Full text of New England Economic Review : August 1963

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REVIEW OF THE SECOND QUARTER:

A Mild Response to an Uptrend
Business activity in New England during the second quarter of 1963 was generally good, - yet showed no rapid improvement. Thus, although the existing
level of activity was quite satisfactory, the trend in the region's economy still left
something to be desired.
During the second half of 1962 it was difficult to discern a decisive trend in business activity. Approximate balance prevailed, both nationally and for the New England region, between statistical series that indicated a strengthening and those that
pointed to a weakening economy. Even in the early days of 1963, search for a
controlling trend upon which to base outlook projections was difficult. Later in the
first quarter, business statistics of nationwide scope developed a definite uptrend
which continued through the second quarter. Comparable statistics and industry
reports for New England, however, gave but mild response to this uptrend. A few
diverged into a contrary downtrend. Many that developed uptrends did so in much
( Continued on page 2)

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New Cars and Longer Loans, page 5,

less magnitude or more belatedly than their national counterparts.
This by no means implies a pessimistic outlook
for New England. By many measures, such as per
capita income or unemployment rate, its economic
status is more favorable than that for the Nation
at large. Moreover, th~ comparative mildness of
its current uptrend is not unusual. The relative
stability of its economy has frequently given it
comparatively narrow swings in business activity
both in uptrends and downtrends. In this particular uptrend in the second quarter of 1963, much
of the strength was derived from the steel and
automobile industries. As the direct impact of
activity in these industries is largely concentrated
in other parts of the country, it is not surprising
that New England's participation in this latest uptrend has been of modest proportions.
Employment statistics reflect rather well the
economy's level and trend. Nonfarm payroll employment in New England, adjusted for usual seasonal changes, declined in each month from January through June, accumulating to 0.5 percent. In
contrast, comparable nationwide data showed a rise
in each of those months, accumulating to 1.8 percent. The June totals, related to a year earlier, were
up only 0.1 percent for New England hut up 1.8 percent for the United States.
The weaker regional employment trend was quite
general by major industry groupings, and was especially noteworthy in durable goods manufacturing
where June employment, compared to a year ago,
was down 1.2 percent in New England but up 1.3
percent nationally. Four-fifths of the numerical decline for this group in New England took place in
the electrical machinery industry. At the same time,
nondurable goods manufacturing employment was
down 1.7 percent from a year earlier in New England, but down only 0.4 percent nationally. Nonmanufacturing employment could point to a 12
months'· gain, hut that gain of 1.1 percent in New
England trailed the national gain of 2.4 percent.
Analysis by states of changes in nonfarm employment from June 1962 to June 1963 shows that
net gains in Connecticut, New Hampshire, and Vermont were nearly offset by net declines in the other
three states. Only Connecticut exceeded the national
rate of a 1.8 percent gain.
Somewhat mirroring employment statistics are
those of unemployment. There is a seasonal tend
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New England resists response to recent U.S.
uptrend in employment, while unemployment
remains rather high.
Millions of Persons

3 .9

Seasonal ly Ad ju st ed

1962

1963

ency for unemployment to decrease over most of
the spring period. Yet at midyear the number of
New England workers who were entitled to unemployment compensation was 16 percent greater than
a year earlier. Nationally, in contrast, the number
had declined by 2 percent. It is only fair to note,
however, that despite its discouraging trend New
England's current status remained relatively favorable. Its estimated total unemployment rate, expressed as a percentage of the labor force and
adjusted for usual seasonal variations, ranged during the first five months of 1963 between 5.2 and
5.5 percent. Nationally the range was between 5.6
and 6.1 percent.
Average weekly hours of employed New England factory workers were estimated at 39. 7 for
April and 40.2 for May, after seasonal adjustment.
Both figures were below comparable 1962 averages
as well as below comparable 1963 averages for the
Nation as a whole. Total man-hours worked by
factory workers reflect both changes in the number
of manufacturing employees and their average
hours of work. As might be suspected from the
foregoing statistics, the aggregate number of such
man-hours, seasonally adjusted, declined from
March to May in New England but rose in the
Nation at large.
Per capita personal income was officially estimated by the U. S. Department of Commerce to
amount to $2,680 in 1962 for New England. This
was 14 percent better than the per capita estimate
of $2,357 for the Nation. Also, aggregate personal
income in New England had risen at an annual
New England BUSINESS REVIEW

