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M

O

N

T

H

L

Y

eview'
FEDERAL RESERVE BANK
OF ST. LOUIS

• P . O. B O X 4 4 2 • S T . L O U IS 6 6 , M O.

Page

Some Influences in the Behavior of Prices
since the 1957-58 Recession

2

Financial Highlights

4

Securities Markets
District Banking

District Member Bank Earnings in 1959

6

Agricultural Developments

8

Farm Income in 1959
Livestock and Poultry Inventories
Farm Real Estate Values
This issue relea sed on March 30

VOL. 4 2 f




N o. 3

• MARCH ' 6 0

Some Influences in the Behavior of Prices
since the 1957-58 Recession
D u r in g THE LAST RECESSION there was
little or no decline in average prices and when
recovery began in the spring of 1958 there were
widespread expectations that price increases would
follow. Price developments since the turn have
not yet demonstrated whether these expectations
will be confirmed. In fact, the wholesale price
index in February of this year was at 119.4 per
cent of the 1947-49 average, as compared to a
level of 119.3 in April, 1958. The consumer price
index has risen from 123.5 per cent of the 1947-49
average in April, 1958, to 125.6 for February of
this year. Prices of some materials and finished
products have increased, and prices of services in
the consumer price index have continued their
climb. On the other hand, there appears to be less
confidence that cost increases can be passed on
without loss of markets than there was in 1955
and 1956.
1947-49=100

In some respects the prospects of avoiding price
increases in commodities are better than they
were after the 1953-54 recession. There has been a
tremendous increase in productive capacity in this
country, with perhaps an even greater relative
increase in capacity abroad. There has recently
been an increasing tendency for imported goods of
many kinds to compete effectively in the American
market, moderating price rises here. From some
discussions of administered prices and the socalled cost-push inflation it might seem that pro­
ducers can set any prices they choose. Actually
the availability of imports and the growth of ca­
pacity and productivity act as limits on pricesetting power that may well become more effec­
tive.

Wholesale Prices
Per Cent

Some influences affecting nonfarm
commodity prices

Per Cent

Steel
The steel price situation provides examples of
several contrary influences that can also be ob­
served in some other industries. On the one hand
the recent labor agreement is expected to result
in increases in employment costs per hour, whether
union or company estimates of the cost are used.
On the other hand, the expected cost increases
appear to be much smaller than those resulting
from the previous contract signed in mid-1956.
One contract clause which may be of considerable
significance is a limit on cost-of-living increases.
Latest data plotted: March, est.

Page 2



Maximums of 3 cents on December 1, 1960, and of

3 cents on October 1, 1961 were provided. The
preceding contract provided semiannual increases
and no maximums, so that escalator adjustments
amounted to 17 cents an hour by July, 1959.
The sales of steel currently are large, which
might make a price increase possible without
much loss of volume to the industry. But part of
the demand in the first quarter of this year has
been for replenishment of inventories of steel and
steel products depleted during the strike. Accord­
ing to industry sources, the re-stocking of steel by
users has been more rapid than had been expected,
and so steel output has gradually declined from
the near capacity rates reached in December. Fur­
thermore, deliveries of some types of foreign steel
are being made in this country at prices reportedly
well below those quoted by domestic producers.
Aluminum and other materials are being substitu­
ted for steel in some uses. The compact automo­
biles have won a substantial part of the market
for domestically produced cars. The average
amount of steel used per car, therefore, has
declined. All of these influences suggest that a
determined effort will be made to hold the line on
steel prices in order not to suffer market losses.

Farm commodity prices
Farm commodity price movements have been
a major factor in the behavior of consumer prices
during the three postwar business cycles. Food
price changes were a major factor in the price
declines after the recession troughs in 1949 and
1954, and the stability of prices following the
1958 trough. Food price changes in each of these
periods can be traced to changes in farm com­
modity prices which are closely related to changes
in supplies and probably have little relationship
to the business cycle. Supplies of food generally
increased after each recession, depressing prices,
and such changes in supply can be traced to live­
stock cycles and weather conditions.
In 1959 the food supply situation was favorable
to over-all price stability again. Farm commodity
prices declined for most of the year under the




pressure of increased supplies of meat, fruit, and
fresh vegetables. Marketings of livestock in the
fourth quarter were about 10 per cent larger than
they had been a year earlier. Livestock prices fell
in November to the lowest level since the winter
of 1956-57 and were about 20 per cent lower than
a year earlier.
Since the turn of the year livestock prices have
risen again, and are about 20 per cent higher
than last autumn, although still about 5 per cent
below a year ago. Hog slaughter has declined
sharply in recent weeks, in part because of bad
weather. The spring pig crop is expected to be
considerably smaller than the one of last year so
total meat supplies for 1960, including poultry,
are not expected to grow as they did in 1959. Beef
supplies, however, should be large (for more de­
tails, see article on page 9 ).
There is more involved here than accidental
timing of the hog and beef cycles. Although farm
product prices rise and fall from year to year they
have on the whole been working downward since
1951. Output per manhour on the farm has more
than doubled since 1947, an increase far exceeding
the one occurring in manufacturing in the same
period. Thus, some of the results of productivity
growth are appearing in the decline of farm prices.
This productivity growth in agriculture appears
likely to be a considerable force for over-all price
stability for some time to come, unless, of course,
public policy in some way prevents the passing
on of these benefits to the consumer.

