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F E D E R A L R E S E R V E BANK OF SAN F R A N C IS C O MONTHLY REVIEW I N T HI S I S S U E Sticks and Stones When Countries Borrow OCTOBER 1965 Sticks and Stones . . . W hy have the ups and downs of the housing industry been so much greater in the W est than in the rest of the country? When Countries Borrow . . . Discussions of monetary reform must begin with an understanding of the present role of the IMF in the international community. Editor: W illiam Burke October 1965 MONTHLY REVIEW Sticks and Stones t h e l a s t year-and-a-half the West ern housing industry has been in a slump whose proportions have all but matched those of the preceding three-years’ boom. Many in dustry spokesmen attribute the decline to a severe case of apartment over-building accen tuated by a reduction of activity in the re gion’s aerospace industry. While this abbre viated hypothesis does not fully account for all the factors affecting the present situation, no one suggests that this particular decline is attributable to tight residential mortgage money— a factor which contributed signifi cantly to earlier downturns— since financing generally has remained available at low rates throughout the entire period. F o r High-rise housing The ups and downs of the housing industry have been greater in the West than in the rest of the country since the turn of the decade. From a low point in late 1960, the dollar value of housing awards in Twelfth District states (excluding Alaska and Hawaii) grew 61 per cent to a peak in the third quarter of 1963. By m id-1965 spending dropped 24 percent from that peak. In contrast, the value of hous ing awards in the rest of the nation grew by 43 percent between the 1960 low point and mid-1963, and then actually increased 6 per cent more between then and mid-1965. Recent fluctuations, moreover, have been concentrated almost entirely in apartment building. Permits for single-family construc tion nationwide fell about 20 percent in 1960 and have hovered about that depressed level ever since. Multi-family construction nation wide dropped less than single-family housing in 1960— and then it more than doubled its 1959 pace by 1963. As a consequence, the proportion of apartments in the residentialconstruction sector somewhat exceeded the share obtained in the last great apartmentbuilding boom of 1927-28. And even in the re cent slump, over one-third of total building was in apartm ent structures—-a strong con- 175 FED E RA L R E S ER V E B A N K OF S A N F R A N C I S C O trast to the low level of apartm ent building (rarely over one-fifth of the total) in the pe riod intervening between the 1920’s and the 1960’s. In the West, single-family and multi-family building outpaced their respective sectors elsewhere through most of the period 195963. But the story has been completely different in the last year-and-a-half. Single-family building permits have dropped 25 percent from their 1960-63 plateau in the West while remaining roughly stable in the rest of the country. Multi-family permits, which reached a peak in 1963 at two-and-one-half times their 1960 level, have since plummeted almost all the way back to that starting point. Yet multi family building elsewhere has experienced only a relatively slight decline since 1963. The mobile-home boom which has accom panied the apartm ent surge must be recog nized as an added factor in the housing pic ture. Mobile homes increased their share of the nation’s new housing from about IV i percent in 1960 to over 1OV2 percent in 1964. In the W est the mobile-home boom has been particularly strong; California alone contains about 4,000 of the nation’s 24,000 mobilehome parks. The relative movements of sin gle and multi-family construction suggest that these homes on wheels have been competitive with single-family homes as well as apart ments. Being generally small, compact, and furnished, they have some of the characteris tics of apartments; but their low cost (average $ 6,000 including furniture), their freedom from real property taxes, and their mobility (average 36 months on site), along with their home-owner-style freedom and privacy, have permitted them to fill a need that conventional housing has not been able to meet. High-cost housing In view of the competition of apartments and mobile homes for the consumer’s housing dollar, it seems somewhat paradoxical that single-family housing is getting bigger and more expensive. The growth in size and cost of single-family homes in the face of an appar ent need for smaller, cheaper homes sug gests that builders of this type of housing are concentrating on the luxury m arket and virtu ally abandoning the small-house