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Federal Reserve Bank of Dallas

Business Review
--"1

•

MORTGAGE
p

-~-

......

Purchasing-Power MortgagesNew Loan Plan Offers Hope in an Inflation
Industrial ProductionChanges to Texas Index Present DiHerent Picture

) September 1975

Manufacturing CapacityNew Texas Index Assesses Utilization

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

Purchasing-Power Mortgages-

New Loan Plan Offers
Hope in an Inflation
The housing sector of the American economy is very susceptible to
the deleterious effects of inflation.
This vulnerability exists because
mortgage markets are poorly
designed for allocating credit to
housing in an inflationary environment.
A basic problem is the specialization of major mortgage institutions in lending to long-term
markets with funds borrowed
through short-tenn time and savings deposits. This, coupled with
the underestimation of the longtenn rate of inflation, has resulted
in the average return on mortgage
portfolios rising slower than the

market cost of short-term funds.
Mortgage specialists have been
dependent on regulated interest
ceilings on time and savings
deposits to moderate this squeeze
on their earnings. But when shortterm market rates of interest rise
above these ceilings, funds are
diverted from mortgage markets
through disintermediation.
Many proposals have been put
forth to help eliminate this problem, including the authority for
mortgage lenders to diversify their
assets and extend the types of
deposits they offer. But the continuation of inflation may call for
a change in the mortgage instru-

Inflation raises payments relative
in early years of mortgage

to income

28 PERCENT------------------------------------

HYPOTHETICAL PAYMENT-INCOME RATIO
FOR A FAMIL.Y IN AN INFLATK)NARY ENVIRONMENT"

HYPOTHETICAL PAYMENT-INCOME
RATIO FOR A FAMIL.Y IN A
NONINFLATIONARY ENVIRONMENT-'

12 -

84-

o

,

,

,

o

5

10

15
20
YEARS EL.APSED

,

25

30

'A .. ume. g·pereent mortg.ge, with w.ge. growing 9 percent .nnuelly.
., A.. umllll 4 - pereent mortgage, with w a ge. growing 4 percent a nnu.lly.

Business Review I September 1975

ment itself, if mortgage markets
are to efficiently allocate resources
to housing.
The standard level-payment
mortgage provides a means of
financing housing primarily out of
current income, which is necessary
for the majority of families to own
homes. But it is not well suited to
financing housing in an inflationary environment. When new inflation is expected, the upward
adjustment in payments on new
mortgages can be much faster than
wage or salary adjustment, making it more difficult for an increasing
number of families to buy homes.
The purchasing-power mortgage
has been proposed as a possible
solution to this problem. The
instrument has both advantages
and disadvantages for the home
buyer, as well as consequences for
the solvency and liquidity of lending institutions.
Tbe financing gap
Incomes of families borrowing to
buy a house are normally expected
to rise over the years, making
early instahnents on fixed or levelpayment loans a greater burden
than instalments paid later as the
loan matures. This higher real cost
of making mortgage payments in
the early repayment period is
referred to as a financing gap.
Financial adjustments made in
anticipation of new inflation can
increase the gap. since Joan payments tend to be adjusted upward
faster than most family incomes.
Inflation depreciates the purchasing power of principal and interest
on a loan outstanding. Therefore,
when a lender makes a level-payment mortgage loan and expects
1

prices to increase, he will want to
include a charge in the interest
rate to compensate for these losses.
Borrowers, on the other hand, tend
to accept the extra charges for
much the same reason. They expect
the price of the housing asset being
financed to increase. Consequently,
market-determined mortgage
yields are adjusted to forecasts of
inflation, resulting in relatively
large increases in payments on
new loans.
Suppose, for example, that the
inflation-free-or "real"-rate of
interest is 4 percent but prices are
expected to increase an average of
5 percent annually in the foreseeable future. Adjustment for this
inflation would raise the nominal
interest rate on long-term loans
from 4 percent to 9 percent. For a
level-payment mortgage with a
3D-year term and $30,000 principal, this would, in turn, pUBh payments on new loans almost 69
percent higher.
Usually, the adjustment in family incomes due to in:tlation is more
gradual. Suppose that each year,
wages and salaries tend to be
adjusted by an extra amount equal
only to the rate of inftation-5 percent in the above example. If mortgage payments on a new loan
would have initially taken 15 percent of a person's income in the
noninflationary environment, the
more rapid rise of payments than
income in anticipation of inflation
increases the ratio to 25 percent.
If inflation actually developed. as
originally anticipated, subsequent
adjustments to wages would reduce
the payment-income ratio faster
than in the noninflationary environment. But the ratio remains
higher in the inflationary environment for a considerable period-12
years in the example used here.
To avoid a higher financing gap
between initial payments and
income, the maturity of the mortgage can be lengthened or more
2

downpayment can be provided.
Nominal payments on the 9percent, 3D-year loan could be
maintained at the level for the
4-percent mortgage if another
$9,545 were paid down to reduce
the principal.
But most families have trouble
accumulating enough transferable
wealth to make large downpayments. And mortgage lenders are
reluctant to increase loan maturities without larger downpayments to protect them against
defaults. Consequently, for many
families, the increased financing
gap resulting from inflation precludes the purchase of a home.
And for those that might still be
able to afford a house, the gap
may restrict the size and quality
of the house they can buy.

By requiring only interest payments, such mortgages offer borrowers substantial reductions in
payments during the first few
years of the loan. But because
payments suddenly jump at the
beginning of the sixth year, many
borrowers would, no doubt, be Ws4
couraged from using the plan-if
lenders offered it.
In addition, the relative cost
advantage to the borrower under
this plan declines as the mortgage
yield and tenn increase. With the
30-year, $30,000 loan example,
payments in the early years of such
a contract with a 4-percent yield
could be as much as 31 percent
below those on a level-payment
mortgage. But if the yield were 9
percent, the maximum possible
reduction would be only 7 percent.

A new kind of mortgage

Purchasing-power mortgage

The severity of recent inflation
has created interest in finding a
mortgage instrument better suited
to an inflationary environment
than the standard level-payment
plan. The new instrument would
have to protect the lender from
depreciation of principal and interest due to inflation. At the same
time, it would have to provide a
closer match between the level of
payments over the life of the loan
and the level and pattern of income
of the borrowers. Both requirements could be met with a mortgage incorporating a flexible
payment schedule.
A step in that direction was
taken in February 1974, when the
Federal Home Loan Bank Board
authorized federal savings and
loan associations to make mortgages with initial payments that
were less than those needed for
level-payment loans. Payments
during the first five years of the
loan need only cover the interest.
Not until the sixth year would the
mortgage have to become fully
amortized.

A better adjustment to inflation
can be provided by the purchasingpower mortgage-a mortgage with
an interest rate negotiated in real,
or constant-dollar, tenns. Under
this plan, the loan is amortized.
initialIy at a payment level providing the real rate of interest
agreed on by the two parties. Since
the real rate of interest is less than
the nominal market rate, this plan
reduces the financing gap when
inflation is expected.
Payments, however, would be
adjusted upward for inflation by
linking the outstanding loan principal to changes in an index of
prices. For example, after each
payment, the unpaid principal
would be adjusted by the most
recent percentage change in the
index and then amortized over
the unexpired term of the loanagain, to provide the real rate of
interest agreed on. This increases
payments by the percentage
change in the index. Alternatively,
adjustments could be made less
frequently-say, semiannually or
annually.

Increases in payments resulting
from the adjustment would not be
expected to put an exceptionable
burden on typical family budgets.
Commensurate changes in wages
and salaries generally take place as
inflation occurs, and the adjustment might be calculated to move
with family incomes. Payment
adjustments made this way would
provide payment-income ratios
over the life of the purchasingpower mortgage approximately
equal to those for a standard levelpayment mortgage in a noninflationary environment.
Home buyers may also benefit
from purchasing-power mortgages
if inflation slows during the term
of the loans. Individuals financing
their homes through standard
mortgages when inflation is anticipated are, because of prepayment
penalties, normally locked into
paying an inflation premium.
These borrowers, in effect, pay a
penalty if price forecasts turn out
to be too high. But with purchasing-power mortgages, the borrowers automatically pay a smaller
dollar amount for interest if inflation declines.
An alternative adjustment
scheme for purchasing-power mortgages maintains the mortgage payment at a fixed level while allowing
the maturity of the loan to vary.
Under this arrangement, a larger
portion of the payment is allotted
to repayment of principal if prices
fall, so the mortgage might be paid
off sooner than originally planned.
On the other hand, if prices rise,
a smaller portion of the payment
goes to repay the principal and the
maturity is extended.
If prices rise fast enough, it is
even possible that the interest
charge will exceed the payment,
so the loan might never be fully
amortized. This drawback to a
price-adjusted mortgage with a
variable maturity reduces the
chance of its acceptance. ThereBusiness Review I Septflmber 1975

