peas, dry field 219 Flax seed 50 Sweet potatoes 12 Total 1,559 United Slates 1958 1957 (Indicated) (actual) Percent (hange from 1957 Twelfth Disfricf Unlfed Stales 228 4,652 3,698 954 4,880 1,456 55,326 43,917 11,409 56,782 1,370 47,554 37,535 10,019 48,924 18 6 9 4 7 6 16 17 14 16 6,380 4,632 1,439 494 401 13,346 72,533 16,034 39,658 75,143 23,519 226,887 73,776 16,537 43,020 73,985 26,958 234,276 3 5 8 2 3 2 3 8 2 -13 3 448 389 379 248 36 1,544 1,424 915 249 4,607 294 9,033 1,464 1,419 918 284 5,562 292 9,939 13 -1,513 -- - 4 10 4 0 12 39 - 8 3 6 * * -12 -17 - 9 'As indicated by farmers on March I, I958. 2 Does not include Durum wheat. 'Based on December I estimates. 4 Harvested acreage. "Less than 0.5 percent. Source: United States Department of Agriculture, Agricultural Marketing Service, Crop Productio11, March 18, 1958. level in several years, a factor favorable to high yields. Plantings of California cotton and some other field crops will be later than usual this year. Vegetable plantings have also been delayed and some reductions in acreage are intended. District farmers will plant about 8 percent fewer acres to the vegetables used for processing, according to early reports, but no reduction in total vegetable output is anticipated this year. Although quality was impaired by rain, winter and early spring vege- tables for the fresh market appeared to be in slightly larger supply than last year. It is too early to assess the possible damage to fruits. Some slowing down of development has been reported, however, and apricot and almond crops have suffered damage. Fruit crops in the Pacific Northwest are in good condition this spring, and total output may not differ materially from 1957. In the District, to a greater extent than elsewhere, there are fewer meat-producing animals on farms and in feedlots , as a result of 83 FEDERAL RESERVE BANK OF SAN FRANCISCO the heavy slaughter of recent years. Although beef supplies will be smaller, production of other livestock will be increased this year if reported intentions are carried out. District hog producers plan to raise output about 6 percent, the same as the average national increase. Stimulated by the increase in beef prices, poultry farmers will raise more chickens and turkeys in this district. If current rates are maintained throughout the year, there will be 7 percent more broilers and 6 percent more turkeys this year than last. 1 Dairy products too, will be produced in larger quantity than last year, largely because of increases in the number of dairy cows on District farms. Small changes in the supply of farm products often have a strong influence on prices, as illustrated by the fact that slight reductions in meat output during the past year permitted prices to rise enough to stabilize total farm cash receipts. And cash receipts in 1958 will depend heavily on developments in farm prices. United States Department of Agriculture economists are estimating that prices will average somewhat higher in 1958 than in 1957, representing largely the contribution of higher meat prices. Such evaluations are based on the assumption that consumer purchasing power will remain at a fairly high level. Although some shifts may take place in consumption patterns, it is thought that meat prices will be sustained by smaller marketings, even though pork prices may average lower. Expectations are that most other livestock commodities, such as poultry and dairy products, will experience some decline in prices because of larger output and lower dairy price supports. Prices of most supported crops will probably fluctuate around lower levels this year. Wheat and rice supports were lowered, and in most cases dollar amounts of feed grain supports will be smaller. 2 Cotton supports, however, were raised automatically because of the reduction in carryover from last year. The outlook for exports and production suggests that markets abroad are shrinking while production at home expands. This would have the effect of increasing farmers' reliance on Commodity Credit Corporation loans, and free market prices may stay close to these lower support levels. In the District, the price outlook for most commodities appears favorable. Current data io this article cove£ roughly the first two months of 1958. • These support prices could he revised upward this summer in accordance with procedure under law. Little change in price level expected 1 84 FEDERAL RESERVE BANK OF SAN FRANCISCO BUSINESS INDEXES- TWELFTH DISTRICT1 = 100) (1947-49 anrage Industrial production (physical volume)' Year and month 1029 1933 1939 1949 1950 19fil 1952 1953 1054 1955 19,';6 1957 Lumber Petroleum• Refined Crude Electric Cement Lead' Copperl 105 l7 80 93 113 115 113 111 101 118 129 126 power --- ------ ------ --- --95 40 71 100 113 113 116 118 ll6 124 ll6 106 87 52 67 99 98 106 107 109 106 106 105 101 78 50 63 103 103 112 116 122 119 122 129 132 54 27 56 100 112 128 124 130 132 145 1.56 HQ 165 72 93 101 109 89 87 77 71 75 79 77 114 110 132 132 138 131 133 137 135 132 131 124 140 154 157 152 16:l 160 169 161 146 139 88 82 83 78 69 75 75 76 63 62 133 135 126 130 113 115 127 126 125 125 122 114 119 135 112 112 62 6l 123r 120 1957 March April May June July August September October November December 109 103 10-! 