market to the W este rn housing in d u stry suffers downtrend in single-family housing, boom and slump in apartment building—and falling share of U. S. market Thousands of Dwelling Units 200 District Share of U.S. 1% ) 0 . Ratio Scale 10 JM lllllU j Single-Fam ily .... . .... . / .... .... ............. MULTI-FAMILY 20 1959 176FRASER Digitized for Source: D e p a rtm e n t 1961 1963 1965 of Com m erce (building-perm it d ata, seasonally ad ju sted ) October 1965 MONTHLY REVIEW A p artm e n t ups an d dow ns dominate regional housing markets Thousands of Dwelling Units Source: D ep artm en t of Com m erce (building-perm it d a ta ) other sectors of the industry. Over the period 1950-64, the average size of new single-family homes nationwide in creased from 894 square feet to 1,206 square feet, and in 1960-64 alone, the number of rooms in the average new house rose from 4.6 to 5.7 rooms (FH A data). More bedrooms, but also more family rooms and bathrooms, accounted for the rise. Into these new houses went more and more equipment— built-in ranges, disposals, dishwashers, and lately, air conditioners. (M ore than 30 percent of new homes in the nation were air conditioned in 1964.) Fireplaces were also on the increase, being included in 38 percent of new homes na tionally and 54 percent of those in the West. At the same time, land costs have contin ued rising as before. Raw land prices since 1960 have increased 58 percent nationally, and 75 percent in the West. Developed land is up even more sharply. Construction costs have also risen (by 7.4 percent, according to one industry index), even in the face of con tinuing productivity gains. These trends represent a certain degree of upgrading among single-family home buyers, but the movements of home prices and costs of ownership vis-a-vis rent indexes suggest that more than upgrading may have been in volved in the rising costs of home ownership. Since 1960, the price of new homes under FH A mortgages has risen by nearly 9 percent nationally and by over 10 percent in the West. The price of existing homes purchased has risen almost as much. And, according to the consumer-price index, home-ownership costs have outpaced rental costs throughout most of the nation. In this region, Los Angeles, San Francisco, and Seattle have recorded sub stantial increases in rental costs, but each city except San Francisco has suffered even greater increases in home-owner costs. Ups and downs Throughout the West, the ups and downs of activity have shown a good deal of similar ity from one region to another when measured on an annual basis. Annual regional data, however, disguise those divergent movements among the individual states which are discern ible on a shorter-term basis. Housing activity in almost all areas moved upward from 1961 until early 1963, but divergent movements de veloped thereafter. In California, the value of residential awards rose steadily from 1961 until late 1963, but then dropped sharply. In the Pa cific Northwest, residential awards declined in Washington between early 1963 and mid1965, but stayed high in Oregon until the be ginning of 1964. In the Mountain states the trends were also divergent. Arizona experi enced a constantly weakening market after early 1959, while Utah and Nevada experi enced continued growth until suffering a slump in mid-1963, roughly six months before the slowdown in California. Defense-industry shifts were reflected in many of these local construction declines. In other words, cutbacks in housing activity sooner or later followed cutbacks in local de fense-industry employment in Arizona, Ne 177 FED E RA L R E S E R VE B A N K OF S A N F R A N C I S C O vada, Utah, Washington, and most of Califor nia. In some areas the adjustments were dis proportionately large, and in other areas the drop in construction could not be related to any defense-industry development. But in most cases a fairly close relationship pre vailed. The over-exuberant building activity of sev eral years back was also involved, along with defense shifts, in the more recent slowdown. Western builders in the early years of the dec ade responded to relatively low vacancy rates with rapid increases in construction— in creases so rapid that they led soon thereafter to soaring vacancy rates and to declines in future building plans. In single-family construction, a recovery of sorts got underway in 1961-62 in response to R ising v a c a n c y rates reflected in Western housing downturn Thousands of Dwelling Units Vacancy Rate (Percent) 12 Rental Vacancy Rate ------- ► .... / - A...... 12 M U LTI-FA M ILY PER M IT S 178 Source: D e p a rtm e n t of Com m erce, F ederal Reserve B ank of San seasonally-adjusted q u