the purchasing·power mortgage
will continue to increase through
the 15th year. At that point, it
will exceed the balance on the
The borrower's net worth _..
standard loan by $16,000. The dif·
The flexible payment schedule pro- ference begins to decline thereafter,
but the debt remains higher on
vided by purchasing-power mortthe purchasing-power mortgage
gages can yield substantial economic benefits to home buyers. But until it matures.
these benefits can only be gained
This characteristic also detracts
by giving up some of the economic
from the purchasing-power mortadvantages and familiar features
gage from the lender's point of
of fixed-payment loans.
view, since he has less protection
Since the unpaid principal can
against the risk of default. To
increase after the loan is conreduce this risk, lenders are apt to
tracted, implementation of this
require larger downpayments,
type mortgage would require
which would prohibit the very fam~
modification of current legal conHies needing purchasing-power
cepts of debt and usury. Moreover, mortgages from using them. Howthis characteristic detracts from
ever, if an insurance program to
the economic benefits of the purcover the possibility of default
chasing-power mortgage, because
could be established, lenders might
it can result in a temporary reducrequire smaller increases in downtion in the borrower's wealth-or
payments.
net worth.
The problem of a temporary
The net worth of a buyer financ- decline in net worth could be miti~
ing the purchase of a home depends gated by shortening the maturity
on the difference between the
of the loan. If the term of the loan
market va1ue of his house and its
in the example were cut to 20
remaining mortgage liability. This years, initial payments would still
same difference also determines
start 24 percent less than the level
the realized gain in his liquid
payments on the 9-percent, 30·year
wealth, which can be applied to
mortgage. And they would remain
the purchase of another residence
lower for six years, even if prices
if the home is sold.
rose 5 percent a year. The unpaid
Suppose a buyer needing a 30principal would still rise, but, in
year, $30,000 loan to finance the
this case, the increase would be for
purchase of a house could choose
only eight years, instead of 15. At
between a standard level-payment the end of eight years, it would
mortgage and a purchasing-power
exceed the balance on the 30-year
mortgage. The level-payment mort- standard mortgage by only about
gage is offered at a constant 9 per$3,700, instead of $16,000.
cent. Payments on the purchasingThe slower the rate of inflation,
power loan begin at 4 percent
the smaller is the disadvantage of
interest but have to be adjusted
the purchasing-power mortgage.
every year for price changes. SupAnd if prices remained stable over
pose that, over the course of the
the mortgage term, the unpaid
loan, inflation causes annual
principal on the loan would decline
increases of 5 percent.
with each payment, just as with a
If the buyer picks a standard
standard mortgage. But as the
mortgage, he can look forward to
overall likelihood of an impingethe unpaid principal on his loan
ment on homeowners' net worth
being reduced every time he makes would be greater than with a stana payment. But his liability under
dard loan, many buyers would still

fore, the remainder of this discussion will be limited to fixedmaturity mortgages.

a

In an inflationary environment, the purchasing-power mortgage
allows lower initial payments relative to standard mortgage .. .
6 THOUSAND DOLLARS
6 _

PAYMENTS

-:::::::::::==-.....-:::::::::~~

4
2 _

o

STANDARD MORTGAGE··

i

o

i

5

10

i

i

25

15
20
YEARS ELAPSED

30

... but keeps debt of borrower
higher than with standard mortgage ...
42 THOUSAND DOLLARS
PURCHASING-POWER
MORTGAGE'

3018 _

STANDARD MORTGAGE"

~~______~U~N~P~A~ID~P~A~IN~C~IP~A~L~____~r-____::::~~____
o

5

10

15
20
YEARS ELAPSED

25

30

. .• and reduces initial cash flow to the lender
560 THOUSAND DOLLARS - - -- - - - - - - - - - - -- -

400-

CASH FLOW' · '

240 -

PURCHASING·POWER
MORTGAGE "

80-

o __-~~
o
5

10

15
20
YEARS ELAPSED

25

30

'Ass umes the l oan is for $30.000 and mature s In 30 yee,s. Initial payments
b egin at a " re al " rale of interest t aken to be4 percent. Sub se quent p ayments
ar e increll s ed 5 percent a t th e end of ellc h ye ar.
"Assume s t h e 10lln is for $30,000 li t 9 percent inter e st and mature s In 30 year s .
"'Assumes payments a, e reinve sted In t h e Ide ntical morigageiorm at the
o,lglna l telms .

4

not be satisfied with purchasingpower mortgages .
. . . and uncertainty over payments
Another disadvantage of purchasing-power mortgages lies with the
uncertainty surrounding future
mortgage payments. The possibility that payments might increase
without offsetting increases in
family income creates a risk many
people would want to avoid.
Indeed, in early experiments
with purchasing-power mortgages
abroad (in Israel, for example), a
large number of defaults occurred
because of sudden increases in
payments. But these failures are
largely traceable to the improper
selection of linkages, such as
indexes linked to foreign exchange
rates or construction costs, that
often diverge widely from movements in wages and salaries.
The discomfort arising from an
unknown future mortgage obligation can be assuaged by administering an index that is closely
correlated with family incomes.
Moreover, alternative indexes
might be administered for different
occupational groups to provide
additional insurance against
adverse changes in payments that
might encroach on family incomes.
But since some families would still
be unwilling to accept a mortgage
where the dollar cost of future payments is unknown, the purchasingpower mortgage is not for everyone.
Graduated-payment schedules
The purchasing-power mortgage
might be combined with features
of a graduated-payment mortgage
to offer flexibility in the payment
pattern while eliminating the
uncertainty over the level of future
payments. With a graduated-payment mortgage, a definite payment
schedule is decided when the loan
is negotiated, like a standard
mortgage. But payments might be
scheduled to start low and gradu-

ate upward as the loan matures.
Or they might start high and
decline over time.
Like a standard mortgage, the
loan is negotiated in advance to
provide a nominal yield over the
life of the loan, incorporating an
inflation premium based on the
outlook for prices. If the forecast
is correct and payments are scheduled to start low, characteristics of
the loan will be identical to a purchasing-power mortgage. But the
future dollar cost of payments is
predetermined by the yield requirement, so it is known in advance.
Suppose the yield to maturity
on a standard mortgage is 9 percent. A graduated-payment mortgage with a 9-percent yield to
maturity could be designed with
an initial payment beginning, for
example, at the 7 -percent level.
This would require subsequent
payments to increase each adjustment period by 2 percent. Alternatively, if the initial payment
were negotiated to begin at 4 percent, subsequent payments would
be scheduled to increase 5 percent
each period for the loan to provide
a 9-percent yield to maturity.
Graduated-payment mortgages
can reduce the financing gap and
still allow the future dollar costs
of payments to be known with certainty. But they do not reduce the
uncertainty that future payments
could move adversely against family incomes. If the forecast of inflation incorporated into the mortgage yield is too high, family
income will not keep up with the
increasing mortgage obligation.
Similarly, the problem of a
reduction in the home buyer's net
worth can be more severe with a
graduated-payment mortgage than
with a purchasing-power mortgage.
This is because of the tendency
for home prices to move apace with
general price changes. The inflation
forecast embodied in the graduated-payment schedule determines
BuBin. . Review I

Sep~

1975

the increase in indebtedness during the early years of a loan. But
if the forecast is too high, home
values may not keep up with the
mortgage liability. Purchasingpower mortgages avoid this possibility by providing for changes in
principal to be determined by the
inflation that actually occurs.
Instead of relying on either the
graduated-payment mortgage or
the purchasing-power mortgage,
it might be better to utilize an
instrument that combined features
of both. Since the purchasingpower mortgages do not depend on
price forecasts, they can provide
protection against deterioration in
the borrower's payment-income
ratio. But to reduce the uncettainty of future payment levels,
graduated payments oould be
scheduled over short periods-as
for example, the three-year interval
corresponding to many union wage
negotiations.
The graduation in payments
over each period could be determined by the differential in the
current nominal yield on a comparable level-payment mortgage
and the real rate of interest negotiated at the time the purchasingpower mortgage was issued. This
differential approximates the market forecasts of inflation embodied
in the nominal yield.
Suppose a mortgage was negotiated with payments beginning at
a real rate of interest of 4 percent
and that the yield on comparable
level-payment mortgages with the
same principal and term was 8
percent. Payments on the purchasing-power loan would increase over
the first interval at an annual rate
of 4 percent. If at the end of that
interval, market yields on new
level-payment mortgages have
declined to 6 percent, payments
over the next period would increase
only 2 percent.
Adverse changes in the paymentincome ratio can be avoided if the

