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.tinnual Report Issue


further economic
growth in 1964
economic development.


financial highlight. .........................


district developments ....................... 12

t I G~!o I ~



further economic
growth in 1964
The Nation's economy continued to expand
throughout 1964, thus sustaining one of the
longest business advances of record - whether
in peace or war time. Probably the highlight
of the year was the early passage of the
largest tax cut in U. S. history, a fiscal innovation designed to accelerate the pace of
economic growth by unleashing the private
economy from war-induced levels of Federal
taxation. Both in anticipation of and in response
to the passage of the Revenue Act of 1964,
businesses and consumers pushed spending to
new highs. The private economy was joined in
its upward climb by state and local governments, which continued to expand outlays during the year at a strong rate. This underlying
economic strength was reflected in the financial
area, as bank loans, the money supply, and
demands in capital markets expanded strongly.
Through the first three quarters of 1964,
the economic advance was evenly paced and
well balanced, apparently free of the excesses
and distortions which have historically characterized sustained upswings in business activity.
Plant capacity was generally adequate to meet
the rising calls for final products. Overall,
wholesale prices were comparatively stable, with
increased costs for some commodities being
about offset by lower prices for others. The
combination of relatively short and certain
delivery schedules and stable prices encouraged
businesses to apply their improved knowledge
of inventory control to keeping stock accumulations within quite modest bounds. Markets
for most consumption and investment goods remained highly competitive, although some crude
materials, especially the nonferrous metals, were
in short supply by early summer.

Beginning late in the third quarter and continuing through the remainder of 1964, the
economic expansion acquired a somewhat different coloration, largely because of labor unrest. A number of important economic
activities were significantly affected by strikes
and strike threats, the consequences of which
partly masked the underlying strength of demands. The vigorous demand for steel in the
October-December period was heightened by
early attempts at strike-hedge stockpiling of the
metal, which imparted an impetus to the growth
of manufacturers' inventories. The work stoppage on October 1 at East and Gulf Coast ports
led to an inflated pace of merchandise trade
with foreigners during the period of the 80-day
Taft-Hartley injunction. Especially important,
also, were the strikes in the automotive industry
during October and November, the impact of
which slowed, temporarily, the rate of growth
of economic activity in the Nation.

economic developments
Although the rate of economic advance was
reduced considerably in the fourth quarter, the
value of goods and services produced and consumed (that is, gross national product) during
1964 was impressive, totaling approximately
$623 billion for the year, or 6.7 percent over
1963. Personal consumption outlays rose in
about the same proportion as GNP, while state
and local government spending climbed somewhat faster. Business fixed investment increased
14 percent.
Business confidence and consumer optimism
were at a high level in early 1964, reflecting
the favorable economic developments of the
prior year and the expectation of reduced cor-

business review/january 1965


porate and personal income tax rates in the
new year. Business profits had set a record
in 1963, as had corporate cash flow (retained
earnings plus depreciation allowances); and
businessmen anticipated further gains in the
months ahead in both sales and profits. Since
personal income had posted a long series of
successive new highs, consumers anticipated
more of the same.
Consumer income and spending each rose
to a new high in 1964 ...





p~ Pr.'ililiIlO""


SOURCES: U 5 O.port,.I1'" of Co"",..,c•.
Fed.rol R... , .. 80nll of 001101.

The tax reduction bill was passed in late
February and went into effect on March 5. Consumers did not wait, however, to step up their
rate of spending. Relying partly upon borrowed
funds - consumer credit spurted an adjusted
$725 million in February alone - consumers
pushed their spending for a broad range of
goods and services $8.7 billion above the seasonally adjusted annual rate for the last 3
months of 1963. This January-March spurt was
the largest quarterly increase in consumer
outlays since the scare buying period during the
early months of the Korean War. Increases in
consumer spending continued above the $6 billion level in the two subsequent quarters but