arterly totals) Francisco (building-perm its, vacancy rates amounting to about 1.2 percent of the housing stock, but this recovery later proved abortive as vacancy rates moved up to about 2 percent. More strikingly, the West’s apartment- construction boom took place in a setting in which vacancy rates averaged about 9 percent, but the boom subsequently col lapsed as vacancies jumped to about 11-12 percent of the rental-housing stock. Houses are for people Yet, whatever the short-run impact of shift ing defense requirements and shifting vacancy rates, demographic changes remain the domi nant long-run influence on the West’s housing industry. Although the number of houses built in any particular m onth or year rarely matches the num ber of people looking for housing not already available, over the longer term the supply of new housing equates close ly with the demand. Some better perspective on the current situation can thus be gained by a look at the relation between recent house building and the changes in housing needs being generated by demographic changes. By 1960 there were 8.3 million dwelling units in the nine District states. A bout 77 per cent of these were single-family homes and 21 percent were multi-family units, while mobile homes amounted to about 2 percent of the total. The single-family boom during the 1950’s enabled practically all comers to find their own little cottages in Suburbia. As a consequence, the number of single-family homes grew by more than one-half, while multi-family units increased only about oneeighth, during the decade. The building of new apartments actually kept pace with single family construction over these years, but this apartment growth was largely offset by the wholesale removal of duplex war housing. These changes over the decade resulted in a 52-percent increase in owner-occupied dwellings versus a 29-percent increase in rented units. By 1960, 61 percent of District MONTHLY REVIEW October 1965 Boom in y o u n g -a d u lt population presages future housing boom I96S 1975 Agt 25 20 15 10 5 0 5 10 15 20 25 30 Source: B ureau of th e C ensus (n atio n al d a ta ) households owned their own homes, where only 47 percent had done so in 1950. The high rate of building during the 1950’s increased the District housing stock by more than 3 Vi percent a year. Over the ten-year period, re placements and additions to the housing in ventory were enough to modernize the stock substantially— especially the stock of the single-family houses. This modernization of the W estern housing stock came mainly from the dilution of the old stock by the addition of new housing ra ther than by replacement of the old (except for the removal of war housing noted above). The new additions were made to house the large population growth which occurred over the decade. By 1960, only 63 percent of West ern housing was over 10 years old and only 31 percent was over 30— while 50 percent of the housing in the rest of the country was over 30 years old. But what of the potential market of the 1960’s? The rate of population growth appar e n tly has subsided a little in the past five years. But, more important, changes in the composition and character of the population have substantially altered the nature of the housing market. Between 1960 and 1965, District states gained over 3.8 million people. On an annual basis the percentage gain of roughly 3.0 per cent was somewhat below the 3.5 percent av erage annual gain of the 1950’s. The charac ter of the gain, however, was vastly different from that of the 1950’s and even from that of the last half of the decade. The changes in the age groups in household-forming ages were of obvious importance. The gain in the 20-24 age group over the last five years— over 400,000— nearly dou bled the increase in that age group during the previous five. This group, too young to buy houses, was looking for rental housing. Among the age groups which account for the largest share of homebuyers, the changes were mixed. In the 25-29 age group, the gain was triple the relatively small gain of the late 1950’s. The growth in the total 25-44 age group, however, was virtually the same in each of the five-year periods— about 580,000 in each period. The older age groups, which historically are more inclined to apartment living, grew substantially, but still less than in the late 1950’s. The 45-64 age group, with a gain of roughly 690,000 in each of the two periods, increased more rapidly than did the 25-44 category. But the 65-and-over population, with a five-year increase of about 290,000, in creased at a slower pace. (Actually, the rate of expansion of the aged category has been declining since the early 1950’s.) Yet, to the