adjustment interval is not too
long-the shorter the forecast
period, the more accurate market
predictions of inflation tend to be.
For the same reason, fairly frequent adjustment will protect
lenders against depreciation in
the value of principal and interest
due to inflation.
Impact on lender's profits •••
Purchasing-power mortgages are
designed primarily to enable more
families to buy housing. To do
that, however, these mortgages
must also satisfy minimal lender
requirements for safety,liquidity,
and profitability. Opportunities for
mortgage lenders to improve profits
in an inflationary environment are
generally increased by this type
mortgage.
Many problems in mortgage
markets today can be traced to the
specialization of mortgage lenders
in borrowing short to lend long.
Their profits come from the difference in interest revenues on mortgage assets and interest expense
on short-term deposits. It is fairly
easy in a noninflationary environment for a mortgage specialist to
maintain a satisfactory margin,
since long-term rates are usually
higher than short-term rates to
compensate for additional risks of
capital losses.
But the task of maintaining
profitable operations for this type
of financial intermediary becomes
more difficult in an inflationary
environment. Both short and longterm yields embody a market
forecast of inflation. Long-term
forecasts have tended to underestimate inflation. On the other
hand, market forecasts are more
accurate for short periods.
So, portfolios heavily weighted
with mortgages issued when prices
were relatively stable have not
provided adequate revenues to
offset the rising cost of short-term
funds in a prolonged and accelerat5

ing inflation. Laws and regulations
that suppress yields on newly
issued mortgages have made the
pinch on profits even more severe.
Under these circumstances,
mortgage specialists have remained
solvent only because competition
for short-term funds has been partially eliminated by the imposition
of regulated interest ceilings on
deposits placed with financial intermediaries. But this arrangement
has an adverse effect on both borrowers and lenders when cyclical
pressures push money market
yields above the ceilings intermediaries can pay. diverting funds
from mortgage markets through
disintermediation.
Since purchasing-power mortgages do not incorporate a longterm forecast of prices, adoption
of this type mortgage could eliminate the threat to profits from
unanticipated inflation. If all
investments in mortgage specialists' portfolios were compensated on the basis of current price
changes, prospects of these lenders
for profitable operations during an
inflation would be improved considerably. That, in turn, would
go a long way in enabling them to
compete more freely for funds,
allowing the abolishment of interest ceilings on time and savings
deposits-a major source of trouble
for the cyclical liquidity of mortgage lenders.
_.. and liquidity
Together with expansion of deposits, sale of mortgages in secondary markets is another source of
liquidity for lending institutions.
The usefulness of this source
depends on the size of the marketwhich. through the support of
federally sponsored credit agencies, has increased significantly in
recent years.
Adoption of purchasing-power
mortgages holds potential for more
progress in expanpmg the size

•

of the market. They could very
likely be well received by investors,
such as retirement and pension
funds, that have a long holding
period and a strong need to hedge
against inflation.
The hedge against inflation
gives purchasing-power mortgages
another attribute in their favor as
a source of liquidity in secondary
markets. This type mortgage gives
a seller some protection from capital losses resulting from inflationinduced increases in market yields.
Secondary sources of liquidity
are usually needed to meet loan
demand when aggregate economic
activity is strong and interest rates
are rising along with other prices.
When a level-payment mortgage
that was issued at a lower market
yield is sold under these circumstances, the seller has to accept a
price below book value to match
current yields.
But payments and nominal
yields on purchasing-power mortgages are adjusted for price
changes. If the rise in market
yields is due to inflation, purchasing-power mortgages can be sold
without loss to the lender, making
more funds available for new loans.
Although these benefits of purchasing-power mortgages would
tend to increase the lender's liquidity, there are initial cash flow problems with setting up a portfolio of
these loans that offset some of the
gains. Cash receipts from returned
principal and interest are a source
of funds for making new investments and covering current liabilities. But since payments on newly
issued purchasing-power mortgages start lower than on standard
mortgages during an inflation, new
portfolios comprised of purchasingpower loans will initially return
fewer funds.
Consider the example of the
30-year, $30,000 mortgage discussed earlier. If prices were rising
5 percent a.yearl the purchasing-

power mortgage equivalent of a
9-percent level-payment loan
would call for initial payment at
the 4-percent level. If receipts
from interest and principal for
these two types of mortgages were
periodically reinvested in the
original forms, annual cash flows
from the standard mortgage would
exceed flows from the purchasingpower mortgage through the 25th
year-cumulating at that point to
almost $46,000.
Thereafter, a substantial advantage would accrue to the purchasing-power mortgage. But the initial
disadvantage in cash flow would
have to be weighed against advantages of purchasing-power mortgages in secondary mortgage
markets and any possible gains
mortgage specialists had made in
attracting deposits.
Conclusions
Society must develop institutional
arrangements to satisfy the needs
of its members. Most households
are ill equipped to amass the
amount of transferable wealth
necessary for acquiring private
housing. Thus, long-term amortized mortgages evolved as a means
of financing the purchase of such
assets out of anticipated income.
But these loans were developed
in a noninflationary environment,
and the inadequate adjustment
they make for inflation can result
in a large financing gap, raising a
serious obstacle to homeownership.
Similarly, mortgage lending
specialists have provided an important social service by amassing
huge amounts of funds through
thrift markets to finance housing.
But they do not function efficiently
in an inflationaty environment,
largely because their mortgage revenues are dependent on the difficult
task of correctly forecasting inflation over long periods. They have
remained viable only as a result of
regulated interest ceilings that

have muted price competition on
deposit liabilities. And as a consequence of these interest controls,
they experience periodic losses of
funds through disintermediation.
Purchasing-power mortgages can
help home buyers by providing an
efficient adjustment to inflation
that reduces the financing gap.
Since the revenue-earning capacity
of purchasing-power mortgages
does not depend on long-term forecasts of inflation, they can also
enhance the ability of mortgage
lenders to attract and retain funds.
This can benefit both borrowers
and lenders.
But purchasing-power mortgages
have disadvantages. The home
buyer accepting a purchasingpower mortgage faces the probability that both his payments
and debt will increase for a time.
Lenders may face initial cash flow
problems in adopting such mortgages, as well as greater risk from
default. So, although the purchasing-power mortgage offers hope in
an inflation, it is not for every
borrower or lender.
-William R. McDonough

Business Review I September 1975

7

Industrial Production-

Changes to Texas Index
Present Different Picture
The Federal Reserve Bank of
Dallas has revised its Texas industrial production index, adding new
benchmark data and making technical improvements.
The monthly index, first developed by this Bank in 1953, is
designed to measure the state's
output in manufacturing, mining,
and utilities, which account for
between a third and a half of the
state's gross product.
The 1972 Census of Manufactures and the 1972 Census of Mineral Industries provided new
benchmark data for the series.
Since the previous revision in
1971-which used 1967 census
data--errors in estimating industrial output had accumulated.
Three revisions upgraded the
index:
• Industry weights were recomputed to show shifts in the composition of the state's industrial
production.
• Productivity factors were eliminated since, over time, they
had given an upward bias to
the index.
• A production function that
affords variability in the capitallabor ratio was introduced.
The revised index shows a pattern in the state's output in recent
years somewhat different from that
shown by the old index. After
1969, the new index consistently
falls below the old index. And
where the old index was stable during the March 1970-March 1971
period-a period of recession in
Texas-the new index indicates
production declined moderately.
The revised index also dates the
current recession in the state from
June 1974-five months earlier
8

than the old index. And the index
shows that declines in manufacturing output since then have been
larger than previously reported.
State economy strengthens
Even with its downward revision of
output, the new index shows that
Texas industrial production has
been strong in recent years. In the
late 1960's and from mid-1971 to
early 1973, growth trends were significant. And the impact of the
1969-70 recession was decidedly
less severe for Texas than for the
nation as a whole.
The Texas index shows the
state faring well in comparison
with the nation, as depicted in the
index of industrial production prepared by the Board of Governors
of the Federal Reserve System. In
May 1975, the national index was
at 109.6 percent of its 1967 base.
But the state index was at 120.6
percent, meaning that from 1967
to May 1975, the gain in production in Texas outpaced the gain in
the nation by 11.0 points.
Industrial production in Texas
has increased despite declines in
crude petroleum since 1972. Exclusion of mining and utilities from
the index, in fact, shows that from
1967 to May 1975, the increase in
manufacturing output in Texas
outpaced the increase in the nation
by 16.1 points.
Changes in data •• •
Since new benchmark data were
available, weights were redistributed among industry groups.
Weights were assigned according
to the contribution of each industry group to the total value added
by all industries in 1972.