declined rather sharply in the final period, as
the shortage of cars in dealer showrooms
during October and November significantly reduced the sales pace of durable goods.
Despite some slackening in durable goods
sales during the fourth quarter, consumer
outlays for hard goods during all of 1964 still
played a pacesetting role in the year-to-year
climb in personal consumption spending.
Outlays for services and nondurable goods each
posted a gain over 1963 slightly in excess of
6 percent, while durable goods volume advanced somewhat faster, reflecting record spending for automobiles and household appliances.
The sharp rise during 1964 in business
spending for new plants and equipment was
widely shared by most industry groups and reflected a number of favorable influences, not
the least of which was the reduced corporate
tax rate. But also contributing were a sizable
backlog of funds derived from retained earnings
and depreciation allowances, high and rising
utilization rates, a competitive spur toward
cost reduction, and the anticipation of further
sales gains.
The largest relative increase in capital spending by any major industry was posted by the
railroads, which boosted outlays about 33
percent over 1963. This significant gain mirrored the determination of the industry to
compete more effectively with other modes of
transportation by offering faster service at
lower cost. Railroad investment last year was
heavily concentrated in rolling stock. Fixed
investment by all other transportation industries
combined moved up 20 percent, with much of
the advance accounted for by the Nation's
The 18-perct:nt climb in manufacturing outlays for new plants and equipment last year was
about evenly divided between durable and
nondurable goods producers. Almost two-thirds
of the increase in spending by the manufactur-

ers of durables came from the steel and automotive industries, while about the same proportion of the investment gains in nondurables
was directed to chemical and petroleum production facilities.








- 180





II 8 '-'--'---'--'--'--'-'-L-,--.L...J~-'-'-L~-'--''--'-_~-' 16. 5











SOUACES: Bootd 01 ao".,"OfS,Federol Ae_v. 5)',1.",
U S Oeparl~"1 of Commerce
US o.,orl_nl or Lobor
"'<I,rol R.,erv, Bonkof 001101

The steel industry emphasized modernization
in its expansion program during 1964 in an
effort to reduce costs and improve the quality
and variety of products still further. The need
for increased capacity and more flexible production equipment set off the wave of capital
spending by the producers of motor vehicles
and parts. The manufacturers of chemicals expanded plants and equipment to meet the sharply
increased demands for basic industrial chemicals and plastics. In the case of the petroleum
industry, the Nation's refiners invested in order

to increase both the volume of output and the
yield of the lighter hydrocarbons, particularly
gasoline, per barrel of crude oil.
The marked rise in state and local government outlays last year reflected both the continuing struggle to meet the burgeoning demands
of an urban society and the impact of the
Public Works Acceleration Act passed by the
U. S. Congress in 1962. State and local government spending advanced across a broad spectrum of goods and services, but particularly
strong increases were noted for streets and
highways, public buildings, and utilities - all
of which added strength to construction activity
over the year.
Construction activity fluctuated within a comparatively narrow range around the $66 billion
level, on a seasonally adjusted annual-rate
basis, and totaled about 6 percent higher than
in 1963. A downtrend in spending for private
nonfarm housing developed after March. This
downswing in residential construction was
offset, however, by increasing expenditures for
industrial buildings and hospitals in the private sector and by larger public spending for
schools, hospitals, roads, and water and sewerage systems.
In response to the stepped-up pace of consumption and investment in the Nation's
economy, the combined sales of the three echelons of business - manufacturers, wholesalers,
and retailers - climbed to new monthly highs
during 1964, with the total for the year showing about the same relative increase as GNP.
Business sales evidenced a general uptrend
through the first 7 months and then fluctuated
within a fairly narrow range until October,
when a shortage of 1965-model cars in dealers'
hands lowered retail volume rather sharply.
Needless to say, the value of shipments by
manufacturers during the month was reduced,
also, by the work stoppage in the automobile
industry. Subsequently, however, a record
Christmas season at the retail level and a new

IJUsiness review/january 1965

monthly high in automobile output helped to
push business sales at the end of the year
toward a new peak.

parted an upward bias to the movement of
wholesale stocks. However, retailers generally
maintained a conservative inventory policy.

Business inventories advanced less rapidly
than sales during the first 9 months of last
year, with the result that the inventory-sales
ratio in September was a quite modest 1.47.
This comparatively low ratio mirrors not only
the continued cost consciousness of businessmen but also managerial innovations in stock
control centered around the use of electronic
computers. In addition, improved communication and transportation systems in the United
States have lessened the chances of temporary,
localized shortages of materials, parts, or

To provide the primary energy, materials,
and products needed for the economic expansion, the Nation's factories, mines, and utilities
boosted the physical volume of output last
year to 6 percent over the 1963 level. Although
all of the major industry groups contributed
to this upward movement, over half of the 1964
advance in industrial production came from the
durable goods manufacturing industries, with
particularly strong increases noted for ferrous
metals and nonelectrical machinery. Total industrial production had entered 1964 on a
strong uptrend and set successive new highs in
cvery month except October, when the flow of
motor vehicles and parts from the Nation's
largest manufacturing firm was halted for 3
weeks of the month.