rate of 5.6 percent from 1961, close to the annual
rise of 5.8 percent in the Nation. Business Week's
recent estimates also point to the smaller income
gains in the region than in the Nation. While income
in New England was up 3.2 percent in the first five
months over the same period a year ago, this figure
was 4.9 percent for the country as a whole.
Department store sales benefited from rising
incomes as well as from a sustained inclination on
the part of consumers to spend freely. The seasonally adjusted index of sales at New England
reporting stores, after a dip in April from the
record March level, rose again to a June value 6
percent higher than a year earlier. The national
index in June was about 8 percent higher than a
year earlier. At New England stores, regular departments were relatively better patronized than
basement affiliates, and best sales gains over a year
ago were achieved in such items as women's and
misses' coats and suits, sportswear, furs, men's and
boys' wear, furniture, appliances, and toys.
Instalment sales, including those which used revolving credit, continued to account for about 15
percent of total sales at the reporting stores. Although accounts receivable at the end of June totaled more than a year ago, the increase was about
the same as the increase in collections, and collection
ratios were not impaired.
Consumers' behavior also continued to dispute
the contention that automobile dealers cannot experience two successive good sales years. Registrations of new automobiles in the six New England
states during April and May were 14 percent more
numerous than during the comparable 1962 months.
Nationally the gain was 15 percent.
New England vacation business in the second
quarter was in the relatively quiet interlude between a record winter season and hopefully another good summer season. Early vacationers in
June gave reporting resort operators 2 percent more
overnight patronage than a year ago. Agency summer camps for boys and girls reported that advance
registrations received through June 30 were averaging 6 percent better than a year ago for July sessions
and 3 percent better for August sessions.
Expanding incomes aided consumer saving along
with consumer spending. Deposit balances at a reporting sample of New England mutual savings
banks increased by 2.0 percent during the second
quarter, and at midyear were 8.8 percent larger than
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a year earlier. Savings deposits at weekly reporting commercial banks in the First Federal Reserve
District recorded similar gains of 0.8 percent over
the quarter and 10.4 percent over the 12-month
period. Share capital at insured savings and loan
associations in New England increased 12.2 percent from mid-1962 to mid-1963.
Bank credit developments during the second
quarter were still influenced by the two goals of
maintaining adequate credit available for an expanding domestic economy, and attempting to correct a persistent deficit in the international balance
of payments with its associated gold outflow. As
the national economy strengthened during the quarter, net free reserves of member banks of the Federal
Reserve System were allowed to contract slightly.
Nevertheless, commercial and industrial loans at
weekly reporting member banks in the First Federal
Reserve District expanded 3.2 percent during the
quarter. The New England index of outstanding consumer credit rose 2.0 percent during April and May.
Real estate loans outstanding at the reporting sample
of New England mutual savings banks showed a 3.2
percent growth for the quarter.
There was a tendency in the latter part of the
quarter for some firming in short-term interest
rates, but for relative stability in longer-term rates.
Yields at weekly auctions of 3-month U. S. Treasury
bills had risen above 3 percent by midyear, in
apparent expectation of a rise in the Federal Reserve discount rate from its 3 percent level, and this
rise took place in July. The prime business loan
rate at major commercial banks, however, remained

New England department store sales
displayed growth during the second quarter
and with respect to a year ago.
Percent
130
Seasonally Adjusted Indexes 1957 -59 - 100