Proportions of total output for
each major industry group-manufacturing, mining, and utilitieschanged littJe. But substantial
shifts occurred. within the groups.
In manufacturing, for example, the
contribution of chemicals and
allied products increased sharply
while the share for transportation
equipment decreased.
As might be expected, the structure of industry in Texas has
changed considerably since 1967.
With its industry weights updated
to the most current data, the index
better represents industrial output
in the state.
••• and methodology •••
The methods used in calculating
the old index have been refined.
Productivity factors had given the
index an upward bias. And the production function had overstated
changes in output.
Productivity factors had been
used to improve the estimate of
output. Ideally, a production index
would be formulated from production data reported by each industry. But because only a third of the
state's industries are able to provide these data on a monthly basis,
proxies for capital and labor inputs
are used to estimate output in
most industries.
For those industries, capital and
labor inputs were derived by combining kilowatt-hours used and
manhours worked with a productivity factor-an estimate of the
increase in output per kilowatthour or output per manhour.
Difficulties arose, however, from
the assumption that productivity
increases at a constant rate over
time, when, in fact, gains are

Revised Texas industrial production index tracks below old index ...
150 PERCENT (1967=100)-------------------------------------------------------------------(S EASONAllY ADJUSTED )

140 -

.... ......... \.",

...........

TOTAL PRODUCTION

.'

OLD TeXAS INDEX ...\

.../ ............... ".

\..

~":

.....

\" ... .

./" ........

130 -

. .. ....../......\ .....
.........\." .../ ....~.\ ...".

120 -

110 -

100 -

.v

90-,------.------r------r-----,------.------r------r-----,------~

1967

1968

1969

1970

1971

1972

1973

1974

1975

SOURCES; Boerd 01 Governor. , Federel Relerve Sy elem
Fedefel Rllierve Benk 01 Den ..

erratic. In a business cycle, productivity increases during recovery
and decreases during recession.
With productivity factors in the
index, then, the state's industrial
output tended to be overstated.
For example, declines in output
during the 1969-70 recession
are shown more clearly by the
new index.
Though both indexes peaked in
January 1970, the old index fell
only 2.1 index points to its low in
July 1970. The new index-which
includes no productivity factorsdeclined 4.8 points over the same
period. The same pattern held true
for manufacturing output. The old
index showed a 2.3-point fall over
the six months, while the new
index posted a 4.7-point drop.
Problems with the production
function, a mathematical equation
used to estimate total output
from inputs of capital and labor,
stemmed from the assumption
Business Review I September 1975

that the ratio of capital to laborkilowatt-hours to manhours-was
constant for each industry. The
assumption proved to be false,
especially in the light of recent
economic developments.
Dramatic increases in costs of
electricity have prompted some
industries to reduce use of electricity even as they maintain levels of
output. Consequently, ratios of
capital to labor have changed.
With the old index, a reduction
in electric power would have signaled a decrease in output-even
though a falloff might not have
occurred. But the new index
accommodates changes in the
input mix, since it uses a production function-the Cobb-Douglas
form-that allows for variability in
the ratio of inputs.
Incorporating a new production
function with variable coefficients
improves the accuracy of the index.
Use of the previous equation had

produced a pattern in the index
where shifts in the direction of output were exaggerated.
•• • produce new perspective
Eliminating productivity factors
and providing for changes in the
capital-labor ratio have produced a
significantly different index, one
that is believed to be superior.
Improvements in the new index
can be illustrated by the change in
output after the Arab oil embargo
began late in 1973. In response
to the oil embargo, industries in
Texas and in the nation as a whole
began conserving electric power
even as they tried to maintain
production.
But where the old index declined
5.8 points from October 1973 to
February 1974, the new index indicated a more moderate downturn,
1.6 points. Since it treated the
input variables independently, the
new index more accurately gauged
9

· .. but shows output in Te xas outpaces production in nation
150PERCENT(1967=100)--------------------------------------------------~----------­

( SEASONALLY ADJUSTED) /./.\ •••••••••• /
•••

140 -

••.••••\.\,•

....~ .......

MANUFACTURING

OLD Te XAS

fN.~E~./..••/

..... .

t·/ ..'
~

130 -

; •••/ ••••••• 1

" .........~.........,',•
:r' ..• ..•••....•.•......

120 (...........

NEW TEXAS INDEX

........./~~-... --\\

110 -

/,,/........

...---".....,,,-" .•/

,' ,/---'"

\

10 0 -

"./';

,

'I

,

U.S. INDEX

90-r-------,r-------,--------,---------r--------r-------,---------,--------r---------r
1967

1966

19 6 9

19 70

197 1

1972

1973

197 4

19 7 5

SOURCES; Boa rd 01 Gov ernor s, Fed e ,a' Reser ve Sys t e m

Fa d,. a ' Re se rva Bank 01 D.....

the effects of energy conservation
on total output.

Several aspects of the Texas
industrial production index
increase its value as a measure of
the state's industrial performance.
Not only is the index a broadly
based indicator of output, but it is
free of inflationary bias. Because
the index is calculated by using
data that are independent of
changes in prices, growth rates in

,.

and levels of production are unaffected by rates of inflation.
The index is a coincident indicator of the business cycle, as measured by total manhours worked in
the Texas economy. Manufacturing employment and output are
generally more sensitive to cyclical
movements than are employment
and output for such sectors as
finance, government, and services.
Movements in the index, therefore,

are attuned to general business
conditions in Texas.
Moreover, since it was patterned
after the U.S. index of industrial
production prepared by the Board
of Governors, the Texas industrial
production index facilitates comparison of the state and national
economies.
-Brian P. Sullivan

Manufacturing Capacity-

New Texas Index
Assesses Utilization
To monitor economic conditions
within the Eleventh District more
closely. the Federal Reserve Bank
of Dallas has developed a Texas
manufacturing capacity utilization
index. The index shows the extent
to which the capital stock of the
state's manufacturers is used to
produce goods.
Just as employment data indicate the utilization of the labor
force, capacity utilization data
show the extent to which manu~
facturing plant and equipment are
being used. A capacity utilization
index complements other economic
indicators in providing an overview
of economic conditions in the state.
For example, such an index
shows the ability of manufacturers
to increase output without adding
to available plant and equipment.
Expansion of capacity is generally
a long and costly process. The
ability to quickly step up output,
therefore, depends on the percentage of idle capacity and, of course,
on the availability of materials
and labor.
Once that percentage becomes
low, manufacturers usually begin
programs of capital expansion. A
capacity utilization index, therefore. gives insight into likely capi-

tal appropriations. The magnitude
of capital expansion, in turn, influences the degree and length of an
increase in economic activity.
A capacity utilization index also
provides clues to probable inflationary pressures. When firms are
near capacity, increased demand
for output is often accompanied by
higher prices. But when capacity
utilization is low, there is greater
opportunity to increase output
without increases in costs and
prices.
Performance in Texas .•.
In the new index, capacity utilization in 1972 was set at 100 percent.
Therefore, in years when capacity
was used more intensively than in
1972, rates of capacity utilization
exceeded 100 percent.
Capacity utilization in Texas
manufacturing has fluctuated
sharply in recent years. Since 1967,
two periods of rising utilization
were followed by periods of declining utilization-showing the business cycle in Texas.
The decline in the index beginning at mid-1969lasted until yearend 1971-about 30 months-coinciding with a mild recession in the
nation as a whole. The decline

resulted from continuous capacity growth during a period when
manufacturing output was relatively stable.
The utilization index then
increased steadily. peaking in September 1973. The slight decline
that followed reflected the oil
embargo in October. Growth
resumed, and in early 1974, rates
of capacity utilization were highthe index was over 100 percent.
But rates began sliding at midyear,
coinciding with the beginning of
the current recession in the state.
The severity of recession is indicated by the decline in the utilization index from 103.0 percent in
June 1974 to 91.6 in June 1975.
The sharp downturn resulted from
a drop in manufacturing output. As
measured by the Texas industrial
production index, manufacturing
fell from 133.1 to 123.4 over the
same period.
•.. and in the natioD
Comparison of the monthly state
index and the quarterly national
index published by the Board of
Governors of the Federal Reserve
System shows declines in capacity
utilization in the past year were
less steep for Texas than for the

Methodologies of indexes
Technical discussions of the methodologies used to compute the Texas industrial production index and the Texas
manufacturing capacity utilization index, as well as historical data for each series, are available free on request
to the Research Department, Federal Reserve Bank of
Dallas, Station K, Dallas, Texas 75222.

Bwiness Review

I September 1975

11

Though the indexe s track at different levels ...

112 PERCENT (1972=100) -------------------------------------------------------------(SEASONALLV AOJUSTEO)

108104-

-./"~./

100- ···· ................... .
CAPACITY UTILIZATION IN TEXAS MANUFACTURING

96-

92-

88,r -----,------,------r------r-----,r-----,------r------r-----,r
1967

1968

1969

1970

1971

1972

1973

19 7 4

19 7 5

both show large shifts in capacity utilization

9 2 PERCENT (1967:100) -------------------------------------------------------------(SEA SON ALL Y AOJUSTED )

88 8480- .
76-

CAPACITY UTILIZATION IN U.S . MANUFACTURING

72 -

68 64-r-----,------,------r------r-----,------,------r------r-----,r
1967

1968

1969

1970

SOUR CES: Boa rd 0 ' Goy erll o rs, Fe de ra l Re nrve S yst em
Fede ral Rese rve Benk 01 Oall ..