extent that the explosion in apartment con struction can be attributed to population changes, the growth in the under-30 category undoubtedly was the major force. Houses are for households The age distribution of the population has an im portant influence on the formation of households, and households in turn are the buyers and renters of the housing supply. N a tionally, the num ber of households increased 179 F EDERAL R E SE R V E B A N K OF S A N F R A N C I S C O m ore rapidly than the num ber of people be tween 1960 and 1965. The increase in family households, however, was abnormally low, while there was a very large gain in house holds composed of unrelated individuals. Such households typically represent single persons, widows, and divorcees from the older age groups, but they may increasingly include younger individuals as well. Assuming the same trends among District residents, roughly 1,200,000 new households were formed in or migrated to District states during the first half of this decade. Some where around 750,000 of these new house holds were families— a 12 percent increase over the period— but 450,000 were made up of unrelated individuals— an increase of near ly one-third in this category. The significance of these changes in pop ulation age groups and household composi tion is fairly obvious for the housing industry. M any more apartments were built, and a few more houses. In the five-year period 1960-64, nearly 1,800,000 new dwelling units entered the District housing stock. About 120,000 of these were mobile homes. Of the 1,662,000 conventional housing units, 872,000 were single-family homes, and 790,000 were multi family units. (A bout 200,000 of the latter were in 2-to-4 family housing.) A sizeable part of the new construction merely replaced part of the housing inventory existing in 1960. Based on the pattern of the pre-1960 period, the net loss in existing Dis trict inventory probably amounted to about 90.000 units a year recently. Assuming a loss of 450,000 units over the five-years 1960-64, the net addition to inventory thus was about 1.350.000 units— or about 150,000 more than the gain in the num ber of households. Of course, the calculations must be treated with a grain of salt. The formation of new households is an uncertain business, and very little is known about current losses (and off setting gains) in the housing inventory apart 180 for FRASER Digitized from new construction. Nevertheless, the rela tively small size of the gap between the esti mates of net new housing and household for mation suggests that any current housing sur plus is not especially large and may soon be dissipated. Prospects for the next five years also ap pear somewhat sanguine, even if total District population continues to grow at less than the 3.5-percent annual rate of the 1950’s. In par ticular, although the growth in the younger brackets will slow down as the war babies move into older age brackets, massive gains are scheduled for the adult sectors. The 20-24 year olds— with the highest pro pensity to form new households of any age group— are expected to increase by almost one-third in the short space of five years. In the next several years the young ladies of the war-baby crop should be finding sufficient young lions to overcome an earlier shortage in the proper age group. The growth in the 20-24 age group should exceed that in the en tire 25-44 category, but the latter group— the home-buying age group— may still grow con siderably faster than it did in the first half of the decade. Similar gains are also anticipated in the older population. In total, perhaps 4.5 million more people will reside in District states by 1970. This many people translates roughly into 1.4 mil lion new households. Judging by projected in creases in both the home-buying and the ren tal-oriented age groups, demand should be rather strong for both single- and multi-family housing, not to mention mobile homes. All in all, demographic factors created a strong basic market for W estern homebuilders in the first half of this decade, and that market should be just as strong in the last half. In dustry leaders can be pardoned for hoping that the basic market will be satisfied in future years without any of the violent ups-anddowns that have m arred the industry’s recent performance. — John Booth October 1965 MONTHLY REVIEW When Countries Borrow m o n e t a r y reform headed the sources of over $16 billion available, on a agenda at the annual meeting of the short-to-medium term basis, to national mon International M onetary Fund in Washingtonetary authorities to meet balance-of-payments deficits. last month, and it was the leading topic of discussion in the earlier talks