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IDAHO ALASKA WASHINGTON T fo v sL M J b sA , 1 9 6 3 AAue Waiting for #6 4 ........................................... page 157 UTAH Smooth Adjustm ent.................................... page 161 Federal Agency Securities: The Demand. page 167 EGON CALIFORNIA ARIZONA NEVADA W aiting for 6 4 h e econom y entered the final q u arter of 1963 in fairly healthy shape, despite some sluggishness in em ploym ent and industrial p roduction, b u t the question now intriguing m ost observers concerns the prospects for tax cuts. G ross national p ro d u ct increased at a respectable $9 billion annual rate in the JulySeptem ber q u arter; yet, according to T reas ury Secretary D illon’s recent testim ony before the Senate F inance C om m ittee, the quarterly gains in the first half of 1964 could be onethird greater if the tax bill is enacted— b u t one-third less if the bill goes dow n to defeat. O ne business publication contends th a t the e c o n o m y e v e n n o w p o s se ss e s “ im m e n s e strength,” because of the high spending levels attained w ithout benefit of tax cuts. B ut the counterargum ent can be m ade th a t recent fa vorable indicators — for exam ple, th e strong initial reception of th e ’64 auto m odels, o r the substantial increase projected for business plant-equipm ent spending this q u arter— sim ply m ean th a t the spending plans o f consum ers and businessm en are already being influ enced by the expectations of a favorable de cision. If this point of view is correct, the stim ulus w ould be greater now — and less next year— th an currently anticipated. B ut neither hypothesis will receive a thorough testing for some m onths to com e, th at is, until all sectors of the econom y have had an o p p o rtunity to adjust their spending plans to the final C on gressional decision. T Up and up, sluggishly M eanw hile, a backw ard look reveals a broad-scale advance in th ird -q u arter activity, despite som e en d-of-q u arter sluggishness. T he G N P increase, to a seasonally adjusted annual rate of $588V i billion, occu rred in response to increased spending by all m ajo r sectors— $4 billion in consum ption spending, over $3 billion in private investm ent, and over $ 2 bil lion in governm ent spending. T he increase in consum er spending, which was g reater in the th ird q u arte r th an in the preceding q u arter, developed in th e face of a slow dow n in the rate of grow th of personal in com e. T he latter, in tu rn , reflected a slower expansion in em ploym ent d uring the quarter, particularly in relatively high paying industries such as construction and m anufacturing. Investm ent outlays increased at a slightly faster rate in the th ird quarter, b u t the p attern of investm ent expenditures shifted som ew hat. O utlays for nonresidential construction and for inventories, w hich h ad show n little if any gain in the preceding q u arter, advanced at a faster clip, w hereas housing and p ro d u cers’ equipm ent did n o t rise m uch above the record levels achieved earlier. T he substantial gain in governm ent outlays, m eanw hile, centered al m ost entirely in the state and local govern m ent sector. B u t while the econom y was recording a strong th ird -q u arter advance, activity in a num ber of key lines was exhibiting som ew hat less strength as the q u arte r ended. R etail sales, fo r exam ple, reached a new peak during July and then receded in bo th A ugust and Septem ber, to the low est level since last N ovem ber. H ow ever, w eekly d ata indicate th at sales re gained considerable m om entum during O cto ber, partly in response to th e initially favor able reception accorded ’64 m odel cars. This, of course, is a significant facto r in assessing the outlook for the m onths ahead. Vigor regained? Industrial p roduction, at 126 p ercen t of the 1957-1959 level, ended the q u arte r on a note of less vigor, b u t it show ed signs of renew ed expansion in O ctober. A fter a sustained rise of over 4 index points during th e second q uarter, o u tp u t peaked in July, receded in A ugust, and ended the q u arte r at a level slightly below th a t which obtained in Ju n e. To a large extent, this decline was attributable to inventory cutbacks by steel consum ers following the lab o r con- 157 F EDE RAL R E S E R V E B A N K OF S A N F R A N C I S C O W id e sw in g s in steel, autos underlie stable production 1 9 5 7 -5 9 = 1 0 0 160 I9 6 0 1961 1962 1963 Source: Board of Governors of the Federal Reserve System, 158 tra c t settlem ent, and to an atten d an t red u c tion in iron and steel o u tp u t; from one q u arter to the next, this am ounted to a 15 percent de cline. B u t the p ro d u ctio n index also d ropped because of A u g u st’s reduction in autom obile output, w hich occurred w hen virtually all auto m akers closed dow n for m odel changeovers at the sam e time. In Septem ber and O ctober, pro d u ctio n of autom obiles regained considerable m om en tum , b u t the rise in steel o u tp u t was som ew hat less vigorous. H ow ever, prospects for fu rth er gains brightened in S eptem ber with a rise in factory orders to a record $36 billion (sea sonally ad ju ste d ). T he gain, w hich followed a decline in A ugust, was accom panied by a rise in the backlog of unfilled orders. In the construction sector, continued buoy ancy seem s likely on the basis of S eptem ber’s record level of housing starts, as well as a th ird -q u arter do llar volum e of construction aw ards th a t was 1 2 p ercen t above the yearago dollar volum e. In th e investm ent field, continued gains in co rp o rate profits and de preciation allow ances im ply continued ability to finance p lan t and equipm ent expenditures in com ing m onths. T he inventory sector also looks strong, am ong o th er reasons because inventory-sales ratios fo r m an ufacturers and retailers continue at low er levels th a n those w hich prevailed d uring the co m parable p eri ods of previous p o stw ar cycles. (O n the o th er hand, in m anufacturing, the ratios of unfilled orders to bo th sales and inventories also are relatively low .) A n o th er factor deserving attention is the environm ent of price stability supporting the cu rren t expansion. Follow ing a m odest rise in Ju n e and July, retail prices h eld steady through Septem ber, at a level one p ercen t above a year ago. N otw ithstanding selected increases in the price of steel p roducts d uring S eptem b er and early O ctober, as well as fu rth er gains in the prices of various n o n ferrous m etals, w holesale prices currently are low er th a n they were in July, and are even low er th a n they w ere five years ago. T h e relative stability in prices thus reduces the likelihood th a t specu lative factors will influence th e spending and investm ent decisions of consum ers and busi nesses. Retail prices up, but stability continues at wholesale level 1 9 5 7 -5 9 = 1 0 0 -WHOLES ALE I NDE X (B Y S T A G E OF P R O C E S S I N G ) \ I P ro d u c e r F in is h e d G ood s .............. ............. ,, I9 6 0 1961 Source: Bureau of Labor Statistics. 