101 101 102 99 101 101 101 101 101 10 1 102 101 101 101 1958 January February lllarch lOGr 10.Jr 101 100 97 95 108 .. 29 26 40 Total mf'g employ- 221 228 229 239 238 233 217 223 222r 216r 223 1!)8 138 138 138 139 138 138 138 138 137 137 1.;s 1.j8 1.)0 1;j9 1.)g 156 15.5 152 151 137 130 130 ... . .. 1.30 149 148 Dep't store sales (value)• Waterborne foreign Retail food prices ... -----------trade 1 '' Exports Imports 64 42 47 100 100 113 115 113 113 112 114 118 190 110 163 85 91 186 171 140 131 164 90 30 18 31 98 107 112 120 122 122 132 141 141 230 124 72 95 121 137 157 200 308 260 308 443 575 100 103 99 100 94 97 93 81 9.'; 93 14.6 137 141 148 141 144 Hl 134 139 139 116 117 117 118 118 119 119 119 118 119 207 298 283 252 188 210 173 199 210 178 489 534 698 511 770 572 607 684 582 610 9-! 86 87 132 135 137 121 121 123 .. .. .... .... .... . ... 52 77 9-! 98 100 100 100 96 JOt 104 55 07 10.5 120 130 137 134 113 152 157 ()0 103 112 118 121 120 127 134 138 108 Carloadings (number) 1 ment -ment -- --- --.... . . .. 102 . ... . . .. 1Hl 136 14! 161 172 102 210 224 ... Total nonagrlcultural employ- 105 . ... BANKING AND CREDIT STATISTICS- TWELFTH DISTRICT (amounts in millions of dollars) Condition Items of all member banks' Year and month Loans and discounts u.s. Gov't securities Demand deposits adjusted' Total time deposits Member bank reserves and related items Bank rates on short-term business loans• Factors affecting reserves: Reserve bank credit' -- 2,239 1,486 1,967 7,003 7,866 8,839 9,220 9,418 11,124 12,613 13,178 495 720 1,450 6,415 6,463 6,619 6,639 7,942 7,239 6,452 6,619 1,234 951 1,983 9,254 9,937 10,520 10,515 11,196 11,864 12,169 11,870 1,790 1,609 2,267 6,302 6,777 7,502 7,997 8,699 9,120 9,424 10,679 .. .. .. ...... 6,!i20 6,315 6.249 0,319 6,313 6,293 6,433 6,357 6,619 11 ,622 11,210 11,310 11,.107 11,329 11,561 11,570 11,770 11,870 9,839 9,995 10,155 10,188 10,220 10,301 10,417 10,304 10,679 ...... - 4.81 July Augnst Se1)tember October November December 12,649 12,694 12,911 12,912 12,945 13.178 13,064 13, t85 13,178 + - 1958 January February March April 13.106 13,002 12.860 12,979 6.573 6,884 7,075 7,605 l1,601 ]1 ,305 11,225r 11,570 10,761 10,992 11,183 11,406 1020 1933 1039 1050 1951 19,'\2 \953 1954 HJ55 1956 1957 1957 April May June 3.35 3.66 3.95 4.H 4.09 4.10 4.50 4.97 · ···... ·· 5.21 ..... . ..... 5.13 . ... . 4:95. ...... + + - + - + + + + + + - - + - + Com merciaJIO 34 2 2 39 21 7 H 2 38 52 31 -- 110 192 -1,141 35 56 29 49 50 -- lOG 76 14 18 16 12 62 43 0 -1,582 -1,!112 -3,073 -2,448 -2,685 -3,259 -4,161 - 445 261 37t 426 HJ 431 322 298 451 258 427 180 30 1 Treasury"' 23 + + 150 + 245 +l.l98 +1.083 +2.265 +3,158 +2,328 +2,7.';7 +3.274 +3,903 + + + + + + + + + 430 209 402 320 292 480 159 447 480 + + + + 253 180 208 371 Money In clrculatlon• - - + + + + - + - - + + + + - + - - + + - Reservesu Bank debit• Index 31 cities'•" (1947-49= 100)1 6 18 31 14 189 132 39 30 100 96 83 175 185 584 2,026 2,269 2,.5 14 2,551 2,505 2,530 2,654 2,086 42 18 30 115 132 140 150 154 172 189 203 31 54 20 6 39 30 8 37 23 2,560 2,526 2,483 2,457 2,592 2,581 2,517 2,652 2,086 202 200 203 205 197 204 200 202 217 137 17 11 2 2,662 2,520 2,530 2,574 211 203 198 206 AdJusted for beasonul vanatwn, except where mthcnted. Except for deJJarf!uent store !:itattstJcs, a.llwde xes are based upon data from outside sources, as follows: lumber, California Hedwood Association and U.S. Bureau of the Census; petroleum, cement. copper, and lead. U.S. Bureau of Mines; electric power , Federal Po,...-er Commission : nonagricultural and manufacturing C'ruployment, U.S. B ureau of Labor Statistics and cooperating state agencies; retail food prices, U.S. Bureau of Labor Statistics; car loadings, various railroads and railroad association~; and foreign trade, U.S. Bureau of the Census. t Daily ave rage. a Kot adjusted for seasonal variation. ~Los Angeleli, tian Francisco, and Seattle indexes combined. 6 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and \\"a sbington customs district'i ; starting with July 1Y50, "sp(:'cial category" exports are excluded because of security reasons. s Ann ual figures n.re a s of end of year, monthly figures as of last \Vednesday 7Demand deposits, excluding interbank and U.S. Gov't deposits, less f'ash items in process of collection. l\1onthly data partly estiin month. mated. • AYeragc rates on loans made in five major cities. t CUauges from end of pre,;ous month or year. 10 Minus sign indicates flow of funds out of the District in the case of commercial operations, and exr:ess of r eceipts over disbursements in the case of Treasury operations. 11 End of year and end of month figures. "Debits to total deposits except interbank prior to 1942. D ebits to demand deposits except U.S. Government and interbank deposits from 1942. p-Preliminary, r-Revised. 1 84A
@FedFRASER