SALES
120

110

1960

1961

1962

1963

at 4½ percent. Rates for conventional residential
mortgage loans in the New England area appeared
to be stabilized in the range from 5¼ to 6 percent.
Substantial construction activity was readily
apparent throughout New England during the second quarter. With increasing use of capital equipment, however, the work was being accomplished
with less employment than that of a year ago.
New contract awards in the second quarter totaled
in dollar value 24 percent more than those made
during the comparable months of 1962. The gain
was mostly in contracts for public works and utilities which scored a 94 percent increase from a
year ago. Contracts for nonresidential buildings
were up 16 percent from a year ago. Although the
gain of 8 percent in residential contracts over a year
earlier appeared small compared with the 14 percent
gain recorded nationally, apprehension over a potential oversupply of housing units in New England
is much less than that which prevails in some other
parts of the Nation. The vacancy rate for residential
rental units in the area which includes New England,
New York, New Jersey, and Pennsylvania averaged
only 4.1 percent in the second quarter-much less
than the 7.5 percent rate which prevailed nationally.
New England agriculture in the second quarter
had difficulties like those of a year ago. The Aroostook potato industry remained depressed as the
end of the marketing season failed to bring the
higher prices hoped for. For dairymen, milk prices
and grain costs paralleled those of a year ago, but
a short hay crop pushed hay costs up 50 percent.
Broiler prices recovered somewhat until production

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increases started them down again. With commercial
egg production slightly higher and prices somewhat
lower, the egg-feed ratio-an index of profitabilitydropped below that of a year ago.
A brief survey of New England manufacturing
industries discloses a variety of conditions during
the second quarter, but few indications of a vigorous
uptrend in activity.
Perhaps healthiest over-all was its transportation equipment industry with 4 percent more aggregate employment than a year ago. Yet, diversity
ruled within the industry. Connecticut work forces
were up 6.5 percent under the stimulus of continuing brisk activity in the production of Polaris-type
submarines, aircraft engines and parts. Massachusetts, however, had a contraction of 3 percent in
work forces as favorable trends in the production of
helicopter engines and the assembling of automobiles
failed to offset a further curtailment in shipbuilding.
Employment in New England's nonelectrical
machinery industry slipped during the quarter below levels of a year ago, and average workweeks
were somewhat shorter. Iron pourings by producers
of textile machinery were in 10 percent less volume
than last year. Producers of machine tools, on the
other hand, were benefiting from a substantial pickup in the flow of new orders.
The region's electrical machinery-electronics industry, which has experienced rapid growth
in recent years, was relatively quiet this spring.
Employment in June as related to a year earlier
was down about 4.5 percent for New England and
down 8 percent for Massachusetts. Orders reported by Massachusetts producers were running behind last year's pace.
At primary and Jabricated metals plants in
New England employment during June was running
about 1 and 5 percent, respectively, below levels of
a year earlier. The rapid expansion in operations
of iron and steel producers nationally failed to effect a comparable stimulus for plants in New England. Business at Connecticut copper and brass plants
held up rather well during the quarter, although
not developing outstanding vigor.
The manufacturing of instruments makes up
one of New England's smaller durable goods industries. It is nevertheless a growth industry with
an expanding range of products, some new plants,
and a work staff which in June showed an annual
growth rate of 4 percent.
New England BUSINESS REVIEW

Business at New England plants manufacturing
lumber and wood products picked up seasonally
during the spring, although employment remained
less than a year ago. Work staffs at the region's
furniture plants declined slightly in the second
quarter, but orders and shipments gave promise of
holding close to last year's good volume.
New England's textile mills still find it difficult
to report encouraging developments. Over-all employment rose slightly during the second quarter,
yet was down about 4 percent from a year ago.
Trends in the lengths of workweeks varied within
the industry. Plans for closing more of the older
mills have been announced. Competition with foreign fabrics with their lower costs continues to be
a vexing problem for the domestic industry.
Business for New England apparel makers was
moderately good in the second quarter, although
employment trailed that of a year ago. Advance
orders for women's wear indicated some pickup but
no upsurge. With dealer inventories somewhat low,
orders for men's clothing have been rather good,
except for rainwear.
For the shoe industry, 1963 continued in the
second quarter to be a disappointing year. Both production and employment have lagged behind 1962
performance, with losses relatively greater in New
England's third of the national industry. Sales of
novelty and low-priced shoes, sandals, play shoes,

