View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK OF DALLAS

March 1977

Business CyclesA New Leading Indicator
Food Stamps-

Program Impacts on Southwest

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

Business Cycles-

A New Leading Indicator
By Wallace H. Duncan
Individuals, businesses, and national economic
policymakers all make decisions based on expectations regarding future economic events. The desire
to know the most likely course of these events has
generated all manner of forecasting devices and
ideas. One of the most widely followed indicators
of future economic activity is the Commerce Department's composite index of leading indicators. Just
recently this indicator received considerable attention in the press. Until January 1977 it appeared
that the Commerce Department's index of leading
indicators had declined for three consecutive months
from July through September 1976, setting off
speculation as to whether a recession was imminent.l
Evidence from other sources indicated that a nearterm recession was unlikely. At the time, most
econometric models of the national economy were
predicting continued expansion through 1977, albeit
at a slower pace. However, only slight reassurance
was available from this source since the generally
poor record of econometric models at forecasting
major turning points is widely recognized among
economists and forecasters.
Some analysts suggested that an economic downturn was not likely because no excesses had developed
in the economy, such as overly high inventory accumulation, overexpansion of capacity, or excessive
buildup of short-term debt. However, such excesses
often are not apparent until after a recession is well
underway. For example, the inventory-sales ratio of
manufacturing and trade in November 1973, the last
month of the 1970-73 economic expansion and hence
the brink of the recession, was the lowest in over
seven years. It was not until late 1974, one year into
the recession, that inventories relative to sales
became excessive by historical standards.
Thus, aU these sources of information about the
economic outlook were subject to serious limitations.
This article presents an alternative forecasting tool
in the form of a new leading indicator. Though not
without limitations, it nevertheless has a better
record of predicting recessions than the Commerce
1. Revisions of the index as of January 28, 1977, showed

only two nonconsecutive months of decline in 1976-April
and September.
Review I March 1977

Department's index of leading indicators, at times
showing that a signal being given by the latter was
false. It is less useful than the Commerce index
for predicting upturns, however.
A quarterly leading indicator
The new leading indicator is extremely simple to
construct. It can be computed by anyone who
receives or has access to quarterly GNP data, and it
requires less than one minute of computation time.

The rationale for the new indicator is that it is
possible to identify certain components of the economy with consistently cyclical behavior and it is the
movement of these sectors relative to the other economic sectors that determines business cycles. The
quarterly leading indicaklr identities when, during
an economic expansion, these cyclical components
cease growing at a faster rate than the remainder of
the economy. Assuming no sudden collapse of the
cyclical components, this moment should precede
the time when real output actually declines and a
recession begins.

The rationale for the new indicator is that
it is possible to identify certain components of the economy with consistently
cyclical behavior and it is the movement
of tMse sectors relative to the otMr economie sectors that determines business
cycles.
The primary cyclical components of the economy
are generally recognized to be consumer durables
spending and gross private domestic investment.
The latter is comprised of business fixed investment,
residential investment, and the change in business
inventories. The quarterly leading indicaklr is constructed as a ratio of the sum of consumer durables
spending and residential and business fixed investment kl tinal sales, with all data expressed in real
terms. Final sales are defined as gross national
product less the change in business inventories.
Thus, the indicator is the ratio of the cyclical com1

ponents to GNP, except that the change in business
inventories has been subtracted from both the
numerator and the denominator.
The change in business inventories is extracted
from the ratio because of its erratic behavior. An
important characteristic of a good leading indicator
is that it must have a relatively smooth or uninter·
rupted trend throughout an expansion or contrac·
tion phase. Otherwise, one is faced with a plethora
of false signals with the many changes of direction.
Constructing the indicator as a ratio helps to
increase its forecasting lead. A simple aggregate of
the cyclical components usually also turns down
in advance of the economy; however, the ratio fonn
of the indicator turns down as soon as the aggregate
merely grows more slowly than the remainder of the
economy. In 1948, for example, the ratio comprising

Commerce Department's leading index
While the quarterly leading indicator and
the Commerce Department's index of lead·
ing indicators have some similar components, their differences are greater than their
likenesses. The 12 components of the Commerce Department's leading index are: 1
• Average workweek of production workers
in manufacturing
• Layoff rate in manufacturing
• Percentage of companies reporting slower
deliveries
• Change in total liquid assets
• Change in sensitive prices
• Contracts and orders for plant and
equipment
• Net business fonnation index
• Index of common stock prices
• Real money supply, Mh in 1972 dollars
• New orders for consumer goods and
materials
• Building pennits
• Change in inventories on hand and on
order
1. See the May 1975 and November 1976 issues of
Business Conditwr18 Digest, U.S. Department
of Commerce. for a discussion or each of these
components. a general description of the leading index, and the latest change in methodology.

2

the indicator turned down three quarters in advance
of the recession, whereas the aggregate of cyclical
components turned down with only a one-quarter
lead.
The record of the quarterly leading indicator has
been quite good since 1947, when real GNP first
began to be calculated at quarterly intervals. Except
during wartime, it has signaled the onset of all economic downturns with at least a three-quarter lead.
The indicator is also quite smooth in its movement
through cycles. Except for economic expansions
coinciding with war expansions, it has always risen
uninterruptedly from its trough to its peak preceding the next recession.
The propensity toward smoothness is an improve-ment over the Commerce Department's leading
index, which often moves counter to its existing
trend for a month or two. The lack of smoothness
in the Commerce Department's index has necessitated devising ad Me rules regarding how many
consecutive declines constitute a valid downturn
signal. The most widely accepted current rule of
thumb calls for three consecutive declines.:
Leaving aside for the moment any consideration
of war years, the Commerce Department's index
falsely signaled a downturn by declining three consecutive months in the spring of 1962. In contrast, the
quarterly leading indicator correctly pointed to a
continuation of the economic expansion by rising
steadily, although its growth in the following quarter
was relatively small. And of current imporlance, it
has risen continuously throughout the present
expansion, suggestin g~n trary to the Commerce
Department's index as recently as J anuary- that an
end to t he expansion is not yet in sight. Had the
quarterly leading indicator been in use last fall, there
might have been greater assurance concerning the
outlook for the economy.
2. One alternative method for smoothing the Commerce
Department's leading index, which would make it more
comparable with the quarterly leading indicator, would
be to use it in quarterly average form. But the compara·
tive smoothness of the quarterly leading indicator in
economic expafUl.iofUI. does not appea r to be d ue to quarte rly averaging alone. For example, even on a qua rterly
average basis, the Commerce Deparbnenl'a index turned
down during a period or economic expanllion in 1962
while the new q uarte rly lending ind icator did not.
Another alternative a ve raging method, havi ng the
advantage of providing information on a more timely
basis, would be the use of a three-month moving average.
But such an average of the Commerce Department's
index declined in 1962, 1963, late 1971. and late 1976each time falsely signaling the proximity of a recession.