1963 November 1963 MONTHLY REVIEW Parallel developments T w elfth D istrict econom ic activity gener ally paralleled national activity during the third q u arter, surpassing it in som e sectors and falling short in others. E m ploym ent rose by som ew hat less in th e D istrict th an in the nation, notw ithstanding an appreciable recov ery in m anufacturing w hich was related to A ugust’s settlem ent of th e strike and lockout affecting D istrict lum ber mills. E m ploym ent in D istrict defense and space-related indus tries registered a fu rth er (alb eit slight) de crease during the th ird q u arter, despite the rise in the dollar volum e of defense prim e contract aw ards placed in the D istrict during the preceding q u arter. (Incidentally, the frag m entary d ata available earlier incorrectly in dicated a decline, rath e r th a n a slight increase, in second-quarter co n tract aw ard s.) A m ore rapid rate of grow th in the D istrict labor force, in conjunction with the less rapid rise in em ploym ent, also co n trib u ted to a fu rth er in crease in D istrict unem ploym ent, in contrast to a slight decline nationally. O n the other hand, consum er spending ap peared to exhibit ab o u t the sam e strength in the D istrict as in the nation, while construc tion activity generally show ed m ore vigor here than elsew here. D evelopm ents in the agricul tu ral sector revealed m ixed trends; D istrict farm ers enjoyed a relatively sh arp gain in re ceipts from crop m arketings, b u t total ag ri cultural em ploym ent declined rath er sharply, and, in fact, accounted for alm ost all of the n atio n ’s th ird -q u arter dro p in farm em ploy m ent. N ew c a r sales exhibited som ew hat m ore th ird -q u arter strength in th e D istrict th an in the nation, even though sales in bo th areas fell below second-quarter levels. T h ro u g h A ugust, new car registrations in the D istrict recorded a cum ulative 8 percen t gain over the year-ago figure— a slightly low er rate of increase than in the nation as a w hole. M ost D istrict states reported gains of 7 to 9 percent, although Id ah o and O regon lagged behind the average an d N evada reco rd ed a striking 15 percent gain. Industrial activity vigorous C onstruction co n tract aw ards, although low er in the th ird th a n in the preceding q u ar ter, were considerably higher th an a year ago. (The gain was 19 percent, as com pared with a national gain of 12 p e rc e n t.) A sharp rise in aw ards for com m ercial and industrial estab lishm ents, and especially a 39 percent cum u lative year-to-year increase in heavy engineer ing projects, indicates the continued strength of fixed investm ent spending in the D istrict as a whole. B ut the gain in to tal aw ards has been som ew hat spotty. C alifornia and N evada, for exam ple, have reco rd ed very large increases, w hereas Id ah o and A rizona have suffered year-to-year declines. Steel p roduction, in th e D istrict as in the nation, began to recover by the end of the q u arter from the inventory liquidation which followed on the heels of Ju n e ’s lab o r con tract agreem ent. T he en d -o f-q u arter strengthening of new orders boosted D istrict p ro d u ctio n in O ctober to a level 6 p ercen t above the yearago figure, although below this Ju n e ’s level. In this new atm osphere of rising dem and for steel mill products, m ost m ajo r steel p ro d u c ers th roughout the n atio n announced m inor 159 F E D E RA L RE S E R V E B A N K OF S A N F R A N C I S C O price increases on p ro d u cts accounting for ab o u t 35 p ercen t of the steel m ark et; these increases, along with those posted in A pril, raised the average price about 2 p ercen t above its year-ago level. Settlem ent of the lum ber strike and lock o u t in m id-A ugust m eanw hile reversed the price and p ro d u ctio n p attern s w hich had p re vailed in th a t industry earlier in the quarter. M ill orders picked up from th eir strike-de pressed levels following the lab o r settlem ent, as lum ber w holesalers and retailers responded to a “ b risk ” level o f sales. B ut this resum ption of p rodu ctio n to prestrike levels was accom panied by a sh arp decline in lum ber prices, to levels only slightly above those of a year ago. This developm ent was accentuated by the deep er p en etratio n of the A m erican m a r ket achieved by B ritish C olum bia mills as a consequence of the w ork stoppage here. D istrict petro leu m refining hum m ed along at 85 percen t o f capacity d uring m ost of the third q u arter, roughly the sam e as a y ear ago, but dro p p ed to 81 p ercen t of capacity during Septem ber. Stocks o f gasoline and residual oil declined fro m th eir relatively high m idyear levels to levels m ore in line w ith those which prevailed in 1962. C rude prices rem ained u n changed in this som ew hat stable situation, w hereas elsew here in the nation p roduction increased and crude prices declined. D istrict farm ers posted a 10 percent gain in cash receipts betw een July-A ugust 1962 and the co m p arab le period this year; n atio n ally, the figure was unchanged. (T h e gain was especially sizable fo r the w heat states of the N o rth w est.) T he rise in receipts resulted p ri m arily from heavier m arketings, since prices received by D istrict farm ers seem ed to have averaged som ew hat less th a n during the com p arable m onths of 1962. B ut despite the rise in incom e, em ploym ent on D istrict farm s de clined during the th ird q u arte r to a level al m ost 5 percent (2 3 ,0 0 0 ) below a y ear ago; 160 the decline was accom panied by a fairly sharp d ro p in the n u m b er o f foreign agricultural w orkers in C alifornia, A rizona, and N evada. But the jobless rolls increase T he result of these p ro d u ctio n trends was a th ird -q u arter rise in D istrict em ploym ent fig ures (A lask a and H aw aii d ata n o t available). In non farm em ploym ent, the D istrict’s 1 p ercen t q u arte r-to -q u arte r gain outpaced the natio n al increase; in to tal em ploym ent, the reverse was tru e because o f the sharp drop in D istrict farm payrolls. T h e key m anufacturing sectors were lum ber and w ood pro ducts, w hich show ed a sharp rise follow ing the A ugust strike settlem ent, and defense-related indus tries, w hich reco rd ed an o th er m inor decline. (A ircraft-ordnance-electrical eq uipm ent em ploym ent now stands 4 p ercen t below the D e cem ber 1962 p eak .) Since the labor force continued to rise m ore rapidly in the D istrict th a n elsew here, u nem ploym ent during th e q u a rte r rose 4 percent here while declining nationally. L argely u n d er the influence of developm ents in C alifor nia and W ashington, the D istrict unem ploy m ent rate rose from 5.8 p ercen t of the labor force in Ju n e to 6.0 p ercen t in S eptem ber—in co n trast to a natio n al decline fro m 5.7 to 5.6 percent. C o m p ared w ith a y ear ago, the n ational rate has rem ain ed unchanged but the D istrict rate has m oved som ew hat above th a t national average. T h e situ atio n can n o t be a t trib u ted to lagging em ploym ent, since the n u m b er of jobs has increased m ore rapidly here th an elsew here over th e p ast year, but rath e r to an expanding la b o r force w hich has increased at double th e natio n al rate. U nder these circum stances, th erefo re, D istrict o b servers are w aiting— p erh ap s even m ore im patiently th an th eir colleagues elsew here— to m easure the im pact on business activity of C ongress’ final tax -cu t decision. MONTHLY REVIEW November 1963 Smooth Adjustment financial developm ents have re flected a generally