Commodity prices, on balance, edged upward in the latter months 011964
~ ~;C r T

_______ _________--,






of Lobor

F.d.rol R... rv. Bonk orOallCl.,

In the fourth quarter, durable goods producers began the strike-hedge stockpiling of
steel in anticipation of a work stoppage in the
steel industry on May 1 of this year, when the
present labor contract expires. Thus, manufacturers' inventories began to climb upward at a
relatively brisk pace in October. Increased
holdings of the metal at service centers also im-


The Nation's mills poured a record 127 million tons of raw steel last year, which surpasses
the previous high set in 1955 by 8.5 percent.
The steel industry began 1964 with an operating
rate of 64 percent of estimated ingot capacity.
After reaching a spring peak of 79 percent in
late May, the weekly pace of ingot production
dipped less than seasonally during the early
summer and then climbed until a level of 83
percent was achieved at mid-October, where
the pace held for the rest of the year. Apart
from inventory building in the fourth quarter,
the strong demand for steel came from a broad
range of durable goods industries, including
those producing automobiles, structurals, appliances, farm machinery, construction equipment, freight cars, and machine tools.
The significant expansion of the American
economy last year raised civilian employment
by July to a record 72.4 million persons, which
reflects a year-to-year advance of 1.6 million
persons. The seasonally adjusted rate of unemployment drifted downward intermittently
during the first half of the year, declining from

5.6 percent of the labor force in January to
4.9 percent in July. During the remainder of
1964, however, the size of the labor force and
the level of employment generally moved in the
same direction and shifted in about the same
proportion. In consequence, the rate of joblessness, on balance, showed no further improvement, although the rate of unemployment
for married men edged downward to 2.5 percent
in November. This is the lowest monthly rate
for the family breadwinners since March 1957.
Larger employment and higher wages combined to push personal income to new highs in
every month of 1964, with the average for the
year being almost 6 percent higher than in 1963.
Even in October, when wage payments in the
automobile industry decreased sharply, personal income edged upward $700 million, on
a seasonally adjusted annual-rate basis. During
the month, wage losses in the transportation
equipment sector were more than offset by
payroll gains in state and local government and
the trade and service industries.
More important from the standpoint of
spending than the uptrend in personal income
over the year was the sharp rise in take-home
pay, which spurted $8.3 billion in the first
quarter and $10.7 billion in the second. Since
the immediate impact of the reduced payroll
withholding rate was felt in March and April,
disposable personal income posted somewhat
more modest advances in the third and fourth
quarters. Nevertheless, after-tax personal income for all of last year moved above the 1963
total by approximately 7 percent.
Consumer prices inched upward last year at
essentially the same rate and for about the
same reasons as in the previous 2 years. Much,
of the upward drift in living costs was derived
from higher prices paid for services, especially
medical care and public transportation, although food costs increased modestly. Prices of
commodities other than food were little changed
from 1963 levels.

During the first 9 months of 1964, wholesale
prices exhibited a pattern of stability that
has more or less typified primary market prices
in the current cyclical upturn, with much of
the variation in overall prices accounted for
by swings in the cost of farm products and
processed foods. In the fourth quarter, however, industrial commodity prices strengthened
noticeably to a level that averaged about onehalf of 1 percent above that prevailing in the
January-September period. Moreover, this
average for industrial commodity prices was the
highest since the early months of 1960, when
the previous business advance was approaching
a peak. A relatively tight supply situation in
primary markets for most nonferrous metals,
particularly copper and zinc, and price rises
for refined petroleum products, especially the
heating oils, provided most of the upward push
to overall industrial commodity prices.

financial highlights
Financial developments during 1964 featured
strongly expanding credit demands, rapid
growth in the money supply, a high level of
financial savings, and relative stability of interest rates during most of the year. Monetary
policy remained stimulative in an environment
of continued economic growth. International
financial considerations continued to have a
significant impact on domestic financial markets.
Loans at all commercial banks in the United
States approached a level of $166.0 billion at
the end of 1964, reflecting an increase of $16.4
billion - or 11 percent - over the 1963 level.
Real estate and business borrowing accounted
for about 60 percent of the total dollar advance
in loans. Partially in response to a high level
of construction activity, real estate loans advanced approximately $4.5 billion; this gain,
however, was about $400 million less than in
the previous year. The advance in business
loans approximated 10 percent during the year,
or slightly greater than the 1<)63 advance. As
in past years, a large volume of internally gen-

business review/january 1965


erated funds tended to reduce corporate reliance
on bank credit.
Consumers expanded their bank indebtedness sharply during the year to finance purchases
of automobiles, appliances, and various other
commodities and to meet outlays for home
improvements. The high level of economic
activity and the increased income made available by the tax cut undoubtedly contributed
to the willingness of the consumer to incur debt
during 1964.