New leading indicator. gives fewer false signals of recession
INDICATOR
RATIO

.27

MODIFIED INDICATOR
RATIO

-----r.,-------'"------~---,r7----------------_r~----_r~-----.38

3

,-,

.
I

.
"

.25 -

A'

I

I
I

I

.23 -

.34

.32

-

.30

8

I

I

3

I
I
I

.21 -

.36

-

QUARTERLY
LEADING INDICATOR

'

3

-

-

,, "

" /"-'\ \,
..-,,"
/'~\

2

•

\\

/
/

INDICATOR MODIFIED .
TO INCLUDE
DEFENSE SPENDING

.19 -

'

.17

RATIO SCALE
1967=100
150---..-------".-----~.---_.,_----------------_.'"----_.--._----

140130120-

11

./ ......

110 10090-

.......
11

8023

.~

70-

4

/t·...·........·~"·"

60~"'"

50-

.-.

•.

•

......:..." '"

.........'"

:........ ....'
~

..,.'

•

..i.~ ......

./ . ...". ... !

..

..

....

COMMERCE DEPARTMENT COMPC SITE
INDEX OF 12 LEADING INDICA ;01 S

I'
NOTE:

Shaded aH!aS indicate busi ness contraction s a5 dated by the National Bureau 01 EconomiC Research. Data lor the
Commerce Department's indu inclUde all revisions thrOU9h Dece mbe r 29. 1976. New revi Sio ns released IS this went
to press show declines in 1976 only lor Aplit and Septembe r. Prior 10 Ihese revi sions. there were three consecutive
declines lor July th,oU9h September 1976. Numbers indicate Ihe lead ;n quarlers (up per 9raph) or in month s (lower
graph) with Which a turnin9 point in an Indicator preceded a turning point ;n the economy.
SOURCES: U.S. Department 01 Commerce.
Fed e ral Reserve Bank 01 Dallas.

Review I March 1977

•

Peaks of the quarterly leading indicator and the
Commerce Department's leading index have similar
timing relative to the peaks of economic expansion.
In the last five recessions the average lead of the
quarterly leading indicator has been 3.8 quarters.
The average lead of the Commerce Department's
index has been 10.8 months, or 3.6 quarters.
The ranges between the shortest and longest leads
of the quarterly leading indicator and the Commerce
Department's leading index are also about the same.
For both, the shortest lead occurred preceding the
1953-54 recession and the longest was for the 1957-58
recession. The range, or difference between the shortest and longest leads, is 6 quarters for the quarterly
leading indicator and 19 months, or 6;3 quarters,
for the Commerce Department's index. Obviously,
both would be more useful if there were less variability in the length of the lead
A clO&el' look

Except in wartime, the quarterly leading indicator
has risen uninterruptedly from its trough to its peak
preceding the next recession. But both of the economic expansions (1949-53 and 1961-69) coincident
with wartime expansions of defense spending contain double peaks of the quarterly leading indicator.
There are similar double peaks over the same periods
for the Commerce Department's leading index.
During both periods the initial peak, which proves
to be a false peak with respect to signaling an economic downturn, occurs shortly after the first significant U.S. involvement in the war.
The quarterly leading indicator was modified to
include national defense spending in the numerator.
Data for this ratio, however, are all in nominal values
since the GNP accounts do not provide defense
spending in real terms.
Adding defense spending to the numerator
removes the double-peak effect of the 1949-53 expansion period. The modified indicator rises, with intermittent one-period interruptions, to a peak in the
first quarter of 1953, two quarters before the peak of
the economic expansion. A comparison of the results
with and without defense spending in the numerator
suggests that the economic expansion was being
sustained by the war buildup, even though the
aggregate of consumer durables spending and fixed
investment was declining in real terms from $138.1
billion in the third quarter of 1950 to $112.1 billion
in the third quarter of 1952.
The result of including defense spending in the
numerator for the Vietnam War expansion period is

•

not as dramatic. The dip in the indicator in the first
quarter of 1967, though much less precipitous, is
still present, and the second major peak is moved
forward in time by a full year. Including defense
spending has Jess impact on the pattern of the indicator in the late 1960's than in t he early 1950's
because the increase in defense spending was much
less pronounced during the Vietnam War buildup
than during the Korean War buildup.
The record of the modified indicator during war
years is not sufficiently smooth, however, to qualify
it as a good leading indicator. Too many false signals
obscure the location of the correct downturn in the
indicator signaling a recession. But the modification
does provide an explanation of why the economy
continued to expand several more years despite the
drops in the quarterly leading indicator beginning
in the fourth quarter of 1950 and the second quarter
of 1966.
Limitations of the unmodified indicator during war
expansions do not detract from its usefulness dwing
other periods. In the remaining four expansions
since World War II, it has a remarkable record of
uninterrupted advance to a peak signaling the next
recession. In three of these, it consistently turned
down three quarters before the recession. But the
peak preceding the 1957-58 recession was fully eight
quarters in advance. This was virtually identical to
the lead of 23 months provided by the Commerce
Department's leading index. Why was the recession
so long in coming, following concurring signals by
both indicators?

Limitations 0/ the unmodified quarterly
leading indicator during war expansions
do not detract from its usefulness during
other periods. In the remaining four
expansions since World War II, it has a
remarkable record of uninterrupted
advance to a peak signaling the next
recesswn.
While there can be no completely satisfactory
answer to this question, it is significant that the
expansion was only barely sustained during the
period beyond its scheduled demise. In the first half
of the expansion, from the second quarter of 1954
to the fourth quarter of 1955, real economic growth
was at an annual rate of 6.6 percent t;,ut then fell to

only 1.6 percent from the fourth quarter of 1955
to the third quarter of 1957. The period of fast growth
ended one quarter after the peak of the quarterly
leading indicator. Even if both indicators signaled
the recession unduly early, they both provided forewarning of the slowdown in growth.
The major weakness of the quarterly leading
indicator is its inability to signal the end of reces~ions. The upturn of the indicator actually lags,
mstead of leads, two of the six recessions. This is
pa~tly due to the role of business fixed investment,
which generally contributes strength to an expansion
once it is Wlderway but is usually weak in the early
stage. But even if business fixed investment is
eliminated from the numerator of the indicator, the
new ratio still produces only relatively short lead
intervals-3, 3, 0, 0, 0, 0, measured in quarters-for the six recession upturns. The average lead is one
quarter, which is not very different from the average
lead of four months provided by the Commerce
Department's leading index.
A coincident upturn in the majority of instances
is still not a satisfactory record for a leading indicator. The problem is that the signs pointing to the
end of a recession occur with a very short lead and
a quarterly indicator simply does not divide time in
fine enough increments to provide a good leading
signal. Thus, for purposes of signaling the end of a
recession, the Commerce Department's leading index,
which is calculated. from monthly data, is more useful than the quarterly leading indicator.