12

1971

1972

1973

1974

1975

nation as a whole. This is consistent with lower unemployment in
Texas than in the nation.
Construction of the indexes
varies in several ways. The national
index is supported by more extensive data on capacity. And it uses
a different concept of capacity.
In the national index, full capacity represents the absolute physical capacity of capital stock, where
in the Texas index, it refers to an
optimum rate of production somewhat below the physical limit of
plant and equipment. Consequently, the national index has
never reached 100 percent, and it
consistently tracks lower than the
Texas index. Comparison of the
indexes, therefore, should focus on
movements in the indexes-not
absolute levels.
Declines in capacity utilization
in Texas have been concurrent
with those in the nation. From
mid-1969 to mid-1971, the Texas
index declined 11.7 percent of its
peak level while the national index
fe1114.1 percent of its peak. And
both indexes show that the high
rates of capacity utilization in the
late 1960's have not been regained.
Both indexes reflect the extent
of the current recession. In the
second quarter of this year, the
national index was 20.2 percent
below its peak in the third quarter
of 1973. While severe, the drop in
Texas-the index fell 11.4 percent
from September 1973 to June
1975-was not as large as the drop
in the nation.
Defining full capacity
As used in the index, full capacity
refers to an optimum rate of production that is defined in tenos of
a firm's average total cost-all costs
incurred in a given period divided
by the number of units produced
in the period. If a finn is producing
at low levels, average total cost
is high since overhead costs are
spread among few units.
Business Review I September 1975

AB production increases, average
total cost declines. That is because
some costs cannot be changed in
the short run. These fixed costsinsurance premiums and charges
for plant and equipment, for
example-do not vary with changes
in output. As output rises, fixed
costs are spread over more units of
production, resulting in a tendency
for average total cost to fall.
But increasing production does
not reduce average total cost continually. At some level of output,
average total cost begins to rise
again. At that point, costs are
mounting at a faster rate than output is increasing.
While some short-run costs are
fixed, others vary with changes in
output. Wage costs are variable,
for example, because increased production is generally accompanied
by either increased overtime or
new hirings. When production
increases and more labor is applied
to a fixed capital stock, wages grow
proportionately faster than output does. And at some level of
output, average variable costs will
rise faster than average fixed costs
decline, causing average total cost
to rise.
This level of output where average total cost is minimized-defined
in the index as lOO-percent capacity utilization, or full capacityis detennined by the amount of
capital stock available at a given
point in time. As the capital stock
of manufacturers grows over time,
the minimum point of average
total cost coincides with rising
levels of manufacturing output.
The optimum level can be
exceeded when strong demand
makes it more profitable for finns
to raise output. And weakness in
demand can, at times, link profit
maximization with output below
that level.
Because of the definition used in
the index, capacity utilization, as
measured here, can exceed 100 per-

cent. Consequently, rather than
indicating the absolute level of
capacity utilization, the index
serves as a measure of changes in
capacity utilization.
Estimating total capacity
Because the size of the capital
stock determines the level of output where average total cost is
minimized, these data provided
information on the average annual
growth rate of full-capacity output. Estimates of total capacity are
obtained from the trend growth
rate in the capital stock of Texas
manufacturers.
To assume that capacity grows
at an exact trend rate each year is
unrealistic. As a rule, capacity
grows faster than the trend rate in
prosperous periods and lags the
trend rate during recession and
early recovery.
Therefore, in the late 1960's,
when economic growth was strong
and sustained, capacity may have
been expanding faster than the
trend rate. If so, actual capacity
utilization would have been slightly
lower than the index showed. Over
the course of the business cycle,
however, the trend rate of growth
provides an approximate measure
of the growth of manufacturing
capacity.
Fanning the index
The amount of capacity available
to manufacturers in Texas is
expressed as a percentage of manufacturing output in 1967. Data on
manufacturing output are obtained
from the Texas industrial production index, which uses 1967 as a
benchmark. That is, manufacturing output in a given period is
defined as a percentage of 1967
manufacturing output.
Capacity utilization in Texas
was assumed to be near 100 percent in 1972 for several reasons.
Consequently, that year was set
as a benchmark.
'3

The labor force in 1972 was at
reasonably full employment, as
annual average unemployment was
3.8 percent. The average workweek
in manufacturing-41 hours-was
very near the 1961-71 average,
suggesting that manufacturers
may have been near optimum rates
of capacity utilization. In addition,
the quinquennial Census of Manufactures, which provides the most
current data on manulacturing
value added, was conducted for
1972. For these reasons, therefore,
capacity utilization in 1972 was set
at 100 percent.
To calculate the rate of capacity
utilization, manufacturing output
is divided by the capacity esti-

mate. Thus, actual output-as measured by the Texas industrial production index-is divided by the
estimate of full-capacity output.
To illustrate, suppose that a finn
that produced 1,000 units in 1967
produces 1,200 in 1975. But if the
firm operated at the level that
minimized average total cost
(full capacity), it would produce
1,500 units.
Total capacity utilization for the
firm would be actual output-120
percent of 1967 output-dividecl by
full capacity- 150 percent of 1967
output-or 80 percent.
-Brian P. Sullivan

New member bank

Ellis National Bank, Waxahachie, Texas, a newly organized institution located in
the territory served by the Head Office of the Federal Reserve Bank of Dallas,
opened for business August 25, 1975, as a member of the Federal Reserve System.
The new member bank opened with capital of $300,000, surplus of $300,000, and
undivided profits of $150,000. The officers are: Ralph T. Hoseck, President, and
Jack A. Malone, Executive Vice President and Cashier.
New par banks

King State Bank, Houston, Texas, a newly organized insured nonmember bank
located in the territory served by the Houston Branch of the Federal Reserve
Bank of Dallas, opened for business July 31, 1975, remitting at par. The officers
are: Abraham Beaton, Jr., President; C. R. Stanley, Vice President and Cashier;
and D. L. Ferguson, Vice President.
First Texas Bank, Dallas, Texas, a newly organized insured nonmember bank
located in the territory served by the Head Office of the Federal Reserve Bank of
Dallas. opened for business August 5, 1975, remitting at par. The officers are:
Jack Nunnelee, President; Tom Frazier, Vice President; and Don Johnson, Vice
President and Cashier.
Security State Bank, Stockdale, Texas, an insured nonmember bank located in
the territory served by the San Antonio Branch of the Federal Reserve Bank of
Dallas, began remitting at par August 5, 1975. The officers are: J. H. Bain, Jr.,
President; Frank L. &in, Jr., Executive Vice President; and Corrine B. Robinson,
Cashier.
Cielo Vista Bank, El Paso, Texas, a newly organized insured nonmember bank
located in the territory served by the EI Paso Branch of the Federal Reserve Bank
of Dallas, opened for business August 15, 1975, remitting at par. The officers are:
Walter D. Kleine. III, President; B. Duncan Spillar, Vice President; and Gail S.
Duke, Cashier.

Bwiness Review I September 1975

15

Federal ReseIVe Bank of Dallas

September 1975
Statistical Supplement to the Business Review
Member banks in the Eleventh District have made substantial net
additions to their holdings of
Government securities this year.
The heavy investment in these
issues has stemmed primarily from
weakness in overall loan demand, a
desire to increase liquidity, and
sizable Treasury financings.
In the first seven months of 1975,
member banks increased their holdings of Government securities $677
million, or 30.9 percent, to almost
$2.9 billion. These holdings
accounted for 28.4 percent of the
hanks' investment portfolios on
July 3O-sharply higher than the
23.6 percent of January 1. Moreover, holdings of Government issues
represented 9.1 percent of total
hank credit, compared with 7.0 percent at the beginning of the year.
Total loans declined 1.1 percent
from January through July, as
demand for all major types of loans
was very weak. But the recent
upturn in economic activity suggests that the demand for loans
may firm fairly soon.
To allow the accommodation of a
stronger future loan demand,
member banks are keeping their
investment portfolios liquid. In
recent months, they have generally
limited their acquisitions to short
and intermediate-term securities
and allowed their holdings of longterm securities to decline.
Based on August 1 conditions, crop
production in states of the Eleventh
District this year is expected to
be almost 15 percent larger than
drouth-reduced production last
year. And if conditions remain
favorable, total crop output could
approach the historic level of 1973.
Much of the increase in crop production stems from a record winter

wheat harvest this spring and
expected gains in corn and grain
sorghum. Cotton, rice, and soybeans a:re the major cash crops
expected to fall short of 1974 production.
Reflecting both increased acreage
and sharply higher yields, wheat
product.ion in states of the District
advanced 58 percent over a year
earlier. The largest gain was in
Texas, where output was up nearly
150 percent over the below-average
crop in 1974 and 33 percent over the
crop in 1973.
Output of corn is expected to be
higher than in recent years. Estimated ~lt 131 million bushels-48
percent higher than a year earlierthe corn crop reflects increased
acreage, higher yields (especially in
Texas), and good weather during
the growing season.
The s,ame favorable factors are
expected to boost grain sorghum
output considerably. Although lagging the 1973 crop by possibly 7 percent, gr,ain sorghum production this
year could be a fourth higher than
in 1974.
Cotton production in states of
the District is projected to decline
slightly from the year-earlier level
and to fall substantially below 1973
output. Yields per acre are expected
to increase, but fewer acres were
planted to cotton this year. However, output in Texas, the main
cotton-:producing state in the nation,
could be up as much as 25 percent.
Rice production is estimated to
decline slightly this year. Although
little change is expected in yields,
the acmage planted to rice this year
was sm-aller.
Output of soybeans is projected.
to be about 9 percent lower than in
1974. Despite acreage increases of
34 perCl~nt in Texas and 5 percent in