SOURCES : Boord of (jove'flori. Ftderol Autry,


r,d,rol R.. t.y.Bonk 01 Dollos

As banks extended credit to meet loan demand in 1964, their liquidity positions receded,
as measured by the loan-deposit ratio. This
ratio rose about 3 percentage points from J anuary to December, reaching 63.0 percent at the
end of the year.
In 1964, as in other recent years, commercial
banks reduced their holdings of U. S. Government investments and added to their portfolios

of higher-earning non-Government securities.
The decline in holdings of Government securities was significantly less than in 1963, however, and tax-exempt obligations were acquired
much less vigorously. The average maturity of
commercial bank holdings of Government investments was shortened slightly in 1964. There
were modest increases in portfolios of Government obligations maturing within 1 year, but
holdings of issues maturing in 1 year or longer
were reduced.
Despite a substantial expansion in bank
credit, free reserves of member banks averaged about $120 million during the first 7
months in 1964, little changed from the last
half of 1963. During the last 5 months of 1964,
however, free reserves receded to an average
which was about half of that shown earlier in
the year, as member bank borrowing rose to
the highest levels since mid-1960. Borrowing
from Federal Reserve banks in the August-December period averaged about $100 million
more than in the prior 7 months.
Individuals added substantially to their holdings of financial assets during 1964, but such
acquisitions were made at a somewhat slower
pace than in 1963. The net inflow of funds
into savings and loan associations during the
first three quarters of the year totaled $7.1 billion, or about 5 percent less than in the comparable 1963 period. Much of this slowdown
occurred early in 1964, when net receipts of
savings ran as much as 23 percent below the
like 1963 interval. As the year progressed,
however, the savings inflow accelerated; and
in the third quarter, the volume of new savings
substantially exceeded that shown for the like
period in the previous year. Mutual savings
banks, which sought funds aggressively during
the past year, recorded an inflow of savings
about 2 percentage points greater than in 1963.
Time deposits at commercial banks rose about
$14.0 billion during 1964 to a level approximately 12 percent greater than in the prior

year; this rate of gain represented a moderate
slackening from the 1963 pace.
The Nation's money supply expanded sharply
during 1964 to approximately $160 billion, a
level about 4.2 percent greater than a year
earlier. This advance exceeded the pace recorded for any other year since 1951. From
May through December, the rate of monetary
expansion accelerated to 5.7 percent, compared
with a rate of 2.0 percent earlier in the year.
The monetary expansion during the year was
accompanied by a further rise in the rate of
use of money, as measured by the turnover of
demand deposits at commercial banks.
The volume of mortgage financing continued
relatively large during the year, but it is likely
that the aggregate increase in loans fell slightly
below the $29.3 billion gain in 1963. This development was associated with a slackening in
the construction of nonfarm residential housing.
Faced with the need to employ a growing volMONEY SUPPLY AND DEPOSIT TURNOVER






145 .







SOURCES: Board of Governa,.., Fed.rol R...rv, 5,..lem
federal Reaerve Bonk at Dallas

Total borrowing by state and local governments in the capital markets during 1964 was
maintained near the $10.0 billion level registered in the preceding year. The need to finance
outlays for education, utilities, and housingcoupled with less than adequate tax receipts
- was principally responsible for the high level
of debt financing. As in past years, commercial banks were heavy purchasers of municipal
obligations ; but their appetites for these securities were dulled by the need to channel an
increasing proportion of loanable funds into
customer loans.
New corporate security issues reaching the
market totaled about $12.0 biIIion during 1964,
up moderately from the 1963 level. Although
private placements of debt offerings remained
near the record 1963 amount, the total amount
of corporate debt financing receded as the
volume of issues offered publicly declined
moderately. Stock issues reaching the market,
however, swelled to more than double the
level of 1963 offerings, largely as a result of
the sale in the spring of shares in communication utilities. A relatively small amount -less
than 5 percent - of the funds raised through
new security offerings was used to retire existing obligations.



ume of savings funds profitably, lending institutions eagerly sought mortgage loans; as a
result, lending terms eased during the year.
Although strengthening slightly in January 1964,
interest rates and fees on conventional mortgages during the first 9 months of the year
averaged below the comparable 1963 figures,
while the maturity of mortgages and loan-price
ratios rose. Foreclosures increased during the
year but remained a relatively small percentage
of total mortgage debt outstanding.