sm ooth adjustm ent to m id-July’s m onetary policy m easures, includ ing the increase from 3 to 3 Vi p ercen t in the discount rate-— the rate m em ber banks m ust pay w hen borrow ing from the F ed eral R eserve B anks. A s in the first half of the year, m one tary policy has been influenced by th e neces sity to keep short-term interest rates in rea sonable alignm ent w ith rates obtainable abroad, so as to contribute to an im provem ent in the capital accounts of the natio n ’s balance of paym ents. T he financial secto r’s recent p er form ance also has reflected th e im pact of the continuing econom ic expansion on b an k loan dem and. T he th ird -q u arter m onetary situation con tinued to reflect the m idyear policy shift of “ som ew hat less ease.” C onsequently, m em ber b anks’ net free reserves (excess reserves less borrow ing from the F ed eral R eserve B anks) declined during the th ird q u arte r to a daily average level of $128 million — m ore th an $ 1 0 0 m illion un d er the preceding q u a rte r’s level. M oreover, average free reserves then fell som ew hat fu rth er in th e follow ing fourw eek period. T h e decline in reserve balances was concentrated in reserve city banks, which have had net borrow ed reserves fo r over a year. e c e n t R More costly borrowing M em ber b an k borrow ings from the F ederal R eserve B anks rose substantially d u rin g the third quarter, and b a n k s’ alternate source of borrow ed funds, F ed eral funds, also becam e m ore costly. (F ed eral funds are reserves on deposit with a F ederal R eserve B ank which a m em ber bank m ay lend to oth er banks th at need funds to m eet their required reserves.) T he F ederal funds rate th ro u g h o u t m ost of the q u arte r rem ained consistently at the effec tive ceiling set by the 3 Vi p ercen t discount S p r e a d m o rro w s as short-term interest rates rise Percent Per A nnum 5.0 C o rp o rate A a a B o n d s . J 'l J ' I 1 ent Bonds y , L o ng Term G overnmzsr , \ v % / iV V . D IS C O U N T R A T E (N E W Y O R K ) 'l I 3.0 - T re a su ry B id s 2 0 I n u u m i t l n m i i i i i i U i n 1 1 1 11 t i.L i n i,u.i i i .t l.u i i- u n i i i I 1959 I9 6 0 1961 1962 1963 Source: Board of Governors of the Federal Reserve System. rate. In addition, F ed eral funds becam e quite scarce on several occasions during this period because of the generally low er level of excess reserves and the b an k s’ increased borrow ing needs. A s the th ird q u arte r progressed, short-term interest rates tended to rise above the levels established at the tim e of the discount rate increase. T he rate on 9 1 -day T reasury bills, which had averaged slightly less th an 3.00 percent in June, rose to 3.38 percent in Sep tem ber, and then increased fu rth er to 3.47 percent by m id-O ctober. T he yields on bills of longer m aturities m oved up m ore or less in unison w ith those fo r 9 1 -day bills, and yields on oth er m oney m ark et instrum ents increased in a sim ilar fashion. Follow ing Ju ly ’s revision of R egulation Q, w hich p erm itted banks to pay up to 4 percent on tim e deposits and certificates with m atu ri ties of 90 days and over, the average rate on 6-9 m onth negotiable tim e certificates issued by N ew Y ork City banks rose in several steps, from 3 Vs percent in July to 33A percent in early O ctober. A djustm ents w ere also m ade on rates p aid on tim e certificates of longer FEDERAL RE S E RVE B A N K OF S A N F R A N C I S C O Stock prices rise, contrary to usual cyclical pattern 1 94 1 -4 5 = 10 Source: Standard and Poor’s. Business cycle troughs dated August 1954, April 1958, and February 1961. m aturities. As a result, negotiable tim e certificates o f deposit rem ained com petitive m oney m ark et instrum ents, and banks expe rienced no ab ru p t decline in the outstanding volum e of this type of tim e deposit. Interm ed iate- and long-term U nited States G overnm ent b o n d yields m oved slightly higher in July, leveled off in A ugust, and then rose again in S eptem ber and O ctober. T he rate on long-term issues reached 4.05 percen t at the tim e of the T reasu ry ’s pre-refunding and ju n io r advance refunding operations in m idSeptem ber. T he T reasury offering was highly successful; ab o u t 28 p ercen t of the eligible securities held by the public w ere exchanged for one o f the three new issues offered, and the average m atu rity of the m ark etab le debt consequently lengthened by over four m onths. Bulls on the bourse 162 T h e bull m a rk e t in stocks, w hich dates from last fall’s C u b an crisis, continued rising into the fo u rth q u arter, albeit with brief in tervals of cau tio n and profit-taking. B oth m ajor stock indexes, S tan d ard and P o o r’s and the D ow Jones industrial average, set new historic highs in late Septem ber, and then b ro k e those records w ith new highs in late O ctober. T rading volum e rose sharply in Sep tem ber, averaging 5.5 m illion shares, b u t b u y ing ap p eared to be selective. M ark et optim ism was ascribed to investor confidence in the gen eral state o f the econom y, particularly as reflected in rising earnings and dividends. T he m a rk e t’s behavior in the p resent b u si ness cycle provides an intriguing co n trast to its b ehavior in earlier postw ar cycles. In each of the three preceding cycles, stock indexes rose sharply during th e first 18 m onths o r so of the cyclical expansion, and th e n leveled off fo r a prolonged perio d of tim e; in this cycle, the indexes follow ed th eir initial sp u rt w ith the m id -1962 slum p, and follow ed th a t in tu rn w ith a second year-long expansion. M ark et observers thus are faced w ith the question w hether th e indexes are only m aking u p for lost tim e, o r w hether the econom y is w itness ing— fo r th e first tim e in the p o stw ar period— a strong m ark et expansion occurring in the m ature p hase o f a business cycle expansion. To ensure th a t speculative excesses do not develop during this new bull m arket, the F e d eral R eserve B o ard in early N ovem ber raised m argin requirem ents fo r credit purchases from 50 to 70 percent, th a t is, to th e level th a t h ad prevailed betw een m id -1 9 6 0 and m id-1962. T h e B o ard ’s action to o k cognizance of the fact th a t the 5 0 -percent-m argin period expe rienced not only a 30 p ercen t rise in stock prices b u t also a 43 p ercen t rise in stock m a r ket credit. M ost o f this cred it increase, in fact, occurred just in th e p ast half-year. September’s solid strength T he banks, like the bourse, have shown recent strength. C om m ercial b a n k cred it (sea sonally ad ju sted ) increased substantially in S eptem ber follow ing a sm all decline in July and a m oderate expansion in A ugust. T h e an nual rate of grow th fo r 1963 to date thus am ounts to a solid 7.4 p ercen t, although it falls below last y ear’s 8 p erce n t rate. November 1963 MONTHLY REVIEW The quarterly loan expansion of $3.2 b il lion (seasonally ad ju sted ) was concentrated in Septem ber, w hen no rm al tax-related b o r row ing by business firms and by n o n bank financial institutions was augm ented by credit extended to brokers and dealers at the time of the T reasury pre-refunding operations. B usi ness borrow ing in Septem ber increased m ore than seasonally, but less th a n it did in the co r responding period last year. H