held between Using the I.M.F. the peripatetic M r. Fowler and his opposite Basic to the financial structure of the I.M.F. numbers in the finance ministries of the lead is a system of quotas for member countries. ing industrial nations. The average reader cannot be expected to distinguish among all The quotas reflect the members’ financial par ticipation in the Fund— that is, their subscrip the numerous proposals for improving the tions— as determined by such factors as na international payments system that were put tional income, holdings of traditional reserve forward in those discussions. He should, how assets, and amount and variability of trade. ever, have a clear understanding of the startA country’s quota determines its drawing ing-point of those deliberations— the world rights, in a broad sense, and its voting rights; trading community’s present monetary ar rangements. it also specifies certain details regarding credit repayment. With some few exceptions, a The international payments system has country’s initial quota payment to the Fund evolved gradually to meet the needs of world consists of gold (25 percent) and its own cur trade and investment, so that several courses rency (75 percent). of action are now open to any country which W o r ld needs to finance a balance-of-payments defi cit. It may use the traditional internationalreserve assets (gold and foreign exchange) which it has on hand; it may obtain credit di rectly from the countries to which it is in debted; or it may borrow from another coun try or from the International Monetary Fund. By far the most im portant source of inter governmental credit is the International Monetary Fund (I.M .F .), established through the Bretton Woods Agreements of 1945 in order to maintain stable exchange rates and to avoid competitive depreciation of curren cies. The I.M .F. provides three major services to its over-one-hundred m em bers: regulatory, consultative, and financial. It provides, for example, a code of good behavior for the world’s multilateral payments system, and it also provides its members with advice and technical assistance on ways of achieving ex ternal balance. In its financial role— currently its most important function— it makes re As stated in Article I of the Fund Charter, I.M.F. resources are made available so as to provide members with an opportunity to cor rect temporary maladjustments in their bal ance of payments without resorting to mea sures which would seriously impair national or international prosperity. The Fund has a policy against providing facilities for long-term capital investment, and it generally limits the repayment period to three to five years. Its two major types of transactions are a member country’s purchase of another member’s cur rency in exchange for its own currency, and the subsequent repurchase of its own currency with gold or convertible currencies. Specific provisions may vary for each transaction, de pending on Fund holdings of each currency relative to quotas. But why should a country need to purchase another country’s currency? This question goes to the heart of the difference between transactions carried out within the same coun- FEDERAL R E S E R VE B A N K OF S A N F R A N C I S C O 182 try and transactions that cross national bound aries. Consider, for example, a merchant in San Francisco who buys goods from a firm in New York and who also buys goods from a firm in London. The merchant writes a check to pay each of these firms. The one in New York receives dollars and uses them in the regular course of business. But the exporter in London cannot ordinarily use dollars in his day-to-day transactions; generally, he will sell his dollars to his bank, which in turn will sell them to firms which are importing goods from the U. S. Now, obviously, every seller prefers to be paid in his own coin. For the most part, the exports of a country bring in the largest part of the foreign exchange (that is, foreign cur rencies) needed to pay for imports from abroad. But this is not always the case. A country may find that it has bought more from a foreign country than it has sold to it; so, in order to settle accounts, the country which is a net importer must somehow obtain the nec essary foreign currency, be it dollars, pounds, or lire. It may do this, as pointed out above, by borrowing from the other country or by selling gold to the other country. Or, more to the point, it may use its entree to the I.M .F. The provisions limiting a member’s right to purchase, or “draw,” currencies from the Fund are expressed in terms of Fund holdings of the drawing mem ber’s own currency. Al though exceptions have been granted, total drawings are supposed to be