Treasury demands in the money and capital
markets during 1964 were considerably lighter
than anticipated. Despite a large tax reduction,
the Federal Government ran a cash surplus of
$5.0 billion in the first half of the year, little

business review/january 1965


changed from the like 1963 period. As a result
of this favorable development, net debt repayments approximated $900 million in the first
half of the year; and the Treasury's cash
balance rose to slightly over $10.0 billion. This
comfortable cash position was interpreted by
the market as an indication that the Treasury
would not be a heavy borrower in the last half
of the year and, thus, was a factor in the
easing of interest rates during the summer



to prevent the average maturity of the debt
from shortening. At the end of October, the
average maturity of the marketable debt was
5 years 2 months, or unchanged from a year
Interest rates in most sectors of the money
and capital markets rose slightly in the first
quarter of 1964, largely in response to investor and dealer expectations of a surge in credit
demands to finance a growing economy stimulated by the Revenue Act of 1964. Expectations
of higher rates were reinforced when the discount rate of the Bank of England was increased
from 4 percent to 5 percent in February. It
was widely anticipated that a firmer domestic
monetary policy would be required to moderate
a surge in credit demands and to combat potential outflows of funds internationally. Rates
eased in the second and third quarters of the
year, however, as the supply of loanable funds
proved fully adequate to meet the Nation's
credit demands. In September, money and
capital market rates were little changed from
the December 1963 levels.



o ~~~~~------------------



-I 00 L-I.-'-....L.....L.1963
SQU"CE5: Boord 01 GO'Iernor.,Fed.rol Rese,ve S,sl .....
Fed'rol Re .. ,..., Bonk 01 Dalla,

The Treasury actively employed the advance
refunding technique (first used in June 1960)
to achieve a more even distribution of the Federal debt and to lengthen its average maturity.
In July the Treasury, in the largest advance
refunding operation ever conducted, offered
holders of almost $42.0 billion in securities
the right to exchange them for three long-term
issues. The lengthening of the maturity of the
public debt achieved through the advance refunding technique was only sufficient, however,


Money market rates moved up in late
summer and early fall, as market partIcIpants were generally apprehensive regarding
the short-term outlook for interest rates. Near
the end of November, the change of the discount rate of the Bank of England from 5 percent to 7 percent and a hike in the discount
rates of the Federal Reserve banks to 4 percent
from 3 112 percent contributed to further increases in rates, notably in the short-term area.
During the month of November, rates on
91-day and I-year Treasury bills rose 29 basis
points, while rates on intermediate-term
Treasury issues advanced 11 basis points.
Yields on long-term Government bonds were
little changed. Prices of corporate securities
trended downward in sympathy with developments in the Government bond markets, while
prices of municipal obligations rose. The decline
in rates on tax-exempt obligations reflected an-

ticipations of increased bank purchases of these
obligations to employ an inflow of time and
savings deposits stemming from higher interest
rates permissible under regulation Q.
When it announced the discount rate changes
of the Reserve banks, the Board of Governors
also announced the amendment of regulation
Q, effective November 24, to allow member
banks to pay maximum rates of 4 percent on
savings deposits, regardless of the time they
are held, and 411z percent on time deposits with
a maturity of 90 days or longer. Responding to
this permissible change in the regulation, a
number of banks raised to 4 percent the rate
paid on all savings deposits. Although some
banks have made upward adjustments in their
rates on time deposits, there has been a definite
reluctance to increase rates to the new maximum level.
Federal Reserve operations during 1964
were conducted with a view to encouraging
further economic expansion and, at the same
time, to maintaining conditions in the money
and capital markets which would tend to discourage the outflow of funds internationally.
Bank reserves were supplied during each
quarter of the year to support the expansion
in bank credit and money. This stimulative
monetary policy, together with a high rate of
savings, was also a factor in maintaining interest
rates at levels compatible with emerging economic developments.
Action by the Reserve banks and the Board
of Governors in late November to increase the
discount rate from 311z percent to 4 percent
reflected the concern of the monetary authorities
that the recently established 7 -percent discount
rate of the Bank of England and the resulting
3Vz-percentage-point spread between the discount rates of the United Kingdom and the
United States would attract funds abroad in
substantial volume, thereby contributing to a
worsening of the Nation's balance-of-payments
problem. This action reaffirmed the Nation's