eavy m ortgage activity, how ever, bro u g h t the 9-m onth an nual rate of grow th in this category to 15.6 percent, com pared w ith 12.3 p ercen t fo r 1962 as a w hole. T he qu arterly expansion in co n sum er loans was at ab o u t the sam e pace as a year ago. B ank holdings of U nited States G ov ern m ent securities declined $4.3 billion in the third q u arter, but this reduction was partially offset by increases of $1.5 billion in o th er securities (b o th figures seasonally adjusted). Shifts in bank portfolios of T reasury issues reflected the exchange of $3.4 billion of se curities m aturing w ithin 5 years fo r longer term issues offered in the S eptem ber p re refunding. B anks also m ade n et additions to their bill holdings in Septem ber, including an allotm ent of $365 m illion o f one-year bills. Action at discount w indow Tw elfth D istrict ban k s adjusted relatively sm oothly to the new environm ent of the 3 Vi percent discount rate. A s in the rest of the nation, how ever, m em ber banks o p erated u n d er som ew hat m ore reserve p ressure th an in the first half of the year. R eserve city banks in the D istrict fairly consistently recorded net borrow ed reserves during the third quarter; th a t is, their borrow ings fro m the San F ra n cisco R eserve B ank exceeded their excess reserves th roughout m ost of the period. In July, a relatively large n u m b er of banks used the discount w indow of the San F rancisco Reserve B ank, and daily borrow ings averaged over $20 m illion. In A ugust, b an k recourse to discounting slackened, b u t in late Septem ber — as b an k reserves cam e u nder increased pressure— borrow ings again rose sharply. To cover unusually large reserve deficiencies in the Septem ber 25 statem ent w eek, D istrict banks also m ade net purchases of F ed eral funds to supplem ent their R eserve B ank b o r rowings. (T h ro u g h o u t the rest of the qu arter, how ever, D istrict banks as a group rem ained net sellers of F ed eral funds.) In early O ctober, banks continued to reso rt to the discount win dow but were net sellers o f F ed eral funds on a reduced volum e of transactions. W eekly rep o rtin g m em ber b an k s 1 in the D istrict ended th e third q u arte r with a net gain of $307 m illion in loan and investm ent portfolios. W hile this increase in total bank credit was less than half th a t registered in the preceding qu arter, it was slightly g reater than 1962’s th ird -q u arter gain. T he loan ex p an sion of $451 m illion, how ever, was well below the $609 m illion increase of th ird -q u arter 1962. Slow growth in business loans B usiness firms in the D istrict increased their borrow ings only one th ird as rapidly as they did in the com parable 1962 quarter. In 1This discussion is based on data for weekly reporting member banks, since more detailed information is available on a current basis for these banks than for all member banks. Weekly report ing banks hold about 90 percent of the total assets of all District member banks. The D istrict vs, U. S. comparisons are also based on data for weekly reporting member banks. 163 F EDERAL RE S E RVE B A N K OF S A N F R A N C I S C O S E LE C TE D BALANCE S H E E T ITE M S OF W E E K LY R EPO R TIN G M EM BER BANKS IN LEAD IN G C IT IE S (dollar amounts in millions) Twelfth District Outstanding Sept. 25, 1963 ASSETS: Loans adjusted and investments1 Loans adjusted' Commercial and industrial loans Real estate loans Agricultural loans Loans to nonbank financial institutions Loans for purchasing and carrying securities Loans to foreign banks Other (m ainly consumer) U. S. Government securities Other securities LIABILITIES: Demand deposits adjusted Time deposits Savings accounts 2 9 ,0 8 7 19,854 6 ,3 8 7 6 ,9 0 4 924 United States Net change froni 2nd Quarter 1963 3rd Qtr. 1962 Dollars Percent Percent Outstanding Sept. 25, 1963 Net change from 2nd Qtr. 3rd Qtr. 1963 1962 Percent Percent + 3 07 + 451 + 66 + 2 17 — 53 + + + + — 1-1 2.3 1.0 3.2 5.4 + + + + — 1.1 3.6 3.3 4.3 2.9 13 4 ,2 6 4 8 7,063 3 5 ,9 4 4 17,409 1,465 + + 0.9 2.8 + + — 1,313 + 89 + 7.3 + 9.5 7,691 + 399 219 4 ,0 5 9 + + + 51 2 91 + 14.7 + 0.9 + 2.3 + 30.2 + 3.2 + 1.1 6,271 801 19,443 + 10.1 + 10.0 + 2.0 + 19.2 — 13.2 + 0.9 5,8 5 0 3,383 — 2 17 + 73 — + 3.6 2.2 — — 4.2 1.0 2 8 ,0 6 6 19,135 — + 7.6 6.0 — + 4.9 4.5 12,016 16,269 12,827 + 261 + 111 + 286 + + + 2.2 0 .7 2.3 + + + 2.3 1.2 3.7 6 1 ,6 0 9 56,466 3 7 ,1 4 7 — + + 0.7 2.9 2.2 — + + 0.7 2.2 3.7 1.1 3.8 4.4 + + + + — 1.1 3.0 2.1 4.6 6.3 5.5 + 3.1 “Exclusive of loans to domestic commercial banks and after deductions of valuation reserves; individual loan items are shown gross. Source: Board of Governors of the Federal Reserve System and Federal Reserve Bank of San Francisco. 164 fact, the entire $ 6 6 m illion increase in busi ness borrow ing o ccu rred in Septem ber, when business firms h ad to m eet q u arterly corpo rate tax paym ents and w hen food, liquor, and to b a c c o p r o c e s s o r s fa c e d s e a s o n a l c r e d it needs. A decline in the average interest rate on short-term business loans was fu rth er evi dence of som e slackness in credit dem and from the business sector; the rate was 5.24 percent in S eptem ber 1963, as com pared with 5.37 percen t in both Ju n e 1963 and Septem ber 1962. T he p ro p o rtio n of th e do llar vol um e of loans m ade at the prim e rate, which has rem ained at 4 .5 0 p ercen t since A ugust 1960, rose from 27 p ercen t in June to 37 percent in S eptem ber because of the increas ing percentage of large loans ($ 2 0 0 , 0 0 0 and o v er) m ade at this favorable rate. R eal estate loans continued to expand m ore rapidly th an o th er categories, as D istrict banks consistently added to th eir m ortgage portfolios despite intense com petition in the m ortgage m arket from o th er types of lenders. T he $217 m illion gain fo r the q u arte r b ro u g h t the net increase in real estate loans fo r the Jan u ary S eptem ber period to $598 m illion— alm ost one th ird of the to tal natio n al increase fo r the sam e period. M eanw hile, consum er loans in creased twice as fast as they did in the co rre sponding period last year. C onsum er financing by D istrict ban k s continued to be dom inated by th e auto m ark et; new extensions of credit fo r c a r financing w ere m aintained at the high seco n d -q u arter rate in bo th July and A ugust. Security financing also co n tributed to the th ird -q u arter gain in D istrict b an k loan p o rt folios; substantial am ounts of credit w ere ex ten d ed to bro k ers and dealers in S eptem ber for financing and carrying U nited States G ov ernm ent securities at the tim e of the T reasury pre-refunding operations, and m ost of these loans were n o t repaid until the first p a rt of O ctober. In addition, som e n o n -b ank financial institutions continued to exhibit a strong d e m and for bank credit, since they accounted fo r ab o u t $ 1 0 0 m illion of the th ird -q u arter loan expansion. November 1963 MONTHLY REVIEW A s loan portfolios expanded, D istrict banks reduced their security holdings by $144 mil lion. T he reduction, how ever, centered in in term ediate-term T reasury issues. A t the sam e tim e, banks continued to add oth er securities to their investm ent portfolios, although in som ew hat sm aller volum e th a n in the second quarter. In A ugust, D istrict ban