Louisiana, significantly lower yields
will limit production in both states.
Other highlights:
• Total credit at weekly reporting
banks in the Eleventh District in
the four weeks ended August 20
rose considerably more than in
comparable periods of the past five
years, as banks again made sizable
net additions of Government and
municipal securities. Total loans
declined, even though business loan
demand was stronger than usual for
the second consecutive month.
Demand from most other types of
borrowers remained weak.
• New car sales in the Eleventh
District increased rapidly this summer. New car registrations, seasonally adjusted, in the four largest
metropolitan counties in Texas rose
10 percent in July. That gain came
after a 16-percent advance a month
before. Dealers say announced price
hikes for 1976 models triggered the
recent surge in sales of 1975 models.
Department store purchases
remained sluggish, however, as seasonally adjusted sales in the District rose modestly from mid..July
to mid-August after declining
slightly in the previous four weeks.
• The seasonally adjusted Texas
industrial production index rose
over 10 percent, annual rate, in
July. After declining from June
1974 to March 1975, output in the
state has trended upward, with
petroleum refining and production
of chemical products pacing the
recovery.
• Cash receipts from farm and
ranch marketings in states of the
Eleventh District in the first half of

(Continued on back page)

CONDITION STATISTICS OF WEEKLY REPORTING COMMERCIAL BANKS
Eleventh Federal Reserve Distri ct
(ThOusand

dolla~)

ASSETS
Federaltunds sold and ....,ur~ ... pu'croa..&<!
unae, _g,_nu to r.ell
O1her lOIns and diKOunts , gross
Commercial and ,nduSlrialloa",
Agricu ltural I"""" • • ctuding CCC
Cer1i1icat., 01 inte rest
Loa"" to broko!<s and deale'" 10<
purchaSing 0' carrying
US, Oovernm..,1 """urltl••
Other """ .... ities
Other lOa"'1O< purchasing 0< ca"y;ng'
US, Gov.. nme m s$Cu ,ilies
securilies
Lo .... 10 nonba nk fi ... nc,all ... trtullon.,
Sales linan<;e, pe<""nallinance, laClors,
and other buoi ...... c,edil comp.anles

..

01f>",
~

Real eSla l. lOans
Loan, 10 do ..... lic commerciall)ankS
Loan. 10 loreign bankS
eo ... u ....., in. I. I..... nllOans
Loans 10 1or000gn gO¥ernmenls, ollielal
inslltubons, cen". 1 blinks, and internaliona l
in'lllulions
Other 1OItI.

TOIalln~'lments
Tolal U S GO¥.rn"",nl """uritles
Treasury blHs
Tr.asury ""nifiealUOI indebtedness
Trusury notes and U S Oo.. rn ..... nl
bonds """uring :
Within 1 year
~.'105~a~
A.l1er5~ ~

1

OIlIigalOOM ol.tales and pOlilical subdivisions,
Tax wa"anl! and shon-tlflfm nol" a nd bill.
A.lloth. '
Othlflf bonds, corpO'al' stocks, .nd Heurilies:
c.."ilical ... fepreHnling paniclp.ali<>ns In
I_ral agooncy loans
A.l1 othe' (including corporal. stockS)
Cash items in process 01 colleclion
R....""'" W~h Fed ...1~ Bank
Cur.. n<;y and coin
Balances w ith I)ankS in tt>e United Sial"
B aiancas W~h blinkS In torfHgn counlr\eS
Othlflf a sse1s (inCluding I.-s!mlflfll' in 'ubsldi~ries
nol consolidaled)
TOT A.l A.SSETS

Aug 20,
1975

July 23,
1975

AU~ 14 ,

1,~oo,825

1 , ~O,813

A.u~ 20,

10,419,539

'"

'"

5,034, 136

197,309

191,666

'00

31,727

'00

1,018
364,221

1,077
370,980
175,810
537,953
1,512,011
62 ,237
88,608
1,109 ,860

1.9 76
5.106,011

1,958
1,312 ,113
. ,919,481

1,595,299
331 ,915

H81 ,053
306,i48

907,427
11,519

"

"

"

"

248,472
842,2 17
172 ,695

225,960
800,9911
141 ,141

241,007

112,110
2,965,639
11,4~

286,53.
1,467,528
1,107,618
139,8&4
505,2M
92,567

9,484
289.567
1,469,271
943.369
IJO.165
425.571
30, 105

1,113,637

1,103,712

882,200

21,460,388

21.367,784

20,053.036

20,053,036

..

DEMAND DEPOSITS

,

13,259
13,809
13,634
13.140
13,681
13,843
14.351
14, 180
13,956
14,114
14,241

June
July

14.333,
14,501

...

M.,c~

dol l ~rSI

Ju ly 30,
1915

J une 25,
1975

July 31,
1974

21,573
2,861
1,236
1,705

21,531
2 ,658
1,424
1,643

--

1~.106

A.dl .... ted '

TI"'E DEPOSITS

"'
'"
'"
'"
,
'"
roo
'"
""

..

,~

,~

'"
,~

"',
,~

Total

S.vinO$

13,396
15.442
15,509
15,$1'16
15,71.
16.016
16,171
16,842
17,052
17 ,177
17, 196
t 7,303
17,2 13r
17,315

G""e<nm..,1

9,567
10.056
9,988
9,973
9,976
10,148
10,355
10.353
10,245
10,3-09
10,572
10,374
10,529,
10,698

2,868
2.983
2 ,956
2,952
2,917

MOO

3,049
3,079
3.124
3.226
3,325
3.348
3,409r
3,~!IO

21 ,058
2,109
8,185
1,477

'"
"
'""

,~

..

'"

1 ,570

1,408
1,752
1,946

"

1,886
1,656

39 ,169

38 ,809

36,7 18

omer Ihan Ihose 01 US Oovernmenl and domest;c commercial bank., less caS/1
ilems in processol coll$Clion
r_ Aevised

1,342

1,14.

c-ESlomated

2,949,032
223,999
559.637
183.131
20,413
1,358,283

(Ave'ages 01 daoly ligures ""Ilion dolla 's)

April

Eleventh Federal Reserve District

TOTAL ' IA.BILITI ES AND CA.PITA.L
ACCOUNTsa

2,675,597
45,006
639,340
203,031
23.159
1,493,791

DEMAND AND TIME DEPOSITS OF MEMBER BANKS

Decemba<
1975: Janulf)'
Fet>rua,y

CONDITION STATISTICS OF ALL MEMBER BANKS

TOlal depOs its
Borrowings
Other Habd,I,ese
TOlal cepilal . ecountse

8,099
13,881

Eleventh Federal Reserve District

NoWlmbe,

LIABILITIES A.ND CA.PlTA.L ACCOUNTS
De<TII1nd depooiis 011>On "
Otller demand depOSits
Timadepa .. ts

23,194
2,602

172,057
2 ,828.849

11,214
293,079
1,536,302
1,187,822
139,399
$36,251
41,602

1,140 ,176
4 ,369,978
2.106.261
8,279
110.770

129,883
528,1 81
111,8U

2 , ~,352

TOTAL lIA.BILITIES, RESERVES , AND
CA.P1T A.L A.CCOU NTS

1,310,814
4,875,238
2.301 ,585
35,552
363,826

21 ,480,388 21,367 ,784

1,373,413
4207 ,364

1.274 , 75~

2,464
10.111
102,823
7,158,0$2

2,842,267
50,895
641 ,875
205, 112
23,186
1,511,141

161,748
734,941
1,553,513
51,078
84,H7
1,088 ,673

2 ,682
71,890
99,670
8,762,811

23,248
2,388

3,452
440,634

165,9 15
S65,690
1,494 ,407
54,460
81,096
1,1 12,905

" "

1.259
41 ,039

7,000,489
5.106 ,551
506 ,311
52 ,$63
1.159,046

1,362,215
4,698,923
2,217.998
36,133
314 ,140

258,712

29,054

1~,758 ,5041

7,525,043
5.578,873
503,953
56,113
1.206.802

2,123
61,888
g5,892
8,713,245

4 ,764,616

~,.