limited to amounts that will not cause the F und’s hold ings of the mem ber’s currency to increase by more than 25 percent in any one year nor to exceed 200 percent of its quota. Moreover, essentially automatic drawings are permitted as long as Fund holdings of the m em ber’s currency would not thereby exceed the sum of its quota plus any special loans it may have made to the Fund. Initially, such automatic drawings would ordinarily have been permitted up to the amount of the gold subscription. However, if other members have drawn on the country’s currency, so that the amount on hand in the Fund is less than 75 percent of quota— the amount originally paid in currency— automatic drawing rights are greater than the usual 25 percent. They are also larger, as has been mentioned, if the Fund has borrowed currency from the drawing country beyond the original subscription. In like manner, automatic drawing rights are less than 25 percent of quota if the member, through previous purchases from the Fund of other currencies, has increased Fund holdings of its own currency above 75 percent. Tranche means drawing rights The “gold tranche” and “credit tranche” concepts frequently used in discussions of in ternational reserves are based on just these provisions. A member’s gold tranche position, which is simply its quota minus Fund holdings of its currency, represents the basic amount it may draw from the Fund more or less auto matically. This gold tranche generally is con sidered part of a country’s international re serves. Credit tranches represent the addi tional amounts which may be drawn with proper justification, without exceeding the 200-percent limit for Fund holdings of the member’s currency. Increased justification is needed, however, for successive drawings. Consider, for example, Italy’s position in the Fund. Italy’s quota in the Fund is $500 million, of which $125 million (25 percent) was originally paid in gold and $375 million in lire. If there were no outstanding Fund transactions in lire, Italy’s total drawings in the Fund could normally reach $625 million — twice the $500-million quota minus the $375 million of Fund lire holdings— o f which $125 million (the gold tranche) would be available virtually automatically. Italy’s credit tranches meanwhile would amount to $500 million. MONTHLY REVIEW October 1965 G row th of in tern atio n a l re se rv e s sla ck e n s, as industrial Europe gains and U. S. loses . . . holdings heavily concentrated in industrial countries Billio ns of Dollars 1958 1959 I960 1961 1962 1963 1964 1965 June Source: In te rn atio n a l M o n etary F u n d (in tern atio n al reserves include gold, foreign exchange, an d I .M .F . position) But as a matter of fact, there have been lire transactions through the Fund. A t the end of June this year, net Fund sales of lire amounted to $218 million, while I.M .F. bor rowings from Italy amounted to $70 million, reducing to $227 million the amount of lire on hand in the Fund. The gold tranche posi tion was $273 million ($500 million minus $227 m illion), and the credit tranches, $500 million. Total automatic drawing rights, or “reserve position in the Fund,” equaled $343 million (gold tranche plus the $70 million loan to the F u n d ); and Italy’s “gross posi tion in the F und” came to $843 million (re serve position plus credit tranches). In order to insure that drawings will be available in excess of the reserve position if needed, a member country may enter into a “stand-by arrangement” with the Fund. This is essentially a pre-arranged line of credit within available credit tranches. The Fund gives the member assurance that a specified volume of foreign exchange will be available for a fixed period of time, usually 12 months. The same policy is applied to requests for stand-bys as is applied to requests for imme diate drawings— that is, the larger the amount, the greater the justification required. Repayment of a Fund drawing usually takes the form of a repurchase of the origi nally exchanged currency. Payment is made in gold or foreign exchange if necessary in or der to reduce the F und’s holdings of the draw ing member’s currency, but this provision is waived if Fund holdings of that currency have declined sufficiently as the result of another member’s drawing. But there are limits to the amounts which may be repaid. F or example, repurchases may only be carried to the point at which the F und’s holdings of the repurchas ing member’s currency equal 75 percent of its quota. Here the member is neither a debtor nor a creditor in the Fund— “automatic” drawing rights are again equal to the original 25 per cent of quota. Replenishing resources To provide its members with the increased