k s m ade sub stantial shifts out of long-term U nited States bonds into securities w ith sh o rter m aturities, but the T reasury’s pre-refunding and junior advance refunding operations in Septem ber counteracted this m ovem ent. A s a result of exchanges m ade in th a t offering, D istrict b an k holdings of lo n g -te rm G overnm ent bonds increased $69 m illion (n e t) fo r the q u arte r as a w hole. H ow ever, short-term T reasury notes and bonds recorded an even larger quarterly gain ($ 1 5 7 m illion). Mixed performance in deposits In the deposit categories, D istrict banks in the th ird q u arte r show ed a som ew hat m ix e d p e r f o r m a n c e in r e l a t i o n to b a n k s elsew here. D em and deposits adjusted — de fined as total deposits less deposits of the U nited States G overnm ent and dom estic com m ercial banks, and less cash item s in the pro c ess of collection— increased by 2 , 2 p ercen t in the D istrict b u t decreased by 0.7 percent in the nation as a w hole. Savings accounts in creased 2.3 percent during the q u arter at D is trict banks; this perform ance was slightly b et ter th an the th ird -q u arter perform ance of banks nationally, in m ark ed co n trast to th eir relative situation in the first half of the year. B ut the story was different w ith oth er tim e de posit categories. T he natio n al to tal increased substantially during the th ird quarter, b u t the D istrict total drop p ed by $175 m illion, p ri m arily because of seasonal reductions in time deposits of states and political subdivisions. In the D istrict, tim e deposits of individuals, partnerships, and co rp o ratio n s rem ained rela tively stable in the th ird q u arte r after rising $450 m illion in the first half of the year. This M illio n s of D o lla r ! trict d a ta ). stability som ew hat m asked a seasonal shift in holdings of negotiable tim e certificates of de posit; over $ 1 0 0 m illion in certificates issued by D istrict ban k s m atu red in the first half of Septem ber, w hich suggests th a t corporations are using this m oney m arket instrum ent ex tensively to m eet quarterly tax paym ents. As a consequence of these generally fa vorable th ird -q u arter developm ents, D istrict banks ap p ear to be farin g well on the profit side. M ost of the b anks th a t publish thirdq u arte r d ata show increases in net earnings above the corresponding figures fo r 1962— substantial increases in the case of ninem onths data. Savings high, mortgages higher Savings grow th continued strong at savings and loan associations as well as at com m ercial banks during the th ird quarter. W ith a gain of alm ost $1 billion, insured savings and loan associations in Tw elfth D istrict states co n tin ued to outpace associations elsew here in a t tracting savings; this 4.9 p ercen t th ird -q u arter D istrict increase co n trasted to a 1.8 percent gain nationally. M oreover, with a net increase of over $ 1 .0 billion in m ortgage holdings d u r ing the q u arter, the m ortgage portfolio of i ^5 FEDERAL RESERVE B A N K OF S A N F R A N C I S C O these associations at th e end of Septem ber ex ceeded total ou tstan d in g loans of all T w elfth D istrict w eekly reporting m em ber banks. F o l lowing the p attern of th e first h alf of 1963, extensions of m ortgage funds by D istrict asso ciations exceeded th eir net inflow of savings. B orrow ings (including advances from the H om e L o an B an k ) consequently rose 10 p er cent during th e quarter. T he natio n al spotlight was again directed to C alifornia savings and loan associations in S eptem ber w hen it ap p eared th at there m ight be a general m ove to w ard a 5 percent divi dend rate o n savings. A few of the sm aller associations increased rates to 4.9 and 5.0 percent, b u t th ere was no general increase to these levels. H ow ever, m ost of the B ay A rea and San D iego associations th a t had low ered 166 their dividend rates to 4.5 p ercent in Ju n e m ade upw ard adjustm ents to 4 .8 0 o r 4.85 p ercen t for the fo u rth q u arte r in o rd er to m eet the intense com petition fo r savings funds. T he over-all financial situation as the year drew to a close reflected the strengths and w eaknesses— m ostly strengths— of the gen eral business situation. W ith the January-S eptem b er p erio d showing a 2.7 p ercen t annual rate of gain in currency and dem and deposits (an d a 13.7 p ercen t gain in tim e d e p o sits), the n atio n ’s m oney supply seem ed am ple to finance a continuing expansion into 1964. T he expansion adm ittedly was being financed at a higher level of interest rates in som e— but n o t all— sectors, yet the general atm osphere reflected a sm ooth ad ju stm en t to the m id-year policy changes. November 1963 MONTHLY REVIEW Federal Agency Securities: The Demand increased supply of A gency securities —securities issued by five F ed eral agencies which are involved in housing and agricul tu ral credit program s— has been a key factor in im proving the m arketability and liquidity of these instrum ents. Supply, how ever, is not the only reason fo r th e expansion of the Agency m arket. R ising dem and on the p art of com m ercial banks, co rp o ratio n s, non-bank financial institutions, state and local govern m ents, and individuals has helped to broaden this as well as o th er financial m arkets in re cent years. T he present article exam ines this rising dem and, an d thus com plem ents an earlier article w hich considered th e factors determ ining the increased supply of such se curities. T he grow th and bro ad en in g of the m arket for A gency securities can be dated from 1955. By the end o f 1962, every m ajo r investor group held m ore th an a nom inal share of the supply of these investm ents. H ow ever, the m arket is dom inated by the consum er sector T he (largely individuals) and by com m ercial banks and nonfinancial corporations. H oldings of all three of these groups tend to fluctuate from year to year, reflecting changes in supply to som e extent, b u t reflecting m ark et conditions and interest rate differentials also. O th er types of investors have increased their sm all h o ld ings gradually d u rin g recent years. Banks dominate the market In the first p o stw ar decade, com m ercial banks w ere the only im p o rtan t investm ent outlet for A gency securities. A lthough banks have continued to play an im p o rtan t role, th eir holdings nonetheless have not grown with the supply of A gency securities over the postw ar period as a w hole. T he b an k share of the gradually rising supply declined during the 1945-55 period, fro m ab o u t th ree-q u arters to one-half of the total. T h en , after the m ore rapid expansion of A gency securities got un d er way in 1955, the share held by com m er cial banks declined fu rth er— to as low as 15 167 F E D E R A L R E S E R V E B A N K OF S A N F R A N C I S C O percent in m id -1 9 6 0 — before recovering to about o n e-fo u rth of th e to tal at the end of 1962. F lu ctu atio n s in holdings generally have reflected cyclical influences and changes in supply, particu larly o f F an n ie M ae and F e d eral H om e L o an B ank obligations. C om m ercial banks norm ally tend to sell off T reasury securities to m ak e loans in periods of business expansion and to increase such investm ents during recessions as loans p ro vide a declining