and slippers were particularly slow. More recently
there has been a small improvement in retail shoe
sales and in orders placed with manufacturers. Imports of low-priced shoes continue to be a large share
of the domestic market.
Although makers of precious jewelry have had
a fairly good year to date, business for costume
jewelry makers this spring was termed at low ebb.
Even after some pickup in late spring, June employment in the Rhode Island area of the industry
was still 2 percent less than a year earlier and the
flow of incoming orders lacked real vigor.
Paper production in New England is reported
as running somewhat better than in 1962. Employment, however, was until June below levels of a
year ago. For the year New England producers
look for a 3.7 percent rise in sales and plan a 16
percent increase in capital expenditures.
At New England chemical plants employment
remained quite stable during the second quarter but
below levels of a year ago. Average weekly hours
changed little. Massachusetts producers reported
some improvement in order flows.
Employment in the New England rubber products industry dropped increasingly below year
earlier levels during the second quarter, while average workweeks were shorter. Incoming orders for
May were reported by Massachusetts producers to
be 19 percent less than those received in May 1962.

Nevv Cars and Longer Loans
If the present pace of new car sales continues
across the Nation for the rest of the year, 1963
will definitely prove to be a recordbreaking year
surpassing the previous high of 7,200,000 new car
registrations set in 1955. Here in New England, 184,000 new cars were registered from January through
May of this year- the best ever for this six-state are.1.
Since most new car buyers borrow to finance their
cars, automobile credit has risen along with sales.
Car buyers in the Nation owe credit agencies (commercial banks, sales and consumer finance compa1963
DigitizedAugust
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nies, dealers, and other financial institutions such as
credit unions, mutual savings banks, federal savings
and loan associations, etc.) $20.5 billion for new
and used cars- up from $18 billion last year at this
time. Commercial banks account for half of this outstanding automobile credit.
The bulk of credit extended on new cars is in loan
maturities from 31 to 36 months. This longer-term
paper was introduced in volume in 1954-55. Before
that, there were only isolated instances of 3-year contracts for new cars.
5

Impact of 3-Year Loans on Sales

year and last are the influx of teenagers born during
the war and early postwar years, two-car families,
new cars replacing old, and rising disposable income.
Per capita instalment credit outstanding, as a percent of per capita income after taxes, averaged 11.6
percent in 1961, 11.8 percent in 1962, and 12.3
percent so far this year. Instalment credit is rising
at a greater rate than disposable income due mainly
to the growing amount of automobile paper, the
largest segment of instalment credit.