Summary
The quarterly leading indicator measures the aggregate strength of real spending for consumer durables
and residential and business fixed investment relative to final sales. It is superior to the Commerce
Department's leading index for signaling the onset
of recessions because of its greater smoothness and
more consistent leads. In the spring of 1962, it correctly signaled a continuation of the economic expansion, while the Commerce Department's index
recorded a three-month decline. And its continued
rise throughout the present expansion would have
provided much-needed assurance when the Commerce Department's index recorded a tentative
downturn signal last fall.
Like the Commerce Department's leading index,
however, the quarterly leading indicator is of only
limited usefulness during war expansions, tending
to show double peaks and more irregular quarter-toquarter movements. And, also like the Commerce
Department's index, its downturn preceding the
1957-58 recession was unusually early. Ita greatest
weakness is in predicting economic upturns, since
quarterly data are simply not timely enough to
detect the very short lead of signals pointing to the
end of recession. For this purpose, the Commerce
Department's index is more useful, providing a
relatively short but consistently leading signal.

New par bank
Bank of Choudrant, Choudrant, Louisiana, an insured nonmember bank located
in the territory served by the Head Office of the Federal Reserve Bank of Dallas,
began remitting at par February 16, 1977. The officers are: D. E. O'Neal,
Chainnan; H. H . Smith, President; W. G. Kelly, Vice President; H. R. Howell,
Vice President and Cashier; Betty Barnes, Assistant Cashier; and Sue McDaniel,
Assistant Cashier.

Review I March 1977

•

Appendix
The following tables show numerical values
for the quarterly leading indicator and the
indicator modified to include defense spending. GNP data for computing the ratios
were taken from the Survey of Current Business published by the U.S. Department of
Commerce.
The quarterly leading indicator shows a
decline from the first to the second quarter
VALUES FOR QUARTERLY LEADING lNDICATOR
FI1'81
VII'

quarter

1947

.2082
.2292
.2121

.2134

1948

.2320
.2133

'94'
1950
1951
1952

1953
1954
1955
1958
'957
1958
1959

1960
1961
1962

196'
1964

Th ird
q uener

.2275
.2138

.2280
.2234
.2192

.2584
.2058
,1891
.2048
.2115

.2462
.2011
.2016
.2049
.2155

Second

quftrter

.2268
.2342
.2015
.2056

.2120

Fourth

q uarter

.203'

.2364
.2154
.2011
.2043
.2076

.2224
.2239
.2171
.2031
.2110

.2311

.2333

.2312

.2225
.2140
.1969
.2160

.2214
.2132
.1962
.2169

.2184
.2117
.2021
.2120

.2161
.1976
.2058
.2108
.2200

.2114
.1988
.2092
.2160
.2194

.2070
.2017
.2095
.2165
.2205

.2040
.2044
.2100
.2191
.2189

.2326
.2313
.2209
.2291
.2334

.2340
.2250
.2240
.2325
.2298

1965

.2302

1966
1957
1958
'95'

.238'

.2183
.2283
.2360

.2311
.2328
.2219
.2270
.2346

1970
1971
1972
1973
1974

.2256
.2280
.2470
.2609
.2447

.2251
.2331
.2475
.2595
.2423

.2241
.2358
.2487
.2553
.2378

.2191
.2415
.2554
.2502
.2232

1975
1976

.2165
.2274

.2135
.2289

.2188
.2307

.2209
.2319

NOTE : The form ula lor calculating th .. .., .allJ(l5 is-

OLI _ ~F!., ~

'"

wnere OLI _ qu.ne,ly laading ,nd,cator: CD _ COn.
Sumption IJx penditur" on du,.bllJ goOdS: 8F! _ business. 0' nome"'dlJnli al. I I~ed inWflstmenl. Rf/ • • esidenl ial Ii,ed inveslment: fS _ I'nal &ales: and r _ su*ript
denot,ng • value mlJuured In .UI. or constant. doUars.

6

of 1947 during a period of apparent ec0nomic expansion as dated by the National
Bureau of Economic Research (NBER).
However, since the Commerce Department's
leading index is not available for this period
for comparison, the decline was not plotted
in the chart of the quarterly leading indicator accompanying the text.
Even though the NBER designates the
period of this decline in the quarterly leading indicator as one of economic expansion,
available annual data show a continuing
decline in real GNP from 1944 through
1947, with a greater percentage drop in real
GNP between 1946 and 1947 than for any
subsequent years. Thus, this trough in the
quarterly leading indicator appears to be
associated with a very substantial decline
in economic activity--one, however, that is
not included in the business contraction
from February to October 1945 dated by
the NBER.

VALUES FOR QUARTERLY LEADING INDICATOR
MODIFIED TO INCLUDE tEFENSE SPENDING

"0<

S KDnd
Quart er

Third
Quarter

Fount>
Qu. rtar

.3491
.3577
.3702

Y.a,

.3175
.3453
.3623
.3701
.3479

.3463
.3527
.3531
.3658

.3403
.3557

.3148
.3216

.3158
.3239
.3207
.3248
.3221
.3009

Quarte r

1950
1951
1952

1953
1954

.'500

'964

1965

.3158
.3237
.3170
.3274
.3267

1966
1967

1968
1969
1970

.308'

.'209

.3250
.3239
.3037

.'681)
.3601
.3071
.3193
.3203
.3228
.3271
.3170
.2951

NOTE : Tl'IfIlormula for calculallng th_ valuts isOL/ _ CD. + Sfl. + Rfl. + NO.

'"

FS.