source of earning assets. In the 1955-62 period, the b anks generally fol low ed the sam e p attern in handling their p o rt folios o f A gency securities. O ne exception occurred in 1955, when holdings of A gency issues increased by about $500 m illion, even though banks w ere then m aking large reductions in th eir G overnm ent securities portfolios to finance a sharp ex p an sion in loan dem and. In Jan u ary , b anks p u r chased tw o-thirds of the first F an n ie M ae issue, a $ 5 7 0 m illion 3-year note, w hich was the largest A gency issue sold up to th a t tim e. L ater in the year, b anks also absorbed p a rt of the increase in F ed eral H om e L o an B ank b o r rowings. B ank holdings of bo th T reasury and Agency securities declined during 1956 and then re m ained stable until late 1957, at w hich time the recession brought easier m ark et co n d i tions and a resum ption of security purchases. In O cto b er 1957, ban k s acquired half of an $800 m illion F an n ie M ae issue, and they also to o k h alf of a sim ilar issue in Jan u ary 1958. In the la tter p a rt of 1959, A gency holdings declined while portfolios of T reasury securi ties continued to increase; how ever, bo th su b sequently declined until the onset of the 196061 recession. Banks and the differential 1 68 T he record up to 1961 suggests th a t the higher yield on A gency securities was n o t suf ficient to induce substantial portfolio shifts during easy m oney periods. O n the oth er hand, ban k s did m ake sizable investm ents in B a n k s increase A g e n c y security holdings, but total rises faster B illio n s of D o lla rs 0 2 1 ■ I 4 » ---- ' I ' ' 6 I "*■" I a 1 ! 1 I 10 | | Source: D epartm ent of the Treasury. each of the three relatively large F an n ie M ae sales m entioned above. T hus, the sm all size of m ost A gency issues evidently offset the a t tractions o f g reater yield and lim ited com m er cial b an k particip atio n in th e A gency m arket during these periods. In 1962, yield differentials assum ed m ore im portance in com m ercial b an k investm ent policy, and banks m ade larg er acquisitions of A gency securities th a n in any previous year. This intensified interest in A gency obligations was a b y -product of prevailing m ark et condi tions. B ank loan d em an d was relatively m od erate in the business expansion th a t began early in 1961; th e recovery itself was not of boom dim ensions, and, fu rth erm ore, m any trad itio n al b an k borrow ers tu rn ed tow ards o th er sources of financing, such as the com m ercial p ap er m ark et o r internally generated cash flows. In addition, since loan dem and was less strong, d em an d deposits also ex p an d ed less rapidly th a n in earlier cyclical periods. Tim e deposits, how ever, on w hich banks pay interest, increased substantially at com m er cial banks, partly because th e F ed eral R eserve B oard at the beginning o f 1962 raised the p e r missible ceilings on tim e d ep o sit interest rates to 3 V i and 4 p ercen t fro m the previous 3 percen t m axim um . November 1963 MONT HLY REVIEW B illio n s of D o lla r s porations have becom e increasingly active in the m ark et fo r sh o rt-term G overnm ent securi ties. They also constitute a sizable share of the m ark et fo r sh o rt-term A gency issues. W hat to do with cash flow This change in R eg u latio n Q h ad a strong im pact on com m ercial b an k investm ent p oli cies in 1962. W ith the inflow of tim e deposits increasing sharply, b anks fou n d it necessary to cover higher interest paym ents by finding investm ents th a t w ould retu rn higher yields th an those available on m ost T reasury securi ties. They stepped up purchases of state and local governm ent bonds as well as longer term T reasury issues and began to com pete m ore aggressively fo r m ortgage loans. T hey also increased th eir purchases o f A gency securi ties, particularly in the sh o rt-term area. B e tw een D ecem ber 1961 and D ecem ber 1962, com m ercial banks red u ced their portfolios of short-term G overnm ents by $1.3 billion and increased th eir holdings of short-term A gency securities by nearly $700 million. Supply con ditions helped account fo r the concentration of purchases in sh o rt-term A gency issues, since the F ed eral H om e L o an B a n k ’s sh o rt term borrow ings accounted fo r m ost of the $1.5 billion increase in outstanding Agency obligations during 1962. In recent years, corporations have com e to play a prom inen t role in the m oney m arkets, both as borrow ers and lenders of funds. Since they have large cash flows w hich their m a n agers seek to em ploy as fully as possible, co r C orporations ab so rb ed ab o u t one-fifth of the increase in outstanding A gency issues b e tw een the end of 1954 an d the end of 1962, about th e sam e p ro p o rtio n as th a t tak en by com m ercial banks in this period. They were particu larly active buyers of A gency securi ties in 1957 and 1959, b u t absorbed alm ost none of the $ 2 billion increase in the supply of A gency issues in 1961 and 1962. C o rp o rate holdings of A gency securities generally m ove in th e sam e direction as their holdings of sh o rt-term T reasury investm ents. In the 1960-62 period, corporations failed to increase th eir holdings of such securities but instead ex p an d ed th eir p articipation in the m arkets fo r com m ercial p a p e r and other higher yielding sh o rt-term investm ents. D u r ing the la tter p a rt of this period, negotiable certificates of deposit becam e a p o p u lar choice for sh ort-term investm ent. C o rp o rate holdings of short-term T reasury securities ranged b e tw een $8-9 billion during this period, except around quarterly tax dates, w hen they dropped to aro u n d $7.5 billion. H oldings of Agency issues, m ostly sh o rt-term issues, w ere gener ally ab o u t o n e-ten th as great as th eir hold ings of G overnm ents. Since th e in troduction of F annie M ae’s dis co u n t notes in early 1960, corporations have been the largest single investor group in this category, usually holding about on e-th ird of the total. H oldings have varied m ostly with changes in supply, w hich declined in 1962 as F an n ie M ae’s financing requirem ents declined. Institutions hold one-fifth T h e investm ent policies of m utual savings banks, life insurance com panies, fire-casualtym arine insurance com panies, and savings and loan associations have been m ark ed by a tend- ] 59 FEDERAL RES ERVE B A N K OF S A N F R A N C I S C O O W N ER SH IP OF FED ER A L AG EN CY O B LIG A TIO N S , 1945-62 (billions of dollars) Commercial Banks Corporate Business Consumer Sector StateLocal Govts. End of year: Total 1945 1946 1947 1948 1 94 9 1.1 1.3 1.4 1.6 1.5 .8 1.1 1.2 1.3 1 .3 1950 1951 1 952 1953 1954 1 .9 2.2 2.1 2.1 2.1 1.7 1.6 1.5 1.3 1.4 .1 .1 .1 .1 .2 .3 .3 .3 .3 1955 1 956 1957 1958 195 9 1960 3 .6 4 .2 6 .3 5 .8 8 .0 7 .9 1.8 1 .6 2.1 2 .2 1.7 1 .6 .3 .4 .8 ,6 1.2 1.1 .9 1.2 1 .9 1 .6 3.1 3.1 .2 .3 1961 1962 8 .5 1 0 .0 1.7 2 .3 1 .3 1.2 4 .0 4 .8 .4 ___ — — — ___ .3 .1 .1 .2 .2 — — - .1 .1 .1 •4 .3 .4 .4 •5 Mutual Savings Banks SavingsLoan Assns. ___ ___ -- — ----- — .1 * — * * * ___ Insurance Companies . __ * * * * * * .1 .1 — .1 .1 .1 .1 .1 .1 .1 •2 ■3 .3 .4 .5 .1 .3 .5 .5 .6 .7 .1 .2 •3 .3 .4 .5 .5 .6 .3 .3 .3 .3 *Less than $50 million. Source: 1945-60— Board of Governors of the Federal Reserve System ( Flow of Funds/Saving, Supplement 5 ); 1961-62— D epartm ent of the T reasury ( Treasury B ulletin, Survey of Ow nership). Consumer sector shown as residual for survey years; survey tends to understate holdings by financial institutions. 