Services
In part the rise of service prices is a result of ur­
banization and rising living standards that tend to
increase demand for services such as medical care
and the maintenance of appliances, automobiles,
and houses. In part the rise results from the diffi­
culty of increasing the supply of some services, or
of increasing the efficiency with which they are
produced. Furthermore, there are problems of
comparability in measuring the prices. For ex­
ample, how does one compare the cost of say three

(Continued on page 11)
Page 3

FINANCIAL HIGHLIGHTS

Securities Markets
I JlSTORICALLY, yields on common stocks have
usually been above interest rates on long-term highgrade bonds. The spread is partly accounted for by
the financial risk differential between these two types
of securities. However, the spread between returns
on stocks and bonds fluctuates as economic conditions
change and as investors change their evaluations of
the relative merits of the two investment media.
Since the holding of stocks or bonds represent alter­
native investment opportunities there exists a degree
of substitutability between these assets in the port­
folios of some investors. Partly because of this sub­
stitutability yields of these securities frequently move
Stock Yields and Interest Rates
Per Cent

Per Cent

a result, stock yields have fallen below interest rates
on high-grade corporate bonds. The decline in stock
yields reflected, in large measure, the attractiveness
of stocks as a hedge against anticipated price rises.
Also investors have been optimistic about the outlook
for business profits. On the other hand interest rates
have been rising in recent years chiefly because the
demands for funds have been rising.
In early 1960 bond prices rose (yields declining)
while stock prices fell precipitously (yields rising).
This reversal of recent experience may be explained
in part by the following factors: 1) investors may feel
that inflationary forces have been weakened; 2) the
outlook for business activity, although still bright,
did not appear to be as exuberant as it did in late
1959; and 3) bond yields were relatively attractive
compared with stock yields.
After March 8 the stock market developed a better
tone. By March 23 average prices had recovered
about 30 per cent of the loss suffered earlier in the
year. However, interest rates on bonds continued to
decline (prices up) during the mid-March period.

District Banking

Latest d a ta p lotted: M a r c h , est.

in opposite directions. As shown in the above chart,
yields on common stocks have been declining in re­
cent years while bond yields have been increasing. As




Loans
In the four weeks ending March 9, the volume
of loans held by Eighth District weekly reporting
member banks declined $3 million. Normally, loans
decline more at these banks at this season. Busi­
ness loans rose about $9 million, with the growth
centering in advances to producers of metal and metal
products, and to textile, apparel and leather firms.
Usually commercial and industrial concerns make net
repayments at this time of year. "Other”, including
consumer, loans decreased slightly in contrast to large
net reductions on the average in the corresponding
periods of recent years. On the other hand, outstand­
ing advances on real estate decreased about season­
ally, and financial institutions made large net repay­
ments.

ASSETS A N D LIABILITIES
ALL MEMBER BANKS IN THE EIGHTH DISTRICT
{In Millions of Dollars)
March 9, 1960p
Change from February 10
Amount
Weekly
Other
Outstanding Total Reporting Banks Banks

A sse ts

Loans ........................... $3,041
Real Estate ................
Security .....................
Commercial and Industrial
Banks ........................
Other Financial Institutions
Consumer and Other . . .
Government Securities . . . .
Other Securities .............
Cash Assets ...................

1,833
556
1,367

Total Assets1 .............. $6,869

$+4

$—
$— 3
3
—

+

$+7

1
1
9

—

Debits

-0—

—
—
—

83
8
95

9

—

1

—
—

—

31
6
52

— - 52

— 2
—

43

$— 187

$ _ 96

$—

91

$— 211
4“ 11
+
7

$— 111

$— 100

lia b ilit ie s

Demand Deposits ........... $4,560
Time D e p o sits................ 1,565
Borrowings.....................
79
Total Liabilities and
Capital1 ................. $6,869

$— 187

+
+

5
7

$—

96

comparable periods of the two previous years. The
decline in deposits, which reflected the bank credit
contraction and a net outflow of funds, centered in
accounts of businesses, individuals and other banks.
U. S. Government and other balances were off mod­
erately. Conversely, time deposits rose about $5 million.

+ 6
-0$—

During February the volume of checks paid and
other debits to demand deposit accounts (except in­
terbank and U. S. Government) at reporting district
banks amounted to $5.6 billion. This was an increase
of 13 per cent from the corresponding month a year
ago. Nineteen of the twenty-two reporting centers
shared in the gain, with the largest increases recorded
at Helena, Arkansas, Jackson, Tennessee, Cape Girar­
deau, Missouri, and Memphis, Tennessee. Although
district debits were smaller in February than in Janu­
ary, the decline was less than seasonal.
BANK

91

The decline in total credit (Loans, Governent Securities, and other Securi­
ties) of $ 8 7 million in the current sem i-m onthly period com pared with a
$ 6 0 million decline in the corresponding period a y ear ago.
1 Includes some miscellaneous items not item ized,
p— Prelim inary

Securities

D E B IT S 1
Feb.
1960
(In
millions)

Feb. 1960
compared with
Jan.
Feb.
1960
1959

S ix L a rg e st C en ters:

Deposits

East St. Louis — National
Stock Yards, IN................. . . . $ 132.0
165.2
Evansville, Ind......................
228.0
Little Rock, Ark....................
889.1
Louisville, Ky........................
859.3
Memphis, Tenn.....................
2,658.8
St. Louis, Mo........................