This significant shift in the terms of credit back
in 1955 helped stimulate sales to a degree not
equaled since that time. This shift brought to the
new car market a host of buyers, many of whom
had previously been interested primarily in used
cars. This, of course, was due to the attractive lower
monthly payments required when these 3-yeir loans
became easily attainable.
Last year was another big sales year for new
cars, and this year will be even better-the first time
Seasonal Swing of 3-Y ear Loans
in automotive history that two years of such sales
Although 31-36 month loans show little influence
volume have occurred back-to-back. But no change
on sales after 1955, sales of cars under $2,700 rise
in credit terms can help explain the surge in auto
and fall in a regular pattern each year. In a similar
sales in 1962 and 1963. Only in rare instances across
way 31-36 month paper shows a seasonal swing. Its
the country have credit agencies permitted auto loans
gradual rise from December-January to September
for longer than three years.
and then the sudden dropofI for the rest of the year
Moreover, 3-year loans did not rise sharply last
coincides with the fast and slow selling periods
year as a fraction of total loans, thus eliminating
of low-priced cars. Such cars as most Chevrolets,
this possible explanation of large car sales. Despite
Fords, Plymouths, Ramblers, Studebakers, all comone million more new car owners in 1962 than 1961,
pact cars, and small foreign cars capture a larger
the share of longer-term loans rose little, showing
that the average length of loans remained about
slice of the new car market in the spring and summer, culminating in an August peak-shortly bethe same as in the previous year. A glance at the
fore the new models come out.
chart below shows little relationship between the
The moderate income buyer of a low-priced car
percent of 3-year loans and total car sales.
is
more apt to come into the market from spring
Three-year loans rose significantly from 1956
to summer. Factors such as winter heating bills,
through 1959, but from 1960 on these loans have
Christmas bills, taxes, etc., cause him to delay his
not increased so dramatically, even though sales
purchase until this time. Stock clearance of new
have surged forward during most of this time. Due
cars in late summer
to business receswith their appealingly
sions, however, sales
Three year loans show little relation
reduced prices brings
dropped in 1958 and
toof new car registrations over the years. this
Percent
buyer out even
1961. Whether they
New Car Loans
70
more strongly. Usuwould have dropped
ally he purchases his
even more if it were
60
car on a longer-term
not for longer-term
loan, as can be seen in
loans is difficult to de50
the similarity of the
termine statistically
longer-term loan and
-but these long
low-priced car lines in
credit terms do not
40
the chart on the next
seem to have been
*Ja
3 0 ~ - ~ - - ~ -- ~ - - ~ - - ~- S
_e~ -- ~ -s_te_d~
page.
much of a plus factor
Millions
Conversely, cars
in the good selling
7
priced over $3,300
years of 1960, last
6
REGISTRATIONS
penetrate the market
year, and this year.
1
5
*Jan .- May T~tal
more in the four
Among the reasons
Seasonally Adjusted
4
~
~
~-~
~
~A
_
n
~
n
_
u_a_l
_Ra_t~e-,........,.~
months November
advanced for the in1961
1962
1963
1958
1959
1960
1956
1957
SOURCE Of AUTOMOBILE DAT A : Automotive News
through February.
crease in car sales this
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__.

New England BUSINESS REVIEW

The seasonal pattern of 3-year loans is
directly related to sales of low-priced cars ....
1
~•~;e'c'a~ Loons
31-36 MONTH LOANS
AT COMMERCIAL BANKS
ON All NEW CARS
-

New pl~~eS~I~~
78

76
74

L-..J'----1-----'---'--L__J_--L--'-_.__-'--_.__..__L.....-...J'--'--'-___._---'68

.... but differs sharply from sales of
high-priced cars.
31-36 MONTH LOANS
AT COMMERCIAL BANKS
ON All NEW CARS

15
13

Mor. May
July Sept. Nov . Jan . Mor . Moy
1962
1963
SOURCE OF AUTOMOBILE DATA : Automot ive News

This buyer can usually afford to wait for the new
models in the autumn. He is likely to enter the market with cash and a late model car to trade.

Longer Loans in the Future?

Does the slightly increased share of these threeyear contracts suggest a further easing of credit
through even longer-term loans? Some instances
of easier credit and the extension of time payments
in personal loans and home mortgages have appeared in the Nation. So far, however, there has been
no breakthrough of 3½ to 4-year auto loans.
A spot survey by the Federal Reserve Banks indicated that only a negligible amount of contracts
are made for more than 36 months. These contracts
have never exceeded 1 percent of the total held by
commercial banks. Very few of such longer contracts
are written in New England. In the rare instances
where they have occurred, they are either the result
of a special promotion by a dealer or else are exceptional contracts written by an occasional bank. In
the latter case, the particular customer's credit and
high standing, and not the value of the automobile,
is the basis for the loan.
The survey showed that New England bankers and
automobile dealers were opposed to extending maturities beyond three years. They felt that the
credit risk was too great because of the slow buildup
August
1963