170 ency to liquidate holdings of U nited States G overnm en t securities and to devote an in creasing share of th eir funds to relatively safe bu t higher yielding investm ents. Life insurance com panies began selling off G overnm ents early in th e postw ar period, while casualty com panies did n o t do so until the m id -1 9 5 0 ’s. Savings and loan associations have gradually added to th eir portfolios of T reasury securi ties, b u t these have declined sharply in p ro p ortion to to tal assets. A ll these types of savings institutions have gradually increased th eir sm all holdings of A gency securities since 1955, so th a t as a group they accounted for about one-fifth of the to tal am o u n t o u tstan d in g by the end of 1960. M o st o f them , m oreover, m ade fu rth er net acquisitions of A gency securities in 1961 and 1962. Savings-type institutions hold G overnm ent securities partly fo r purposes of liquidity, and partly because of legal restrictions on altern a tive investm ents, b u t — unlike com m ercial banks o r co rp o ratio n s — they do not need to em phasize the sh o rter m aturities. A s investors, savings institutions traditionally devote the bulk of th eir G o v ern m en t portfolios to higher yielding, long-term m atu rities; yet, although their holdings of sh o rt-term G overnm ents still are relatively sm all, they have show n increas ing interest in short-term s as a result of expe riencing wide swings in G overnm ent bond prices during the 1950’s. In addition, A gency issues— m ostly those w ith m aturities o f less th a n five years— now supplem ent short-term G overnm ents in th e ir portfolios. M utual savings b anks derive m ost of their incom e from m ortgage loans and securities. T h eir holdings of G overnm ents have declined in relation to to tal assets th ro u g h o u t the p o st w ar period; at the sam e tim e, th eir preference fo r the shorter m aturities has increased. Sav ings b an k investm ents in A gency securities rose from ab o u t $ 1 0 0 m illion at the end of 1955 to ab o u t $600 m illion in 1962, o r to nearly 11 p ercen t of th eir holdings of T reas ury securities. T he yield differential has been an im p o rtan t facto r in this grow ing role of November 1963 MONTHLY REVIEW A gency securities as a supplem ent to G o v ern ments. Savings and loan associations devote as m uch of their assets as possible to residential m ortgage loans and certain o th er types of loans associated w ith hom e purchase and m aintenance. O utside th eir m ajo r area of in vestm ent, legally perm issible investm ents for federally ch artered savings and loan associa tions are lim ited to U nited States G overnm ent securities and the obligations of the F ederal H om e L o an B anks and the F ed eral N ational M ortgage A ssociation. Varying liquidity requirements G overnm ent securities are held prim arily to m eet legal reserve and liquidity require ments. B eyond this, liquidity needs are m et largely through borrow ings from the F ed eral H om e L oan B anks. Increased holdings of G overnm ents in the p o stw ar perio d thus re flect m ostly asset grow th and corresponding increases in legally required assets. Agency issues do not help m eet legal investm ent re quirem ents, b u t associations increased their investm ents in them from $ 1 0 0 m illion at the end of 1955 to $700 m illion at the end of 1960 because of the yield advantage they of fered in com parison w ith T reasury issues. Since 1960, how ever, savings and loan associations (a t least th e larg er o n es) have recorded little change in th e ir holdings of Agency securities. T h eir in terest in p u rch as ing A gency securities for yield purposes was probably w eakened by the narrow ing of the yield differential betw een A gency and T reas ury issues in the 1961-62 period, especially since A gency securities (as noted above) do not help to m eet their legal investm ent re quirem ents. Insurance com panies also have increased their holdings of A gency securities since 1955, b u t they rem ain a m inor facto r in the m arket. Life insurance com panies hold com paratively little; this is not surprising, how ever, in view of their tendency th ro u g h o u t th e postw ar pe riod to liquidate th eir G overnm ent securities portfolios and invest th eir funds in corporate securities (p articu larly b o n d s) and residential m ortgages. H igh yield and safety are th e in vestm ent qualities these investors em phasize. T hey do not rely on G overnm ent securities for liquidity purposes to the sam e extent th at o th er investors do, since th eir liquidity needs are m et largely from the generally stable in flow of prem ium paym ents. P roperty and casualty com panies operate differently, how ever, since they have large liquidity requirem ents because of the natu re of the insurance they underw rite. B o th stock and m utual com panies devote about h alf th eir to tal assets to investm ents th a t are considered highly liquid, such as T reasury securities and state and local bonds. D uring recent years these investors actually have reduced the p ro p o rtio n of th eir assets invested in G o v ern m ents, b u t m eanw hile they have added to their sm all holdings of A gency securities. L ike m utual savings banks, they favor relatively sh ort-term A gency issues. State and local governm ents are n o t heavy investors in A gency issues, b u t their holdings have risen gradually since the m id -1 9 5 0 ’s. A t the end of 1962, general funds and pension funds com bined held $480 m illion, o r slightly less th an 5 p ercen t of outstanding A gency se curities. Some state and local governm ents only recently have adopted policies o r regula tions perm itting them to invest in Agency is sues, and fo r this reason they m ay becom e an increasingly im p o rtan t investor group. T heir holdings of A gency securities are equivalent to ab o u t 4 p ercen t of th eir investm ents in T reasury obligations. P ension funds hold m ostly the longer-term F ed eral L an d B ank an d F an n ie M ae issues, while the general funds concentrate on the sh o rter m aturities of all A gency securities. State and local govern m ent bodies are relatively active in th e m ark et fo r F annie M ae discount notes, w hich provide the liquidity of T reasury bills at slightly higher yields. FEDERAL RESERVE B A N K OF S A N F R A N C I S C O The differential persists Individuals and o th e r investors, such as nonprofit organizations, have absorbed a large p ro p o rtio n o f the A gency securities issued since 1954. In years w hen large increases occurred in the supply of A gency securities— such as 1955, 1957 and 1959— individuals w ere the largest purchasers. A lthough indi viduals ow n relatively large am ounts in all m aturities, they are th e principal investors in the 5-15 year m aturities. F o r this group, the safety of A gency securities, com bined with the con tin u atio n of a yield differential, m ake them highly com petitive w ith G overnm ents as perso n al investm ents. Several factors have helped account fo r the narrow ing o f th e yield differential betw