financial accommodation required by the world’s economic growth, the I.M .F. occa sionally is forced to replenish its financial re sources. This has been done in the past by means of quota increases, gold sales, and bor rowing arrangements. Quota increases, which 183 FEDERAL R E S E R V E B A N K OF S A N F R A N C I S C O took place in 1959 and are expected to take place again this year, increase the potential drawing facilities of member countries, since they provide the Fund with additional re sources to make the drawing facilities effec tive. Gold sales made to acquire currencies which the Fund expects to need for drawings are essentially just the exchange of one type of Fund resource for another; borrowing ar rangements, in contrast, are a more complex way of increasing financial means. Borrowing arrangements may be needed because member countries wish to draw an unusually large proportion of their quotas, or else because the quotas of members whose currencies are in demand are too small rela tive to potential borrowings. In 1962 the Fund entered into the General Arrangements to Borrow, under which ten industrial coun tries agreed to lend as much as $6 billion of their currencies to the Fund— if needed to forestall or cope with an impairment of the in ternational monetary system. In particular, $ 2.8 billion of such arrangements were made with the industrial countries of continental Europe and Japan, since those countries’ quotas were especially small relative to the potential need to draw on their currencies. The General Arrangements to Borrow were activated for the first time in 1964, to provide $405 million of a $1-billion drawing for the United Kindom. — Heather Wright Federal Funds A technical paper summarizing the findings of a three-year survey, Trading in Federal Funds, is now available from the Board of Governors of the Federal Reserve System. The report, prepared by Dorothy M. Nichols of the Federal Reserve Bank of Chicago, analyzes the variations in the size and distribution of flows of Federal funds, and thus points up the importance of these transactions in the money market. The report also emphasizes the key role of certain groups of banks, both because of their activities in maintaining a wide and flexible market for Federal funds and because of the influence of their reserve positions on the supply and demand of funds. The pam phlet will be furnished free upon request to libraries, teachers at educa tional institutions, and government agencies. F or purchasers, the price is $1.00 a copy or 85 cents each for 10 or more copies in single shipment. Copies may be obtained from Publications Services, Division of Administrative Services, Board of Governors of the Federal Reserve System, W ashington, D. C. 20551. 184 for FRASER Digitized October 1965 MONTHLY REVIEW Western Digest Banking Developments District weekly reporting banks recorded a $272-million expansion in total bank credit between mid-August and mid-September— an 0.8 percent increase, as com pared with a 1.8-percent gain posted by weekly reporting banks in the rest of the nation. . . . Business loan demand was relatively strong, increasing $55 million, and borrowing over the September 15 corporate tax-date was widely distributed among various categories of borrowers. Nonbank financial institutions also turned to banks for a substantial $94 million in net credit extensions, as their paper, largely held by corporations, m atured prior to the tax date. . . . District banks increased their hold ings of U. S. Government securities by $80 million, mainly in Treasury bills, but they made only nominal additions to their municipal and Federal Agency holdings, after acquiring tax-exempts at a rapid pace earlier in the third quarter. . . . District banks’ $715-million gain in demand deposits adjusted was largely offset by a $540-million reduction in U. S. Government deposits. District banks meanwhile gained $25 million in time and savings deposits, in contrast to a $ 166-million net reduction at reporting banks elsewhere. Employment and Unemployment Nonfarm employment in Pacific Coast states increased strongly in August, after settlements were obtained in a num ber of construction-site disputes. Total nonfarm employment (exclusive of construction) increased 0.2 percent for the month, on the basis of stable employment in manufacturing and increases in trade, services, and government. Meanwhile, nonfarm employment nationwide dropped 0.4 percent. . . . Jobless rates remained unchanged between July and August, at 5.8 percent for the Pacific Coast and 4.5 percent for the nation. . . . District aerospace employment strengthened in August for the fifth consecutive month. The improvement in