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of customer equity in a rather quickly depreciating
product. In addition they thought such long-term
loans would keep the customer out of the car market
too long.
The following chart shows the relationship between the balance of an auto loan and the market
value of a new car. The upper line in the chart is the
market value of the car; the lower line is the balance
due on the principal of the auto loan. The vertical
distance between the two lines is the owner's equity
in the car at any point in time.
Many factors go into an auto's depreciationmodel popularity, cleanliness, price range, mileage,
and how hard the car has been driven. Also, the loan
balance can vary, depending on the amount of equity
( cash and used car trade-in value) at the time of purchase. But keeping these variables in mind, the chart
shows how a 4-year loan can narrow the difference
between loan balance and market value of a purchased car, compared to a shorter loan. The closer
the loan balance comes to the market value, the more
difficult it may be for the credit agency to recapture
its money investment if it unfortunately becomes
necessary to repossess the car.
In summary, then, the increased share of 36-month
auto loans has not caused the surge in new car sales.
Other factors such as population growth, two-car
families, old car replacement, and a rise in income
helped to push up sales. No indication of further
easing of automobile credit terms is apparent at this
time.
Dollars

---------------------,
OWNER'S EQUITY ANO LENGTH
OF AUTO LOAN

Shaded areas=Owner's equity

Market value of auto

Balance due
principal of

Months

Estimated personal income in New England continued to grow although more slowly. The annual
growth rate which averaged 5.6 percent during 1962
was reduced to 2.8 percent in May 1963.

Despite recent increase, the production worker
man-hour index has not been able to recover to levels
reached in earlier years. Average weekly earnings and
consumer prices are now rising faster.
MASSACHUSETTS
(1950-52 = 100)

MANUFACTURING INDEXES

NEW ENGLAND
(1950-52 = 100)

UNITED ST A TES
(1957-59 = 100)

(seasonally adjusted)

June '63

May '63

June '62

June '63

May '63

June '62

June '63

May '63

June '62

All Manufacturing
Primary Metals
Textiles
Shoes and Leather
Paper

125
110
39
120
117

121 r
107
40
110
113

122
110
44
118
106

130
118
62
125
131

128
114
62
122
126

126
114
65
122
122

126
125
n.a.
n.a.
n.a.

125
127
117
n.a.
123

119
98
117
103
120

NEW ENGLAND

UNITED ST A TES

Percent Change from:

June'63

BANKING AND CREDIT

Commercial and Industrial Loans ($ millions)
(Weekly Reporting Member Banks)
Deposits ($ millions)
(Weekly Reporting Member Banks)
Check Payments ($ millions)
(Selected Cities)
Consumer Installment Credit Outstanding
(index, seas. adj. 1957 = 100)

May '63

1,641

5,087

June'62

Percent Change from:

June'63

35,271

133,021

May '63

June '62

+ 7

11,345

174,641

135.6

149.2

+11

119

120

118

122

0
+20

56,802
1,517

+1
-10

+
+

2
1

TRADE

Department Store Sales
(index, seas. adj. 1957-59
Department Store Stocks
(index, seas. adj. 1957-59

100)

EMPLOYMENT, PRICES, MAN-HOURS & EARNINGS

Nonagricultural Employment (thousands)
Insured Unemployment (thousands)
(excl. R.R. and temporary programs)
Consumer Prices
(index, 1957-59 = 100)
Production-Worker Man-Hours
(index, 1957-59 = 100)
Weekly Earnings in Manufacturing ($)
OTHER INDICATORS

Construction Contract Awards ($ thous.)
(3-mos. moving averages)
Total
Residential
Public Works
Electrical Energy Production
(index, seas. adj. 1957-59 = 100)
Business Failures (number)
New Business Incorporations (number)

8
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3,845
126

+ 2
-11

108.4
(Mass.)
98.2

106.6

102.3

92.23
(Mass.)

100.61

233,119
95,296
55,769
133

+19
+13
+39
0

+26
+8
+118
+4

4,411,763
2,004,370
799,612
141

+ 7
+ 6
+ 8
+ 1

+13
+14
+17
+9

48
866

-28
- 8

-11
-11

1,211
15,016

- 7
-11

revised

n.a.

6
1

not available

New England BUSINESS REVIEW