een A gency an d T reasury securities in recent years. A substantial long-term grow th in supply (provided it is not excessive) is a p re requisite fo r such a developm ent. W hen a p articu lar type o f security is in very scarce supply relative to o th er investm ents, the is suer m ust offer a yield advantage in o rd er to 172 secure a ready m arket. B ut a b roadened m a r ket— evidenced in the case of A gency securi ties by an increase bo th in absolute term s and in p ro p o rtio n to th e supply of m arketable F ed eral securities— has tended to narrow the differential over tim e. M oreover, m ark et con ditions p eculiar to the 1961-62 p erio d have enhanced the dem and fo r A gency issues and o p erated to reduce fu rth er th eir yield advan tage. T he m arket m ay reg ard som e differential as necessary, how ever, because A gency secu rities are not direct obligations of, n o r are they g u aran teed by, th e F ed eral G overnm ent. Som e differential is likely to persist, m oreover, be cause the A gency m ark et— being only a sm allscale copy of the G overnm ent securities m a r ket— can n o t com pete equally w ith the b read th and depth offered by th a t m ark et. T he incen tive to invest in A gency securities still depends partly on th eir yield advantage, w hich m akes them attractive investm ents fo r sm aller com m ercial banks, individuals, an d sim ilar invest ors who desire securities to hold to m aturity. November 1963 MONTHLY REVIEW M onthly R eview is published by the R esearch D ep art m ent of the F ed eral R eserve B ank of San F rancisco. Individual and group subscriptions to th e M onthly R e view are available on request fro m the A dm inistrative Service D ep artm en t, F ed eral R eserve B ank of San F ra n cisco, 400 Sansom e Street, San F rancisco 20, C alifornia. 173 FEDERAL RESERVE BANK OF SAN FRANCISCO BANKING AND CREDIT STATISTICS AND BUSINESS INDEXES—TWELFTH DISTRICT' (I n d e x e s : 1 9 5 7 - 1 9 5 9 = 1 0 0 . D o lla r am ou n ts in m illio n s o f d o lla r s ) Condition items of all member banks2' 7 Year and Month Loans and discounts Demand deposits adjusted3 Total time deposits 1929 1933 1939 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 2,239 1,486 1,967 9,220 9,418 11,124 12,613 13,178 13,812 16,537 17,139 18.499 495 720 1,450 6,639 7,942 7,239 6,452 6,619 8,003 6,673 6,964 8,278 1,234 951 1,983 10,515 11,196 11,864 12,169 11,870 12,729 13,375 13,060 14,163 1,790 1,609 2,267 7,997 8,699 9,120 9,424 10,679 12,077 12,452 13,034 15,116 19 8 14 69 71 80 88 94 96 109 117 125 141 1962 O ctober N ovem ber D ecem ber 20,460 20,589 21,102 7,471 7,501 7,608 13,969 14,012 14,431 16,934 16,827 17,093 142r 144r 146 1963 Ja n u a ry F eb ru ary M arch A pril M ay Ju n e Ju ly A ugust Septem ber O ctober 21,035 21,403 21,480 21,714 21,894 22,140 22,277 22,517 22,895 22,993p 7,454 7,130 7,130 7,103 7,069 7,153 7,002 6,905 6,949 6,848p 13,917 13,527 13,646 14,175 13,427 13,610 14,030 13,838 13,975 14,416p 17,390 17,532 17,760 17,868 18,111 18,264 18,363 18,426 18,446 18,703p 146 149 152 147 152 152 159 164 167 165 U.S. Gov’t securities Total nonagricultura 1 employ ment Bank rates Bank debits index 31 cities1’ 6 short-term business loans6’ 7 4.14 4.09 4.10 4.50 4.97 4.88 5.36 5.62 5.46 5.50 5^6 5.53 '5.47 Car loadings (number)6 Dep’t store sales (value)6 Retail food prices 7. 8 86 85 90 95 98 98 104 106 108 113 86 84 90 96 101 96 103 103 103 109 110 56 83 108 103 112 112 103 96 101 95 94 104 18 11 19 74 74 82 91 93 98 109 110 115 123 53 34 38 93 93 92 94 97 101 101 103 104 114 114 115 111 110 111 104 102 101 121 128 127 106 105 106 116 116 116 116 116 116 116 117 117p 111 111 111 110 110 108 108 110 110p 90 103 105 99 103 127 128 130 118 129 127 128 132 125 107 107 107 107 106 106 108 107 107 Waterborne Foreign Trade Index7* 9• Industrial production (physical volum e)5 Year and month Total mf’g employ ment Exports Petroleum7 Imports Refined Cement Steel7 Copper7 Electric power Total Dry Cargo Tanker Total Dry Cargo 1929 1933 1939 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 84 35 62 101 102 101 107 104 93 98 109 98 95 97 91 54 70 112 114 111 111 109 106 98 96 95 96 96 61 39 49 90 95 92 96 100 103 96 101 104 108 111 34 17 35 77 82 83 90 97 93 99 108 101 105 111 13 11 17 61 69 73 82 89 95 97 107 115 124 131 96 55 82 86 71 67 84 101 117 89 95 122 126 115 61 193 * '4 3 81 56 57 72 105 124 86 90 123 134 123 190 lO lr 113 96 117 91 96 96 108 120r 104 92 20 12 16 33 51 44 52 75 95 92 112 133 134 144 55 i6 92 105 85 102 108 114 94 92 102 111 100 89 15 70 100 98 90 104 114 113 101 86 112 119 128 '41 61 70 71 80 86 93 95 113 117 116 126 " i 18 41 28 35 69 97 91 112 142 145 155 1962 S eptem ber O ctober N ovem ber D ecem ber 98 98 104 103 96 97 97 97 113 112 113 113 115 120 115 121 90 88 91 100 119 127 127 127 133 132 135 131 105 96 93 154 121 105 91 157 61 72 99 144r 153r 158 163 134 122 154 127 124 l7 1 r 161 183 140 101 94 104 91 93 94 96 96 97 98 98 98 97 98 113 111 110 108 112 116 115 116 122 118 122 105 111 111 127 118 117 98r 123r 123r 134r 141 r 131p 109p 105p 104p 125 130 134 135 127 121 105 105p 142 134 137 136 135 127 132 144 153 139 145 164 155 94 96 90 148 123 111 114 166 128 119 131 155 120 107 104 172 1963 J a n u a ry F e b ru a ry M arch A pril M ay Ju n e Ju ly A ugust S eptem ber Lumber Crude Tanker 1 A djusted for seasonal variation, except where indicated. E xcept for b anking a n d cred it a n d d e p a rtm e n t sto re sta tistics, a ll indexes a re based upon d a ta from outside sources, as follows: lum ber, N ational L um ber M a n u fac tu rers’ A ssociation, W est C oast L u m b erm an 's A ssociation, a n d W estern Pine A ssociation; petroleum , cem ent, a n d copper, U.S. B u reau of M ines; steel, U.S. D e p artm en t of Com m erce and A m erican Iro n a n d Steel In s titu te ; electric power, F ederal Pow er Com m ission; n onagri cultural and m anufacturing em ploym ent, U.S. B u reau of L abor S ta tistic s a n d coop eratin g s ta te agencies; re ta il food prices, U.S. B u reau of L abor S ta tistics; carloadings, various railro ad s a n d railroad associations; and foreign tra d e , U .S. D e p a rtm e n t of Commerce* 3 A nnual figures are as of end of year, m on th ly figures as of la s t W ednesday in m onth. 1 D em an d deposits, excluding in te rb a n k a n d U.S. G overnm ent deposits, less cash item s in process of collection. M o n th ly d a ta p a rtly e stim ated . 4 D eb its to to ta l deposits except in te rb a n k p rio r to 1942. D ebits to dem and deposits except U.S. G overnm ent and in te rb a n k deposits fro m 1942. 5 D aily a v era g e, f A verage ra te s on loans m ade in five m ajor cities, w eighted by loan size category. 7 N o t a d ju ste d for seasonal v a ria tio n . 8 A new index now com bining n o t only Los Angeles, S an Francisco, and S e a ttle food indexes b u t also P o rtlan d . R ew eighted by 1960 C ensus figures on popu la tio n of sta n d a rd m etro p o litan areas. 9 Com m ercial cargo only, in physical volum e, for th e Pacific C o ast custom s d istric ts plus A laska a n d H aw aii; sta rtin g w ith Ju ly 1950, “ special categ o ry ” exports are excluded because of security reasons. 10 A laska a n d H aw aii a re included in indexes beginning in 1950. v — Prelim inary. r— R evised. * Less th a n 0.5 percent. 174
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