this sector reflected increased production of (and increased orders for) commercial jet aircraft. But District firms received only about 15 percent— far below the normal share— of the $500 million of military hardware contracts awarded by the D epart ment of Defense in the period mid-August to mid-September. Production Developments Steel consumers began to reduce strike-hedge inventories after a new labor con tract was signed September 3, and mills throughout the nation reduced production accordingly. Western output dropped sharply immediately after the settlement, but then recovered much of that loss and rose to a level higher than a year ago, while national output ran 18 percent below the year-ago figure.. .. Copper prices remained under pressure as labor difficulties in foreign and U. S. mines aggravated the world wide shortage of the red metal. The spot quotation on the London M etal Exchange moved irregularly upward, and brass producers announced a 5-percent increase in prices of copper and brass tubing and pipe. 185 FEDERAL R E SE R V E B AN K OF S A N F R A N C I S C O Condition Item s of a ll M em b er Banks — Tw elfth District an d O th e r U. S. Source: F ederal R eserve B ank of San Francisco. (E n d -o f-q u arter d a ta show n th ro u g h 1962, an d end-of-m onth d a ta th e re a fte r; d a ta n o t ad ju sted for seasonal v ariatio n .) B A N K IN G A N D CREDIT STATISTICS A N D BUSINESS INDEXES—TWELFTH DISTRICT!* (Indexes: 1957-1959 = 100. Dollar amounts in millions of dollars) Condition item s of all member banks2 Seasonally Adjusted Year and Month 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 Loans and discounts* U.S. Gov’t securities Demand deposits adjusted4 Total tim e deposits Bank rates Bank on debits short-term Index business 31 cities5, 6 loans7, 8 8,712 9,090 9,264 10,816 12,307 12,845 13,441 15,908 16,612 17,839 20,344 22,915 25,561 6,477 6,584 7,827 7,181 6,269 6,475 7,872 6,514 6,755 7,997 7,299 6,622 6,492 10,052 10,110 10,174 11,386 11,580 11,384 12,472 12,799 12,498 13,527 13,783 14,125 14,450 7,513 7,994 8,689 9,093 9,356 10,530 12,087 12,502 13,113 15,207 17,248 19,057 21,300 59 69 71 80 88 94 96 109 117 125 141 157 169 24,965 25,282 25,165 25,339 25,561 6,212 6,480 6,519 6,685 6,492 14,377 14,689 14,587 14,503 14,450 20,235 20,473 20,602 20,792 21,300 172r 167r 170r 172r 168r 25,853 26,120 26,539 26,525 26,755 27,059 27,327 27,283 6,337 6,659 6,538 6,212 6,183 6,010 5,813 5,881 14,430 14,453 14,714 14,405 14,365 14,832 14,532 14,521 21,669 21,878 21,996 22,184 22,211 22,492 22,718 22,805 179 176 181 180 182 168 186 179 3.95 4.14 4.09 4.10 4.50 4.97 4.88 5.36 5.62 5.46 5.50 5.48 5.48 Total nonagri cultural employ m ent Industrial production (physical volume)® Dep’t. store sa le s (value)8 Lumber Refined8 Petroleum S teel8 84 86 85 90 95 98 98 104 106 108 113 117 120 73 74 74 82 91 93 98 109 110 115 123 129 139 101 102 101 107 104 93 98 109 98 95 98 103 109 90 95 92 96 100 103 96 101 104 108 111 112 115 92 105 85 102 109 114 94 92 102 111 100 117 130 120 120 121 121 122 143 137 139 150 142 107 108 111 106 106 118 121 117 113 115 119 124 133 142 141 122 123 123 123 124 124 124 125 151 146 140 134 146 140 148 110 109 119 101 103 104 111 116 117 119 120 122 120 124 137p 142p 150p 149p 147p 147p 143p 139p 1964 August September October November December 5.51 5.48 1965 January February March April May June July August 186 5.44 5.47 1 Adjusted for seasonal variation, except where indicated. Except for banking and credit and department store statistics, all indexes are based upon data from outside sources, as follows: lumber, National Lumber Manufacturers’ Association, West Coast Lumberman’s Association, and Western Pine Asso ciation; petroleum, U.S. Bureau of Mines; steel, U.S. Departm ent of Commerce and American Iron and Steel Institute; nonagricultural employment, U.S. Bureau of Labor Statistics and cooperating state agencies. 2 Figures as of last WTednesday in year or month. s T otal loans, less valuation reserves, and adjusted to exclude interbank loans. 4 Total demand deposits less U.S. Government deposits and interbank deposits, and less cash items in process of collections. 5 Debits to demand deposits of individuals, partnerships, and corporations and states and political subdivisions. Debits to total deposits except interbank prior 1942. 6 Daily average. 7 Average rates on loans made in five major cities, weighted by loan size category. 8 N ot adjusted for seasonal variation. ‘Banking data have been revised using updated seasonal factors. M onthly data from 1948 available on request from the Research D epartm ent of this Bank. p —Preliminary. r —Revised.
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