ND _ national delense Up.fInditu,", m _ ,ubscript denoting modi lica,"on to includa detense spend·
Ing. and" _ IlUbscript denollng a valu. meallUn.d in
nominal. Or current. dolla.s
All othe, te,m, a'lJ defined in the table ··Valu" 10'
Ou arterly Leading Indleato • ..
w~ere

Food Stamps-

Program Impacts on Southwest
By Edward L. McClelland
Food stamps have become the Government's largest
food subsidy program, providing $5.3 billion in
supplemental income to 18 million people in fiscal
1976. Much of the growth in the program came as
food stamps replaced the older program of direct
distribution of surplus agricultural commodities.
The principal advantage of food stamps is their
flexibility of use. Food coupons are used to purchase
a wide variety of food items on demand, whereas
the distribution of surplus commodities was a more
cumbersome operation. The commodities were
handled outside the nonna! channel of distribution-food stores-and the limited number of items
and time of delivery often did not coincide with
household demand.
Growth of the food stamp program in the Southwest generally lagged the increased participation
in the nation. While Louisiana and New Mexico
implemented the program in the sixties, the surge
in the Southwest's participation came after 1973,
when the direct food distribution program was
eliminated and Oklahoma and Texas implemented
food stamps on a statewide basis. And because the
states of the Eleventh District have a greater proportion of low-income households than does the
nation as a whole, both the participation rates and
the benefits of the program are potentially greater
in the four states.
Despite the fast growth in food stamps, it is estimated that only half the people with incomes below
the poverty level participate in the program. Many
of those that do not participate have found the cost
and trouble of being certified for food coupons are
greater than the relatively small benefits they could
receive. For households in the lowest income levels,
however, the trouble has been worthwhile as the
benefits substantially increase their ability to purchase food.
Origins and growth
Federally subsidized family food assistance programs were initiated during the Great Depression
when farmers lost their markets and millions of
people became unemployed. With large excess supplies of agricultural commodities accumulating and
with households unable to maintain adequate diets
because of the loss of family incomes, the GovernReview I March 1977

ment initiated farm relief legislation in 1933 to
distribute surplus commodities directly to needy
families. Participation reached an all-time high in
mid-1939, when nearly 12.7 million persons received
direct food assistance, and then declined sharply
during World War II.
In the postwar period, participation in the food
distribution program increased from a low of 58,000
persons in mid-1946 to a peak of 6.4 million in
mid-1962. The food distribution program has since
declined and is now virtually ended. The decline
of direct distribution coincided with the rise in the
food stamp program, which is now the largest of the
Goverrunent's food assistance programs. The shift
to stamps resulted largely from problems inherent
in the direct distribution program. Direct food distribution required participants to line up at central
distribution points at specified times for their food
quotas. This often required people to travel beyond
their neighborhoods, where other food might be
readily available. In addition, the number of commodities distributed was limited. Depending on
location, anywhere from 5 to 24 commodities might
be available. Items commonly meted out were cornmeal, cheese, dried milk, and rice.

What are food stamps
and who gets them?

Food coupons are a benefit: in kind~h
vouchers that can only be used to buy food
items. Coupons are issued to welfare recipients and to households whose eligibility for
food stamps is detennined by the family's
net income and assets. The quantity of coupons made available to a household depends
on its size-the more members, the bigger
the allotment. Households purchase the coupons at a discount that varies with net
household income. The poorest households,
however, pay nothing for them. The difference in value between the food stamps and
what people pay for them is called the bonu.s.

7

Where few items were available, the potential to
prepare a wide variety of meals was limited, and the
monotony of routine diets led to waste of unwanted
staples. Spoilage added further to waste as many
recipients did not have adequate storage facilities
to preserve food supplies in the interval between
distributions. Refrigeration, for example, was often
inadequate to keep perishables even a short time,
Food stamps began as an experiment in Rochester,
New York, in 1939 and expanded to 1,741 counties
before the program was terminated in 1943, when
the war effort reduced supplies of surplus conunodities and the need for food assistance, It was not
Wltil the late fifties when agricultural surpluses
again became a serious problem that the idea of
food stamps was revived by the U.S. Department of
Agriculture, and in 1961 a pilot program was begun,
The Food Stamp Act of 1964 established a permanent food stamp program and authorized its
expansion through cooperating state weHare agencies, which set the standards of eligibility, The food
stamp aUotment-the amoWlt of coupons a household receives-increases with size of household, But
the increase scales downward for the larger house-

Food stamps replaced older program
of direct food distribution
MILLION PERSONS
20

15

-

10

-

FOOD
STAMPS
,~

5

-

,
,,
#

1960

I
1964

#

,

,,

FOOD
DISTRIBUTION

-----"

o

#

v''
II

,#
,#

............

I

I

1968

1972

N
I
1976

NOTE: Shaded area s indicate busine ss contractions as daled by
the Natio nal 8ureau 01 Economic Renluch.
SOURCES, U.S. De part ment 01 AgricultUfe.
U.S . Department 01 Comme rce.

•

holds roughly in proportion to the economies of
scale that exist in food purchasing and preparation.
The purchase requirement-the amount people have
to pay for the stamps-was set at a level determined
to be "nonnal" food expenditures of participating
households. But unlike the Rochester program, which
had restricted the use of some stamps to surplus
food conunodities, the 1964 program placed few
restrictions on the types of food items that could be
purchased,
Participation in the food stamp program rose
sharply after enactment of the 1964 act. At the end
of fisca11966, more than 1.2 million persons were
receiving stamps, double the number that had participated on an experimental basis the year before. At
the same time, the number of people in the direct
food distribution program dropped to fewer than
4 million, Food stamp participation continued to rise
sharply through the sixties and reached 10.5 million
by mid-197l. That year, 250 counties switched to
food stamps from direct food distribution, and eligibility requirements were made unifonu nationwide.
In 1973. an amendment to the act extended the
food stamp program to all states on a mandatory
basis and virtually ended direct food distribution. As
a result, total participation was boosted substantially,
and all that remained of the direct distribution program was operations on Indian reservations.
The last major extension of the program, in 1975,
allowed Puerto Rico to participate in the food stamp
program. Total participation reached a peak of 19.3
million in April 1975, up from about 13.5 million a
year earlier. However, with the recovery in business
activity that began in the spring of 1975 and renewed
growth in total employment, participation began
trending down for the first time, reaching 17.3 million in September 1976.
The cost of the food stamp program has risen
conunensurate with the increase in participation,
In fiscal 1965 the bonus-the difference in the
value of food stamps issued and the money paid for
the coupons-totaled $32.5 million. It reached more
than $1.5 billion in fiscal 1971. After the shift to
food stamps from direct distribution was completed,
the bonus reached $4.4 billion in fiscal 1975. The
bonus rose further in fiscal 1976 to $5.3 billion,
even though total participation was declining.
The total cost of the food stamp program increased
sharply not only because of the rise in total participation but also because of the large adjustments
in individual benefits. In 1968, for example, the
bonus averaged $6.52 per participant per month;

Growth in food stamp bonus
outpaced rise in food prices
CUMULATIVE PERCENT CHANGE

280----------------____________

,.,., ..

BONUS PER PERSON i
PER MONTH,.

210 -

.,.,.,.

140 -

,'"

CONSUMER
PRICE INDEX

,._._....
, ."

FOR FOOD AT HOME

,.,.

70 -

~
o --r-(,;~;:I==:::~--,--__,-1968

1970

1972

1974

19 76

SOURces; u.s.