determination to protect the status of the
dollar internationally. Thus, the increase in the
discount rate was prompted by international
considerations and did not reflect a desire of
the Federal Reserve System to restrain domestic
credit expansion.
The deficit in the Nation's international accounts continued to be a major consideration
in the formulation of monetary policy in 1964.
Largely reflecting a substantial improvement in
the first half of the year, the balance-of-payments deficit for 1964 likely will decline from
the $3.3 billion level recorded for 1963. On a
seasonally adjusted annual-rate basis, a deficit
of $1.8 billion was shown in the January-June
The U. S. balance-of-payments position during the first half of 1964 benefited from several
factors which must be regarded as temporary
in nature. Among these, exports of agricultural
commodities to the Soviet Union in the J anuary-March period and unusually large income
receipts from direct investments abroad were
perhaps the most notable. The deterioration in
the balance of payments in the final half of
the year largely reflected an expansion in imports, associated with the continued growth of
domestic economic output.
In August 1964, the interest equalization tax
was enacted by Congress to impose a tax on
foreign securities sold to U. S. residents. The
legislation also provides for the extension of
the tax to long-term bank loans to foreigners
if the President finds that such loans are being
used to circumvent the purpose of the legislation.
In financing its balance-of-payments deficit,
the United States sold gold to foreigners and
increased its liquid liabilities to foreign monetary authorities and official institutions. The
monetary gold stock, however, showed a decline of only $127 million during the year,
compared with a $465 million reduction in

business review/january 1965


1963. Sales to foreign official institutions of nonmarketable U. S. Treasury securities denominated both in dollars and in foreign currencies
were a major factor in moderating the gold
Also, for the first time since the establishment of the International Monetary Fund, the
United States in February exercised its drawing
rights under the terms of the Fund's charter.
The proceeds of these drawings were mainly
used in aiding Western European countries in
repaying the IMF. A total of five drawings,
aggregating the equivalent of $525 million in
various foreign currencies, was concluded during 1964. These drawings, however, were partially offset by the dollar drawings of other
countries; as a result, the net reduction in
U. S. drawing rights was only $265 million.
Continued cooperation among the central
banks of major industrial countries in matters
of mutual concern was a central feature of
international financial developments during the
year. Currency swap agreements between the
Federal Reserve System and foreign central
banks, which have made a significant contribution in past years to international financial
stability, were developed further in 1964. At
the time of the speculative attack on sterling
in late November, these swap facilities, plus
resources available through the IMF, were of
incalculable value in easing the pressure on
sterling. In addition to a $1.0 billion drawing
from the Fund by the United Kingdom, 11 countries and the Bank for International Settlements
agreed to provide $3.0 billion to defend the
pound sterling.

district developments
The Southwest shared in the broadly based
national economic expansion during 1964. Significant advances from 1963 levels were registered in manufacturing, mining, agricultural
production, construction activity, employment,
personal income, and retail trade.


Industrial production in the Southwest, as
indicated by Texas data, moved upward last
year to a level that was about 6 percent above
output in 1963, or the same as in the Nation.
The year-to-year gain in the region matched
that registered for 1963. Industrial production
in the Southwest showed an orderly advance
during 1964 as opposed to 1963, when most
of the expansion in industrial output occurred
during the first part of the year.