TOTALA.SSETS '

A.ug 14,
1974

7,492,061
5,478,718
486,410
81,925
1,279,045

10,490,936 10,563,631

5,070,527

'"

16,205,306 16,287 ,854

T O1al d"!>Os,ls

1973: July
t974· July
A.ugu51
S8\>lamber
OCIO"'"

(M; lIion

JU~ 23.

1,~oo,740

LIABILITIES

RESERVE POSITIONS OF MEMBER BANKS
Eleventh Federal Reserve Districl
(A.v.rages 01 d.,1y llgur.s Thousand dollars)

1,797
12 ,471
17,486

1,691
12 ,390
11,208

1,702
12,234
15,485

31,754
2,979
1,111
2,125

31,289
3,073
1,135
2,112

29,421
3,24.
1,415
2,518

39 ,169

38,609

36,718

"-

Total ..... rv" ~eld
W'th Federal R e _ Bank
Currency and coon
R~u;'ed r.serves
Excess r....""'"
Borrowings
Free rese,ves

5 w",,' s e nded
Aug 6,1975

4 weekS .<><led
Ju ly 2, 1975

5 week. ended
A.ug 7,197 4

2,01 2,971
1,680,468
352,483
l,m,SIn
14,369
8, 121
6,242

1.991,909
1,657 ,702
340,201
1,986 ,834
11,015
7,492
3,583

2,008,762
1, 677.397
331.3&5
2,001,836
5,926

125,297
-1 18.371

BANK DEBITS , END-Of·MONTH DEPOSITS , AND DEPOSIT TURNOVER
S M SA's in El even th F eder al Reserve D istrict
(Oolla, a mounts In thouoands, Muo""tty Idiusled)

DEBITS TO ot:MAND DEPOSIT ACCOUNTS'

DEMAND DEPOSITS'

POfC...,t Ch8nge
Juty

July 1975 from

1 ~ 75

StartOIfd mefTopobr.n
ARIZONA Tucson
LOUISIANA; Monroe
Sl....... epon
NEW MeXICO: Roswell'
TEXAS, Abil_
Amlfitto
Aullin
Bea umonl-Port Anhut-Ora ' l t
8.ownsville-Hlfllngen-San enlto
Brya n-College Stalion

,
,
,
,
•
,
,
,
,
,
",
-,

"'."'.n/I
-

SanA~o

1,814 .620
2 ,45 5,903
3,844.657
5,730,464

Ua~o

Wichita FallS

",

-"

~ , ~76 , 465

ToIal- 3O e&nters

'"

-.
-.
-.

3 , 12i1,~ 49
33,781 ,~ O

San ""lonio
ShOfman-Denison
Te....
(Te .... Atkan...)

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

'"

5,660 ,806
28,176,368
1,529,338
4,779 ,_
11 ,628 ,973
24,628,69 1
11 ,290,1 06
4.361 ,423
U99,7S4
12.576,070
790. 187
246,599,944
16 ,784 ,557
41,056,340
5 ,078,814
260,593.993
3,0&3.922
2,224.360
10,196 ,968
5,341,152
4,573.2 11
3,ge2,391

CorpusCh~stl

July
1 ~7~

"
-.
",
-.
-.
•
•
-,
-.
,
-,
,

S 22,191,~ 1 9

Corsic.",,'
Datta.
EIPaao
Fort Wotth
Galyeston-Te ... City
HoUlton
Killeen-Temple
l..Irado
l ubbock
McAlien-Pha,,-Edlnbu'll
Midland

,
,

June
1975

(""nual-'ate
b asis)

I tillotlc.j . ....

1784 .741 ,823

Oapoaits 01 Individuale. P-8rtneWlips, and ""'POtatiO"" and of ,t.'n and potili<:al ",txlivioic n,
County baai$

JU~31 ,

'"'

12~,580

364,850
&8, 195
1$5 ,910
267 ,178
502.071
355. 183
133,546
61,622
337,896
45,243
3.252,930
360,920
974 ,484
150.597
4.145.326
129,493
72,506
247 ,502
182,148
216,&63
140,036
103,843
998.965
88,383
98.$9
153,060
172 ,546
187.646

"•
'"
-,
"
"
"
M

"•
"

Jun.
1915

5~,2

'"
'"
",
,

1915

$404,849

'"
•
'"
,
•
",
•
,
",
,
,
•

"
"
"
"
...

""nual . ate
of t.. nove,

".

7 m'mlhs.
1975 f,om
1974

$14,516,543

."
73,4

25 ,9

'"'
."
47,9

31.8

'"'

1974

".
'"
".
43.1

~.

..

26,3

'"
'"
'"
'"
'"
'"
'"
."

47,3
30.6

'"
'"
'"
'"
'"

'"
'"
'"

23.2

47 ,3

".

30.2
16.8

33,3

''''
'"
40 ,5

'"
'"
28,S

'"

34 ,5

72.7
4 6.2

".

42.5

'"
'"
".,
'"
'"
".
'"

."
32.9

58.7
23.3

22.4
43.4
28.3

'"
".
27,8

33.9
~,

25.2
~.

36.3

'"
'"
'"'

'"
24 .8

".
".
'"

~,

22.4

2~ .7

30,1
'"
'"

30.9

."

'"

CONDITION OF THE FEDERAL RESERVE BANK OF DALLAS
(TI>ousand dollars)

BUILDING PERMITS
AU~ 27.

A~ 28.

Jui)' 30.
1975

422,062
6 ,185

537,031
140 ,420

422 ,062
3,489

275,855
4,165 ,928
4,447,968
1,619,764

154 ,205
3,332 ,&65
3,627.290
t,4n,667

259 ,667
4.1 93 ,398

2 ,821.290

"-

2.558.6 11

2.803,488

'"

TO1a l gold ce<!il,cate r... _
lo_ to mambot, baM.
01ll.,Io&n.
F&deral a 9'lncy ObIlgalions
U S Go_nment secu'~"
Tolel • .,nlng 8551111
M!)mbe. b-onk '..-va depoaill
Fedef.1 , _ _ " fIOles ln actual
clrcul.~on

,

'"

,

1.705,342

J .nuary_June

FIVE SOUfliWESTERN
STATES'
Residenlial building
Nonr_ d" ntlal building
Nonbullding .;onst,uCbOn
UNITED STATES
ROI"sidetltial building
Nonr • • rda ntlal bI.Olding
Nonb ... lding COI1StfUC:tion

,

July
1975
1.035

n.

".
....
~

3,093
3,165
2,786

,~

Mo,

1975

1975

."
'"
'"
'"

9 ,324
3.116
3,169
3,040

Arizon • • Lou isiana , New Ma><ico, Oklahom a , a nd leu.
r_ R.... ise<I
NOTE : OetallS may nol l dd to loIals beeaUS<! otrounding
SOURCE: F. W. 00cI{Ie, McG, ...-tlill , Inc ,

...

1,691

".
'"

9,143
3 ,073
2,877
3193

1975
7,821
2 ,312
3 ,06g
2,420
53 ,598
17 ,707
18,638
13,&62

1974,
7,349
2.740
2.8$6
1.723
55,4116
22 ,285
19,549
13662

July 1975
I.om

NUMBER

4 , ~S6 , 754

(M,lhon dollars)

ty~ .

Pa rc""t cl>ange

,

VALUE OF CONSTRUCTION CONTRACTS

Me. and

VALUATION (Doilif amount, In thousands)

N ..
ARIZONA
TuclIOtI
LOUIS IANA
MonroeWasl MoNoe
SI>' eyevort
TEXAS
Abilene
Am a rillo
Austin
Bea umont
B,cw"" ... illa
C<>r?UI CI>r!sti
Da ll ••
Denison
EI Pase
Fott Wotth
Galve.ton
Hou.lon
Lafldc
LUbbock
Midla nd
Ode...
POf! Ant>u.

San Ang. 1o
San Anlonio
SMfm.n
Te. " .... n.
w~

Wich ita Fa ll'
Tolal--26 Cilies

J uly
1975

,. ~

1915

1975

'"

3.610

$9.553

~

.n

~

'"'

,n

5,214

7 ,246

". ''"
'"
'" ".
'"
'" ".
"
'" ,.' "
'"

1,566
23,577
17,563
10.077
5.1040
4.045
45.733

,~

1,921
3,126
1,519

2,0 1B

1.783
11,906

'"

9,904

2 . S8~

'"
n
,,,
'"
'"
"

2.051

,~

..
"

~, 1 9 4

13.274

42,51;3
1,383
9,797

'"
...