Bu.eau of Labor Statistics.
U.S. Department 01 Agric ulture .

by 1976 it had increased to $23.89. Over this same
period the consumer price index for food consumed
at home rose 74 percent, compared with a 266percent increase in the average bonus per participant-more than doubling average real benefits.
The first significant increase in benefits came as a
result of a 1969 amendment to the Food Stamp Act.
The monthly food stamp allotment for a household
of four, for example, was raised from $58 to $106. In
addition, food stamp allotments, which had varied
widely between northern and southern states, were
made uniform by giving a relatively larger increase
in benefits to participants living in the South.
Provisions were made in the 1964 act for an
annual adjustment in the food stamp allotments.
And in 1973 the act was amended to increase the
frequency of reviews for food cost adjustments to
two times a year. Adjustments are made when the
rise in food prices, as measured by the consumer
price index for food consumed at home, is large
enough to increase the face value of a coupon allotment $2 or more.
Impact on Eleventh District states
Growth of the food stamp program in the four states
of the Eleventh District has been uneven because
until 1973, Texas and Oklahoma chose direct distribution as their major family food assistance program.
Review I March 1977

In Louisiana and New Mexico, on the other hand,
of the food stamp program was more in line
with that in other states. In mid-1968, for example,
coupons were issued in 30 of Louisiana's 64 parishes
to an average of more than 84,000 participants
monthly. At the same time, 19 of 32 counties in
New Mexico issued food stamps to an average
31,000 participants. By the end of fiscal 1973, the
food stamp program had expanded to all parishes in
Louisiana and to all counties in New Mexico, and
total participation in the two states reached a peak
that year.
~wth

From a high of better than haH a million, the
average number of monthly participants in Louisiana dropped to 469,000 in mid-1976. Similarly,
participation dropped from more than 162,000 in
New Mexico in mid-1973 to 140,000 in mid-1976.
The decrease in participation has occurred for several reasons. Perhaps the most important is that
many participants found that the bonus to which
they were entitled was not worth the cost and
trouble of maintaining eligibility~ften requiring
monthly recertification. Moreover, a growing awareness of this problem probably deterred some new
participants from entering the program. More
recently, the economic recovery has stimulated
the demand for labor, and some participants have

Food stamp participation surged
when Texas expanded its program
MILLION PARTICIPANTS

2.0

--------------------=----------

1.5 -

1.0 -

NEW MEXICO

.5 -

o-F=
SOURce, U.S. Department

of Agl iculture .

•

left the program as they returned to work and
began receiving incomes in excess of the eligibility
requirements.
Because Oklahoma and Texas were late in implementing food stamps, growth of the program in
these states did not rise sharply until their food
distribution programs were eliminated. Food stamps
were not issued in Oklahoma prior to fiscal 1973,
but nearly 184,000 participants qualified for coupons
by the end of fiscal 1975. In Texas, food stamps
were issued in a few counties in the sixties. But
when the program was extended statewide, total
participation surged to a peak of nearly 1.1 million
people in mid-1975, or four times as many as four
years earlier.
Participation dropped in mid-1976 to 172,000
in Oklahoma and 903,000 in Texas. The biggest
reason for the decline was the improved labor market conditions that accompanied economic recovery

in the Southwest. But as the program matured,
the disadvantages became more widely known and
reduced participation in these states, as in Louisiana and New Mexico.
The rise in the cost of the food stamp program
in the four-state area reflected the surge in participation. The value of the bonus rose from less than
$60 million in fiscal 1970, for example, to a peak of
better than $551 million in fiscal 1975. In fiscal 1976,
declines in New Mexico and Texas more than offset
continuing increases in Louisiana and Oklahoma, so
the bonus to the four-state area dropped to less than
$538 million in fiscal 1976. The increases in the
bonus in Louisiana and Oklahoma are attributed
to several factors. Benefits per participant have
continued to increase, and the turnover in participation may have increased such that relatively
more lower-income households are in the program
now than previously.

How the food stamp program works

The food stamp program is administered by
a number of governmental and private organizations. While the objectives of the program are the same nationwide, the operations vary somewhat from state to state.
The initial operation is certification of
eligible households. This function is carried
out at the state level by state welfare
agencies. But to ensure broad participation,
the welfare agencies operate offices at the
county level. At that level, the agency is in a
better position to certify the eligibility of
needy households and to conduct the outreach program-inform low-income households of the availability and benefits of the
food program and encourage participation.
To qualify for food stamps, households
must function as an economic unit---in buying and storing food and sharing living expenses. Cooking facilities also must be available for preparing meals; however, elderly
persons are permitted to use food stamps to
purchase prepared meals. In addition, ablebodied household members 18 years old or
older must register for employment.
Certification of eligibility is approved by
a local state welfare office on the basis of one

,.

of two standards. First, most states issue
food stamps to households in which all
members receive public assistance and/or
Supplemental Security Income-without regard to household income or resources. Other
households have to qualify by satisfying
national standards for both household income and resources.
In meeting the national standards, households are allowed specified exclusions and
deductible expenses to arrive at a net level of
income and resources. To be eligible for food
stamps, households cannot have more than
$1,500 in net resources, or assets, but those
with two or more persons and with a member 60 years old or older are allowed up to
$3,000. The income standard for eligibilty
for food stamps varies with household size.
Currently, net income for a household of
four cannot exceed $553 monthly.
All qualifying households except those
with the lowest incomes have to pay a share
of the value of the food stamp allotment.
That share is defined as the purchase requirement and varies with the level of net
income and size of household. The difference
between the value of the food stamp allot-

Compared with the nation as a whole, the participation rate in the food stamp program and the
bonus can be expected to be higher in the states
of the District because there is a greater share of
low-income households in the Southwest. According to the Census of Population, approximately 23
percent of all U.S. households had incomes below
the poverty level in 1970. Comparable figures for
the four states show a third of the households in
Louisiana and Oklahoma below the poverty level, 28
percent in New Mexico, and 27 percent in Texas.
The concept of the "poverty" level was developed
by the Social Security Administration in 1964 for
the purpose of establishing a rough income standard
that is required to maintain a "tolerable" standard
of living for an average nonfann family of four.
Of the $8.7 billion worth of food coupons issued
nationwide in fiscal 1976, 61 percent--or the $5.3
billion bonus-was made available for increased

ment and the purchase requirement is the
net benefit, or bonus.
In some states, food stamp coupons are
sold by the welfare agencies; in others,
through other outlets. In Louisiana, for
example, food coupons are sold exclusively
through 185 state welfare department offices.
Half the 126 food stamp outlets in New
Mexico are run by that state's welfare department, while a tenth of the outlets in
Oklahoma are run by the state. Texas is the
only Eleventh District state where food
coupons are not sold by the welfare offices.
The bulk of the food coupons issued in
Oklahoma and Texas are sold through U.S.
post offices. Food coupons can be purchased
at 207 post offices in Oklahoma and 635 in
Texas. Another important outlet for food
coupon purchases in Oklahoma, New Mexico, and Texas is armored-car companies.
Elsewhere in the nation, banks and other
financial institutions are also food coupon
outlets.
Not only do needy participants have to be
certified, but the retail grocers and meal
services where the stamps can be used for
food purchases have to be certified also. This

Review I March 1977

food purchasing power that otherwise might not
have existed. The food coupons issued in the four
southwestern states that year accounted for about
a tenth of those issued in the nation, or nearly $828
million. But the $538 million bonus for the four
states represented 65 percent of the total value of
coupons issued in the Southwest.