~___...,--.....:..:..;;;;___""";"_ _""""'"


Although mining and the manufacturing of
both nondurable and durable goods all posted
output gains last year, the production of durable
goods registered the largest relative advanceabout 9 percent - over 1963. Among the
durable goods showing high rates of growth
were primary and fabricated metals, machinery,
and transportation equipment. These categories
were also among those in which output expanded rapidly at the national level.
Nondurable goods production rose almost 6
percent in 1964, and mining output advanced
about 3 percent. Such nondurable manufactures
as apparel, chemicals, and rubber and plastics
showed especially high rates of increase. The
strong advance in the output of chemicals and
apparel extended a trend that has been under

way in the Southwest for several years. The
modest, but important, rise in mining production reflects a continuation of the expansion
evident in the output of petroleum products
since the early part of 1962, particularly in the
last three quarters of both 1963 and 1964.
Industrial production in the Eleventh District
has shown marked growth during the current
business expansion, which began in 1961.
Nevertheless, output has lagged behind the rate
of industrial expansion in the Nation during
this period. This lag in industrial production is
primarily the result of the relatively slow rate
of growth in mining activity in the District as
compared with manufacturing output.
Crude oil production in the District advanced
2,7 percent last year. This was a significantly
larger gain than was recorded for the Nation
as a whole and reflected the fact that much of
the increase in national crude oil output was
provided by District wells. Texas boosted crude
oil production 2.3 percent, while southeastern
New Mexico and northern Louisiana each
posted a still higher gain. The pace of crude
runs to District refinery stills rose 2.5 percent
last year. A new monthly record for refinery
operations was established in July, surpassing
the previous high set in February 1963 by 1.9
percent. Overall, drilling activity in 1964
showed little improvement in the District, although wildcatting picked up in northern Louisiana and the number of field wells drilled in
southeastern New Mexico increased somewhat.
The cumulative value of construction contracts in the southwestern states of Arizona,
Louisiana, New Mexico, Oklahoma, and Texas
in 1964 exceeded the very high 1963 level of
$4.9 billion by about 2 percent. Aggregate
construction activity remained well above the
comparable 1963 levels until the second half
of 1964, when residential construction activity
began to weaken in each of the southwestern
states except Louisiana. However, nonresidential building and nonbuilding construction (en-

gineering and public works) continued to be
sources of strength in the southwestern construction picture throughout 1964. The advances in these sectors reflected the expansion
of investments in manufacturing plants and
commercial facilities and further increases in
spending for public works and utilities.
Weaknesses in the residential sector resulted
from reduced construction of multiple-family
dwellings, particularly apartment buildings.
Some evidence of overbuilding and -increases
in vacancy rates began to emerge during 1964
in the larger metropolitan areas.
While metropolitan areas had about six times
the volume of construction activity of nonmetropolitan areas (cities of 50,000 population
or Jess), the smaller urban areas enjoyed a
building boom in 1964 when compared with
the larger ones. The source of this expansion
was new residential construction - the weakest
sector in the metropolitan areas. This boom in
residential activity reflected a growing demand
for apartment units in smaller cities.
The value of nonbuilding contracts was
slightly below that for nonresidential construction. However, nonbuilding construction was
the most rapidly growing segment of the construction industry in 1964. The primary source
of strength in the nonbuilding sector was in
waterworks, sewerage, and irrigation-drainage
projects. Much of this activity reflected expanded programs of Federal spending for flood
control and dams under the Public Works Appropriations Act of 1964. The level of highway
construction in 1964 also advanced from the
very high 1963 level and, hence, was a primary
factor in the strong nonbuilding construction
The rising levels of economic activity in the
District states of Arizona, Louisiana, New
Mexico, Oklahoma, and Texas for 1964 resulted in expanded wage and salary employment. The average number of nonagricultural

lmsiness review/january 1965


wage earners last year was nearly 4.8 million,
or about 2 percent above 1963.
The total civilian labor force, as measured
by the number of persons in the 18-64 age
bracket, increased by about 40,000 persons;
but employment rose by a greater amountmore than 111,000 workers - during 1964.
The unemployment rate in the Southwest reflected this expansion in employment and eased
to 4.4 percent of the civilian labor force, or
fractionally below 1963. This downturn in
the unemployment rate reflected a 34,000 reduction between 1963 and 1964 in the average
number of unemployed workers.
Manufacturing employment last year advanced 3 percent over 1963 in the District
states, and the number of nonmanufacturing
wage earners rose a little over 2 percent. In
the nonmanufacturing sector, which accounted
for almost 83 percent of total nonagricultural
wage and salary employment in the Southwest,
the only employment category showing a decline from 1963 was transportation and public
utilities. Federal, state, and local governments
Expansion in non building and nonresidential construction offset weakness in residential building in 1964 ' "