1,286

".
'"
."
'"

1,575

10.112

'"

1.471

'"

11,061

.",
'"
..,

68.513

V5 ~

2 . ~98

2,370
,~

3,336
16,224

".
...

,.~

.%

,1975

$59,'13
6,462
36,040
16 ,944
5 1,638
86,356
28,33 7
12 .424
$ ,361
152,99 1
1.620
74 ,769
77 ,422
5,773
327,178
8 .150
78, 173
" .65 1
U ,084

2,670
1 1,7116
93 ,930
3,1 05
3,383
10,.05
9.285

1226.140 $1.227.360

J une
1975
~

'"'

1974

-"

-" -"
"
-"
'"" '"'
"
'" -"
-,
'" m
m
"
-" -"
- " '"
-" -"
'''' '"
-" -"
-"
" -"
-" -"
-M
"
"
-,
""
" -"
-" "
-"
'" "
-" -"
'" .-~
-~

~

..
.

- ~

7 months.
19751,om
1974

,.
- ~

-"

..
..
-"
-"
-"

-"
-"

"
-"
-"
-'"
-"
"
-"
- 00

•

'"
"
-"
-"

-"
-"
-,
- ~.

DAILY AVERAGE PRODUCTION OF CRUDE OIL

LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT

(ThoUSand !)arre ll )

Five Southwestern States'

., . .,

,.~

Jun •

NU

5.8337
1.8080
,~.

4419
3.326.9
637 .9
1.7902
213 .8

5.8232
1.7947
,~"
""6 ,6
3.3237
640 ,6
1.788 1
218 .6

~,

6.26.6
8.372 6

,",

1974'

1975

1974

6.1402
1.943 I
272 2

"~

,

- 50""

~

1975

FOUR SO U TH MSTEA ~
STATES
lou ;a.ana
New "'u,eo
Oklahoma
Te . . .
GUll Coni
W... ,T....
10811 T• • as(prope'l
Panhandle
Aellohla l.
UNITED STATES

• Re.iUd
SOURCES

f'efUnl ella .... e I.om

.~

, -"•
,
-,

3.441 7
6130
1.8.22 .6
1116.0
~,

'"

620.6
8.371.5

""

6 ,7536

,
-"

-"
-"
-"
-"
-"
- 1,8

"
'"'"

"
-""

- 44%

Ame ,ica n Pe l.ole<lln InsMIJle
U S BureaIJ or Mineo
FrKle,1I Re_. e Ba nk 01 OaHas

,.,

-

P.rc.." cllanoJuly 1915 from

,.,

ThouUndt of perOO""
,.~

1915

19 14r

Jun.
1975

9.1730
6 ,533.4
639.5

9 .176.0
8 ,5404
6356
6 ,9 ""

8.9691
8.5262
4409

-00'!lr

7.5421
1.246.3

7.S019
1,235 5
6917

7 . 5~J

6.295 ,8

6.266 4

~"
461i.0

,~,

1975p

C .. ilran la!>Or lo,c e
Tel.'employ"", n!
1 c lal u namploy"",nl
Unemploym. nl,. ,.
TOlal nonagr;cuhura l wage
an d " 'a ry ..." pIoyrMnl
"'anulaClu,i"..
o..,a l>lo
Nond u,.ble
Nonm anulaCItH'ing
Min" ....
Constr uction
T, . ",po<1a lion and
~ bI ;c "'i l,li ..

,

..

-,
M"

,.-

Financ.
Serviu

Go.emme'"

."

,
,
•

B

1.3233
7468
5764
6,200 5

M"

461 7

1.8076
417.3
1.291 7
1,$2 1 1

6.20,0
1.7803
4102
1,23012
1.4779

•
,
•
,

~"
5100

,.,.

4 91.8
1.8 152
41B.7
1. 2922
1.5390

,

•
.,

-.'

•
,

"

1.2%

A".ona. l ou ;a.a.... New "'U",O. O~la homa . and raus
AClual change
p_p,. H ary
min
r_ReY>sed
"I0TE ' Oe llll ....... y nO! add 10 toral. beuu ... or ,ounding
SOUAC ES : Slale emproyment agencies
Fode,al Re .erve Bank or Oalta $ (seasc""llMllU$lmenl)

,.,

1914

,
'"

4 5 ,0

",
-"
-"
-"
""
-"
- 0

.
'"

"
""

CROP PRODUCTION
(Tl'rOusand IlrJsne4s)
AVE SOUTHWESTER N SlATES'

TEXAS

1915,
estim aled

Q"

Canon'

'" ,

1974

52.800
8.100
1.350

Alce'
SO'lIn""" g,.;n
Fla. _

24.885
394.400

25,256
312.000

""

5.100
474.300
1.785

Com
Winte, wheal

0,.

BI,rey

".

Peanuts'
potatoel'
Swa-e1 poIal"..'

",111

Soybeans

,

,
,
,
•
,

..

,

2.487

73.600

=

... '.""
...
'00

(Sea.., na l.... adjuSI"", indexes. 11167 _ 100 to,

1975.
flj,mated

3.121
115.500
131.100
19.500
2.380

'"

5. 106
413.280

2.244

1973

'''0 ,

1914

1973

4.699

4 ,421
131,().IS
326.4 84
24.394
15,825
1,408
48,935
"8.625

4,565
88,3 15
2()6.145
12 ."9
12.750

6,"6

...

~

98.600
26.650
3,510
~.

20.530
41 7,000

00
M08
471,n5
2,940

9.100

INDUSTRIAL PRODUCTION AND TEXAS
MANUFACTURING CAPACITY UTILIZATION

."

8,500

Ae viUd
A"'ona , ~""i$iana . New Mexico , O ld. hom a , a nd Te ...
Thousand ~ a l ...
Thousand hundrrKIwe igh l
Thousand IOn '
Thousa nd poundS
SOU RCE : US OtIparlmentel Ag,jeullu,.

this year totaled $4.2 billion15 percent lower than in the same
period last year. By contrast,

receipts for the United States
declined 8 percent. The drop in District sales resulted from substant ial
decreases for both crops and livestock and livestock products.
• The number of tourists in Texas
this summer was markedly higher
than last s ummer. Over 200,000
people visited the state in July,
11 percent more than in July 1974.

'00

11.7 36
7H. 335
2 ,865
3.48 5
52,790

'"
,..

73 .396,
280. 44 2
301.948
21 ,825

..

1. ~ 1

49 .978
356, 707

41,924
418.164

11.3 71
/;4 4,054
3,084
• .525
57.747

12.964
143,661
3.772
3 ,625
47 ,861)0'

AfU aM 1)'pOI 0'

1.
_

,.,

,.~

M
"

D",ab ~

Nondu,.ble

M<tting
ur ,' il~

Capacity Ul iliza lOon
'" ma n U'a Cluring (1972 _ 100)
U"IIT EC STATE S
To!al ",du$I';. ' p.-Oducl>On
Manul lCl u,iong
Du,Il)Ie

1~75p

1975

121.
124 .9
126.0
124 I
107 .3
165 ,8

TEXAS
TOI ., iM ~ $I(i al p.- Od u c ~on
Man "'a<:IU''''II

N(}fl(/U,ab ~

P'o<Iuc~on)

,roo

120.6

12 35
1262
121 5
1070

""
""

,,.

""
'"

1106
1089
102_2
1186

110 ,3

Mini....

,~,

U I II ~ ,"

1510

,~,

102.6
116,9

""

I~I ~

1975

,~.

1214
107 1
~,

""

107 B
1024
1159
107 .0
152 3

,.,

197.

1215
131,.
1320
130.9
1130
1676
1013
125 .S
1252
1218
130.B
110 .2
152"

P P'elimina ry
SOURCES: Boa,d or Gove<nor . 0' 1ne Feoo,al A. _• • Sysl. m
FrKI.r. ' A. _•• Ban~ of Dallas

Through the first seven months of
this year, the number of tourists
was 24.7 percent ahead of the same
period last year and 4.4 percent
ahead of the same period in 1973-a
good year for tourism in the state.
• Liquidation of the Texas cattle
herd continues at a rapid pace.
Slaughter of cattle and calves in the
first half of this year totaled 2.6 million head, up 43 percent over the
same period in 1974. As a result,
the July 1 inventory of cattle and

calves in Texas was 17 million head,
3 percent less than a year earlier.
By contrast, the slaughter of cattle
and calves in the United States in
the first half of this year was almost
16 percent higher than in the same
period last year. And the July 1
inventory of cattle and calves in the
nation was 1 percent higher than a
year earlier.