An appraisal
The Food Stamp Act of 1964 set out to achieve two
broad objectives. One was "to provide for improved
levels of nutrition among low-income households
through a cooperative Federal-State program of
food assistance to be operated through normal
ch8IUlels of trade." The other was "to help to achieve
a fuller and more effective use of food abundances"
that would strengthen the agricultural economy.
The latter represented an important shift of policy
since food assistance programs in prior years had
primarily been surplus disposal programs.

latter function is performed by the U.S. Department of Agriculture's Food and Nutrition Service. That agency oversees the acceptance and redemption of coupons by
nearly 25,000 Cood retailers in the four
states of the District.
Once food coupons are issued and are
used at certified outlets, they enter the
banking system. The grocer deposits the
coupons along with his cash receipts in a
local bank. The bank credits the grocer's
account Cor the value of coupons and cash
received, and the grocer is thereby reimbursed. for his total food sales.
The bank then forwards all food coupons
received to the nearest Federal Reserve
bank or branch. The Federal Reserve bank
credits the account of the grocer's bank by
the value of food stamps received, so that
the bank is reimbursed for the value of the
coupons redeemed. The Fed then debits a
like amount to the Food and Nutrition
Service's account, which is replenished from
the general revenues of the U.S. Treasury.
The final step in the process is the destruction of the food stamp coupons. That is
done by the Federal Reserve bank.

11

Initial emphasis was placed on expanding the
program to as many areas of the country as possible.
Later, benefits were increased to encourage participation by all eligible households. And as the program began to gain momentum, attention was
drawn to the food stamps being issued to ineligible
recipients, and remedies to curtail those abuses
were implemented.

Each time certification is required, participants
have to complete a six-page application form. that
requires documented sources of income, household
resources, and allowable expenses. Once the application is completed, the applicant is interviewed
by the certifying welfare agency, which examines
the questionnaire and such supporting documents
as pay stubs and expense receipts.

The food stamp program has grown rapidly to
date and has enabled many low-income families
to have a higher level of nutrition. Although low
income is not synonymous with eligibility, more of
the poor could participate. A measure of the effectiveness of the program can be obtained by way of a
comparison between the number of people in families below the poverty level and those that are
actually certified for food stamps.

If the bonus in food stamps to be gained is not
large, the recipient may find that the frequent effort
necessary to document the financial status of his
household is not worthwhile. Transportation costs
are a big factor in many areas, especially in the
Southwest. Sometimes, the household's lone wage
earner has to take time off from work to be recertified, which means a loss in wages and a further
reduction in household income. An easier, more efficient method of certifying more of those in need
would help expand participation.

Only about half of those patentUdly eligible appear to be participating in the
food stamp program.
In 1975, for example, the poverty level was calculated at $5,500. For that year, the U.S. Department of Commerce estimated there were 25.9 million
people in the cOWltry below that income level. Of
17.7 million participants in the food stamp program
in 1975 (excluding 1.5 million Puerto Ricans),
about four-fifths had incomes below the poverty
level. They constituted about 14.2 million of the
total 25.9 million that were below the poverty level,
and probably eligible for food stamps. So only about
baH of those potentially eligible appear to be participating in the food stamp program.
Perhaps the biggest deterrent to expanding the
number of participants from current levels is the
small benefit available for households close to the
cutoff-that is, just below the qualification level.
For many of those households, certification is not
worthwhile. Certification is required monthly,
quarterly, semiannually. or annually depending on
the stability of household income. For example,
for a household receiving all its income from a public
assistance program so that future income is known
with a fair degree of certainty, certification might
be required just once a year. On the other hand, a
wage earner who has lost his job and is seeking
reemployment would be required to be certified
each month since future income prospects would
be uncertain.
12

The cost and effectiveness of the food stamp program will be debated in Congress later this year
when the program comes up for refunding. The
debate will likely center on the changes, if any, that
might be made in light of the broad objectives of
the program. Five alternatives are possible: maintaining the status quo by continuing the program
in its present form, tightening current eligibility
standards without otherwise changing the program
significantly, limiting participation to onJy those
households below the poverty level, eliminating the
coupon purchase requirement, or replacing food
coupons with an alternative direct cash subsidy
under a more comprehensive restructuring of the
entire welfare program.
While most everyone agrees that food assistance
for those really needing it is a worthy objective,
determining who is really in need is a major undertaking. But with half the people below the poverty
level not participating in the program, pressure
may mount for measures to increase their participation. Opponents, on the other hand, will argue
the program is overly generous, as evidenced by the
sharp rise in individual real benefits in recent years.
The result may well be a standoff, with little change
in funding by Congress from current levels.

Federal ReseIVe Bank of Dallas
March 1977

Eleventh District Business Highlights
RESIDENTIAL CONSTRUCTION
STRONG IN TEXAS

Steady recovery in residential construction in Texas was a major factor in the improvement in the
state's econemy last year. And prospects are good. that housing construction will remain an important
source of strength to economic
activity this year.
The value of residential building
contracts in Texas rose 33 percent
in 1976-to a record $3.1 billionfollowing a gain of less than 7 percent in the prior year. A significant
portion of the rise in value last year
was attributable to higher construction costs, but the increased
number of new housing units also
was important.
Total housing starts in Texas
advanced about 50 percent in 1976
to over 91,000 units. The number of
new single-family dwelling units
increased more than a fifth and
accounted for better than half of
total housing starts last year.

CONVENTIONAL MORTGAGE RATES
ON NEW SINGLE-FAMILY HOMES
PERCENT
9.40 - - - - - - - - - -

tv

HOUSTONGALVESTON'

,

9 .20-

' ••
1\ I '

I

9.00-

, ,"
'-'

,," ",
-

,

,1

e.eo -1'--~'="~5:-""-::,,~,~.-TI~,,~,~,:SOURCE: F.d • •J! Hom. lo.n Bank
01 LIlt!. lloek .