t · Porll,. tslimol.d

SOURCES: F.W OodQ' Corporation
F.derol R.Slrv. Bank orOolleli


recorded the greatest increase (24,000) in the
number of workers employed, and trade posted
the second largest employment advance
Consumers in the District responded to the
higher levels of employment and disposable
income during 1964 by increasing their personal consumption expenditures further. Percentagewise, the step-up in consumer buying
for durable goods was greater than the gain in
purchases of nondurables.
Automotive sales in major Texas markets
showed healthy gains over 1963 during the first
three quarters of 1964. However, the curtailed
passenger car production resulting from the
October-November automotive labor troubles
sharply reduced sales during these months.
Nevertheless, total new car registrations in
Dallas, Fort Worth, Houston, and San Antonio
rose 8 percent above the high level recorded
for 1963. District department store sales advanced almost 11 percent above their 1963
Although growing conditions were not particularly favorable in some sections, total agricultural output in the Southwest last year was
slightly above the high 1963 level. Higher
yields per acre offset reductions in harvested
acreage, and total crop production increased
modestly. In addition, output of livestock and
livestock products was substantially larger,
principally because of increased cattle and calf
production; production of mohair and poultry
and dairy products also rose, however.
Prices received by southwestern farmers and
ranchers for all farm products in 1964 averaged
moderately below those of 1963. Prices for
crops were slightly weaker, and those for livestock and livestock products, particularly cattle,
were substantially lower. As a result, total gross
income of southwestern farmers and ranchers
was a little smaller than in 1963 . Since production expenses were higher last year, net


80 r - - - - - - - - - - - - - - - - - - - - -- -________- - ,



farm income was moderately lower than the
$1.6 billion received in 1963.
The continued economic growth of the Southwest during 1964 was reflected in District banking developments. In order to satisfy a growing
loan demand, member banks reduced their
total investments; borrowed through the Federal
funds market and at the Federal Reserve bank;
and competed aggressively for time and savings
deposits. The net result of these developments
was a decline in District bank liquidity to a
level significantly below those recorded for other
recent years.
At the end of the year, loans at all member
banks in the District reached a total of $7.8
billion, or 13.2 percent above a year earlier.
The demand for consumer-type loans was especially vigorous; as a result, this category of
borrowing increased at a faster rate in 1964
than in 1963. While the expansion in real estate loans was substantial in 1964, it was less
than the sharp advance that occurred in the

preceding year. Commercial and industrial
loans and loans to nonbank financial institutions were relatively weak during the year.
Among commercial and industrial loan categories, however, loans to construction firms
rose sharply.
A continued inflow of time and savings deposits augmented the supply of loanable funds.
Time and savings deposits, however, increased
at a somewhat slower rate in 1964 than in
1963. The loan-deposit ratio of all District
member banks rose from 52.4 percent at the
end of 1963 to an estimated 56.0 percent at
the end of the past year. Country member banks
experienced a sharper increase in their loandeposit ratio than did reserve city banks.
Member banks reduced their holdings of
Government obligations by about 10 percent
in order to meet loan demand. Reserve city
banks decreased their holdings of Governments
and increased their portfolios of non-Government securities at a faster rate than did country
member banks. The average maturity of investment portfolios was lengthened, as Treasury
bills and certificates of indebtedness were sold
or redeemed while U. S. bonds maturing after
5 years were acquired. A moderate amount of
notes and bonds maturing within 1 year was
District member banks continued to be
active participants in the Federal funds market
and, on balance, were net purchasers of funds.
In fact, while District banks enlarged their purchases of Federal funds in 1964, they actually
reduced their total sales of Federal funds below
the 1963 level. During the year, member banks
also increased their borrowings from the Federal Reserve Bank of Dallas by a substantial

business review/january 1965







The Uvalde National Bank, Uvalde, Texas, a newly organized institution
located in the territory served by the San Antonio Branch of the Federal Reserve
Bank of Dallas, opened for business December 14, 1964, as a member of the
Federal Reserve System. The new member bank has capital of $200,000, surplus
of $150,000, and undivided profits of $60,000. The officers are: James L.
Cowan, Chairman of the Board and President, and William D. Tabor, Vice
President and Cashier.

The Peoples State Bank, Marshall, Texas, an insured nonmember bank located
in the territory served by the Head Office of the Federal Reserve Bank of
Dallas, was added to the Par List on its opening date, January 2, 1965. The
officers are: W. L. Rudd, Jr., President; Barton S. Hill, Executive Vice President; Dr. H. D. Bruce, Vice President (Inactive); and Joe H. Sharp, Jr.,
Cashier and Vice President.