Beginning with this issue of the Highlights, charts and discussions on employment and unemployment and on building contracts in the Eleventh District will cover four southwestern
etates only, eince the District now includes Texas and parts of
Louisiana, Oklahoma, and New Mexico. Effective January 1,
1977, the portion of Arizona previously served by the Federal
Reserve Bank of Dallas was transferred to the Twelfth District.
Apparently, the demand for new
houses in the state has not been significantly deterred by the steadily
rising prices of the dwellings. For
example, in January 1977 the
average price of new homes purchased. in the Dallas-Fort Worth
SMSA (standard metropolitan statistical area) was $52,200. In the
Houston-Galveston SCSA (standard consolidated statistical area)where residential construction
activity has been very brisk-the
average price for new homes had
risen to $55,900. Those prices were
up about 2.4 percent and 5.5 percent
from a year earlier.
The demand for multifamily
dwelling units in Texas also
increased in 1976, after being extremely weak in the prior year.
Higher occupancy rates and a firming in rental rates have apparently
stimulated construction of multifamily housing.
Authorizations for two-family
dwelling units increased 125 percent in value in 1976 and were for
87 percent more units-covering
more than 2,400 units. For apartments the value of authorizations
doubled during the year, as did the
number of units they covered, totaling 41,500.
While residential construction
ended 1976 on the upbeat, it had a
setback in the first month of 1977.
The number of housing starts
declined about a fifth in January
from the December level. Almost

all the decline, however, was in
authorizations for multifamily units
as those for single-family units were
little changed.
Future growth of the housing
industry in Texas will depend
largely on the continued strength of
the state's economy and on the
availability and cost of financing.
Builders and home buyers alike will
be concerned with levels of interest
rates-both for interim construction
loans and for mortgage financing.
With an abundant supply of interim financing funds available and
short-term interest rates near the
lowest level in four years, construction loans should be readily available to builders at attractive rates.
The fairly recent tendency of
commercial banks to place greater
emphasis on mortgage lending
should also stimulate residential
construction this year. In January, for example, the volume of real
estate loans outstanding at large
weekly reporting commercial banks
in Texas was 24 percent higher than
a year earlier. While part of these
loans represent nonresidential
mortgages, a growing number of
banks are directing more funds to
residential mortgages.
Commercial banks and savings
and loan associations in the state
experienced record inflows ofsavings funds late last year, providing
ample liquidity to support a further
sharp increase in residential con(Continued on back page)

INDUSTRIAL PRODUCTION
(SEASONALLY ADJUSTED)

TOTAL PRODUCTION

". ----------

1967::100

". ----------

140 _

t

140 -

130 _

,r"'f

131.5

.J

120 -

"""1, --\

110 -

'00 - .......~ ...

120 -

.... ....
~

.. -

110-

..

LOUISIANA

,

,•• -,-,=:-r-=.,--,--,..,.::--,1975 I 1976
1977

_

....

130.1i

....·...···./\:'\.... ,,2.6

110 -

~

.

\';'''~~/'J
....

U.S.

120 -

_ II·

130 _

,.~/

\

142.3

". - - - - - - - - - -

1967=100

.:...,.... .VU· I " ,

;-'35.6

TEXAS"
I

MINING

MANUFACTURING

1967_ 100

,".

114.1
112.3

.

. .J \. ..j\.\.

89.3

,--;;:;;-,--;;:;;-,--;;:;;-,.1975
1976
1977

SOURCES, Board at Govarno .., Fad ara l Ra.erva Sy,'am.
Fad aral Re .. rwe Bank 01 Dalla •.

EMPLOYMENT AND UNEMPLOYMENT

PRICES RECEIVED BY TEXAS FARMERS

FOUR SOUTHWESTERN STATES 1
( SEASONAUY ADJUSTED. BY FRB)

1967=100

UNEMPLOYMENT
PERCENT

,~-----------------

--------------------8
8.4_

UNEMPLOYMENT RATE

" ..............

8.2 _ ........... ••

\ ••••• /

./\....•............

8 .29
'" 5.7

-.
-,

8.0 7.8 _

TOTAL EMPLOYMENT

-.,

,.. ,--;:;;;-,--:::::-,--:-:::,-,1975

1976

1977

1. Loul"ana, New Ma.ico. Oklahoma. and Texa ••
SOURCE: Stel. amploym.nl allencle • .

CONSUMER PRICES

'00 _________________

--~'"
LIVESTOCK AND LIVESTOCK PRODUCTS
".-,-----.----,~--r--=:--r_
1975
1976
1977

SOURCE: U.S. Department of Agricultura.

SAYINGS AND LOAN ASSOCIATION ACTIVITY
AND HOME BUILDING IN TEXAS
(SEASONALLY ADJUSTED. BY FRB)

A WITHDRAWALS·TO·

'00-

II

800-

/I

I,

I I
I

"

1967_100

I

800 -

'00-

- - HOUSTON
U.S •
..... DALLAS

180-

SAVINGS RAno

I
I I

713

I

\

>00-

... -,,----,C.C,C,----.----,C.C,C.----.----,C.C,~,----r­
TIiOUSAND

"---------.,----------

,s.,-~~-,--~~-r_~~-_,_
l!i175
11176
1977
SOURCE: U.S. Bur.au of Labor St.II. ,ic •.

:=,,;;;;iii1~liiiilllllllll··'
I

l!i175

r

l!i17B

I

1!il77

SOURCES: Bu... u 0' Bu,'ness R.... rCh. Unlv... ity at Teus.
Fad.ral Homa Losn Bank 01 Utlla Rock.

,.
..
..
..

CONDITION STATISTICS OF ALL MEMBER BANKS

RESERVE POSITION OF MEMBER BANKS

ELEVENTH FEDERAL RESERVf DISTRICT
(CUMULATIVE CHANGES)

ELEVENTH FEO£RAL RESERVE DiSTRICT
(MONTHLY AVERAGES OF WEEKLY DATA)

BILLION-DOLLAR CHANGE

MILLION DOLLARS

.~----~~-----------------

.-

LOANS

". -

,,

3-

,-

,-

,/

HI16 . "
;

11111......

~

_ -::-:" '"

__ ......

... """" ... ""

~."::.........

11115

-_
..'

3
--------------------___________
11111

.--------~----------------TIME DEPOSITS

...........

-

<,...."",
.......... .

... _~~~6....

11111

:

_ 50 _

~

:

\./

LOANS AT WEEKLY REPORTING BANKS
ELEVENTH FEDERAL RESERVE DISTRICT
(CUMULATIVE CHANGES)
MILlION·DOLLAR CHANGE

BOO :.....:.:.::.:...:..:...:..:-'-'-------------------

BUSINESS LOANS

'00-

".,..--::.::::-.::-.::-.::-.::-.:':':::.::::-..;,,;; ....

BILlION· DOLLAR CHANGE

3----------------------------,-

<;"

-'00 -.---::-:::---.--'-=::-,,1---=::---r
' 1911
11115
11116

.--',-;~r---.,,--r,-,,--r,-,,--r,-,--r--,--r-,-".

,-

:

: ': f·..,f

_::::-::::::=-' :':'::':"::'~;;::-:·"'-"'-'::'··::::'-li1e---­

.---·"'"t·"";i"'-r'-'--r--'--r-'--r--'--r-'-'~ "
·

,,-

'~=~MFRB

.....................

BIUION·DOUAR CHANGE

3-

'\ EXCESS RESE:VES BORROWINGS

./

BILLION-DOLLAR CHANGE

INVESTMENTS

,

....,

~r ··- i i i ··"'.1.. ··I ·· ·· ··", " r" " ,--r-,-·· ·· ·· i " "
" "
o --"" ··" ··'--r--,-·" I ··",""Cr"i"""iCi i

,,-

'00

DEMAND DEPOSITS
-1911

-1977
_---_..

_ ...... - - -

___ --...
1916.. ..

--;.~.;>
...............;---

...:;.-----_
----------

........

•••••••••

HI15

-'00 ---,r-r-.-,--,--..,--,--r-r""""T-,-,r
MIUION-DO LLAR CHANGE

'00-

•

• --~&-:"C'·C"'~~"""""·,,'<..,~"O"·O":c==;;-~'------...... .. ...........
....
1916

,-

. - __~"~;-.-.-.-c:c., ,-O<~"·~'"" c c ,," o ..o o •••----"--.L-. ... . . " " " " ~
.... .. "O.. ,,o .. "o"

'00
11115

,,
... ....

CONSUMER LOANS
-

1911

~::::7:::-.,;,.."'M""'.7.... --

--- --

-- .....__.

_-- 1916

1975 ........................ ..

....................... .

-,---,-,--,--,--,--,--,--,--,--,--',-,
iii
iii
iii
iii
JFMAMJJASOND

-IOO---",--r,-,,-,,--,,--r,-,,-,,;--,r--r,--,,--,,;-

BUILDING CONTRACTS

FOREIGN TRADE

FOUR SOUTHWESTERN STATES I
(SEASONALLY ADJUSTED. BY FRB)

HOUSTON CUSTOMS REGION
(SEASO NALLY ADJUSTED, BY FRB)

BILLION DOLLARS

BILLION DOLLARS

U---------------------------

JFMAMJJASONO

..,

1.5 _

1.3 1.1 _

EXPORTS

•
I \"...-" .1.15
'
1.13

~
I, (\ IJ

I

; I

\ I

.9 - \

\

.1 -

' .. -,

I , I

,/'V

'

'If IMPORTS

.5 _

.• -,---=--.--:=--.----:::::---r
11115
HI16
HI17

1. Loui.l,nlll. New Medco, Okllllhom •• , nd Tu ...
SOURCE: F. W. 00011'. McGr, w-HILI. Inc.

SOURCE: U.S. DeplIIrtm, nl of Commerce.

struction financing. Moreover, a
strong savings inflow is expected to
continue throughout 1977.
The increase in liquidity has
helped reduce mortgage rates
slightly, as evidenced by the small
decline in effective interest rates on
new-home mortgages in late 1976.
The average conventional rate
eased down to 9.31 percent in the
Houston-Galveston SCSA in
December 1976 and to 9.13 percent
in the DaUas-Fort Worth SMSA.
The higher rate for the HoustonGalveston area reflects the greater
demand for mortgage loans as a
result of more intense construction
activity there. While mortgage
rates are not likely to drop significantly from current levels, even
a modest decline would provide
an additional stimulus to home
building.
OTHER HIGHLIGHTS:

• Preliminary figures show the
Texas industrial production index
fell slightly in January from the
upward revised December level but
was 4.5 percent above a year earlier.
The decline centered in durable
goods manufacturing, as nondurable goods production and mining
output posted. solid gains.
Production declined sharply in
all major durable goods industries.
more t han offsetting an increase in
nondurable goods production to
account for the overall drop in
manufacturing output. The gain in
nondurable goods production was
led by the chemical, petroleum
refining. food processing, and
apparel industries.
Increased drilling activity and
crude oil production accounted for
the rise in mining output during
January. However, the increase in
crude output should not be interpreted as a significant departure
from the long-run decline in oil production.

• According to the University of
Texas at Austin, the number of new
manufacturing plants constructed
and expansions of existing factories
in Texas declined 6 percent in 1976
from the previous year. That,
however, was smaller than the 23percent decline in the number of
new plants and expansions recorded
for 1975. A turnaround in the
number of new factories built this
year may be in the offing. McGrawHill has indicated the dollar volume
of new plans for manufacturing
plants in Texas in 1976 was the
highest for any state. with new
plans in New Mexico and Louisiana
ranking second and third.
• The sharp increase in total
employment in the four southwestern states that began last September carried into January. Total
employment that month was up 0.4
percent from December and 2.9 percent from a year earlier. The unemployment rate decreased to 5.7 percent in January from 5.8 percent a
month earlier.
Nonagricultural employment
continued its strong advance in
January. The biggest gain was in
contract construction, while the
only decline was in the service cate·
gory. The increase in manufacturing jobs was led by the nondurable
goods industries.
• Data from a sample of large commercial banks in the Eleventh District reveal that the volume of
commercial and industrial loan commitments has increased substantially since last fall. The increase reflects strong gains in both used and
unused commitments. whereas in
the past a rise in used commitments
was usually accompanied by a
reduction in unused commitments.
In general, the gain in unused.
commitments can be attributed to
adoption of more aggressive lending
policies by banks. District banks
apparently have stepped up their

marketing of commitments because
continued strong growth in liquidity has sharply exceeded the growth
in loan demand.
• Total bank credit at member
banks in the Eleventh District rose
sharply in January as both loans
and investments increased. Despite
a slight reduction in loans to businesses, total loans expandedprimarily as a result of continued
strong growth in real estate and
consumer loans. The banks
acquired a sizable volume of U.S.
Government securities as substantial net deposit inflows-particularly of time and savings depositscontinued to exceed the increase
in loan demand.
• The value of nonresidential building contracts in the four southwestern states rebounded sharply
in January from the December setback. Ali a result. total building
contracts recovered to the Novemberleve!.
• The Houston consumer price
index for January was 0.9 percent
more than in October 1976 and 6.6
percent higher than in January Last
year. The increase over October was
largely due to higher prices for
food, housing, and medical care. A
decline in prices for women's and
girls' clothing, especially winter
items, accounted for the lower cost
of apparel and upkeep.