—
—
—
—
—
—

10%
11
6
4
10
1

Total— Six Largest Centers . ... $4,932.4

During the four-week period the district weekly
reporting banks reduced their holdings of Government
and other securities by $37 million. As a consequence,
total credit outstanding at the thirty large banks con­
tracted somewhat more than it usually does at this
time.

—

4%

+ 13 %

+ 1%
— 16

+ 14 %
+ 21

+
—
—
—
—
—
—
—
—
—
—
—
—
—

+

3
-O -

+
+
+
+
+
—
+

9

—
+
+

1
8
4

%

+ 7
+ 18
+ 16

O th e r R e p o rtin g C enters:

Between February 10 and March 9, demand de­
posits at district weekly reporting banks fell $111 mil­
lion, compared with an average of $19 million in the
Total Deposits
All Eighth District Member Banks
Billions of Dollars
Billions of Dollars
7.0
7.0
Unadjijs te d
6.5

6.5
Se<a so n a lly A djusted /

I

.$
Cape Girardeau, Mo..............
El Dorado, Ark....................
Fort Smith, Ark....................
Greenville, Miss...................
Helena, Ark.........................
Jackson, Tenn......................
Jefferson City, Mo................
Owensboro, Ky..................
Paducah, Ky........................
Pine Bluff, Ark......................
Quincy, III...........................
Sedalia, M o.........................
Texarkana, Ark.....................

6.0

6.0

44.9
20.3
33.0
58.2
32.8
12.8
12.5
31.6
116.1
52.0
35.7
46.5
47.4
17.8
107.9
22.3

4
8
16
9
35
2
30
13
4
16
3
13
11
13

6
24
23
17
17
13

+ 11
+ 8
+ 9
+ 9
+ 3

5.5

— 14%

+

Total— 22 Centers............. ... $5,624.2

5.5

Total— Other C en te rs........ ... $ 691.8

—

+ 13 %

IN D E X O F

BANK

D E B IT S —

5%

22 Centers

Seasonally Adjusted (1947- 1949=100)
1960
JL

-

r

1956

1957

1958

Latest data plotted: February




1959

1960

8 %

Feb.

1959
Jan.

Feb.

179.3
186.9
i Debits to demand deposit accounts of individuals, partnerships and
corporations and states and political subdivisions.
202.2

Page 5

District Member Bank Earnings in 1959

l^ E C O R D YIELDS on loans and securities pushed
net operating earnings of district member banks to an
all-time high. However, profits declined slightly from
the 1958 level as losses were incurred on the sale of
securities. The declining prices of securities reflected
the rise in interest rates which prevailed throughout
most of the year. As a group, district member banks
had a good year and profits after taxes were second
only to those of 1958.
The higher interest rates during 1959 reflected a
strong demand for funds relative to the growth in sav­
ings and bank credit. Funds were sought to finance
governments and consumers, and business expendi­
tures for inventories, plant, and equipment. Under
these circumstances interest rates were pushed to a
higher level than in 1958.

Income from service charges on deposit accounts,
trust departments, and various other miscellaneous
accounts continued to rise. These revenues accounted
for 12 per cent of total earnings.
Expenses
The cost of doing business rose less than current
earnings. Expenses of district member banks were 8
per cent higher during 1959 than in the previous year,
as compared with an 11 per cent gain in earnings.
The most abrupt increase in a major expense item
was a rise of almost 14 per cent in interest payments
on time deposits. This was the seventh straight year
of substantial increases in the amount of interest paid
on time accounts. The rise resulted from an increase
in time and savings accounts plus a rise in the rate
paid on these accounts by many banks.

Earnings
Total operating earnings for 1959 were $264 million,
11 per cent higher than the previous record set in
1958. About 90 per cent of the gain was a result of
higher returns from earning assets. Revenues from
earning assets increased by $25 million, or 11 per cent
over the previous year. On the average, banks received
a 4.2 per cent rate of return on their loans and invest­
ments last year as compared with 3.9 per cent in 1958.
The higher returns were primarily a result of higher
interest rates, but a shift in the composition of earning
assets from short-term Government securities to higheryielding loans was a contributing factor. This shift
reflected: 1) an increased demand for bank loans as
business activity rose from the recession of 1957-58;
and 2) bank liquidation of securities to obtain funds
to grant the loans.




Earnings and Expenses
Eighth District Member Banks
Millions of Dollars

1959 preliminary

Millions of Dollars

All other expense items of district member banks

Cash dividends on common stock amounted to al­

increased during 1959. Wages and salaries, the largest

most $21 million or 44 per cent of net profits after

expense, increased by 5 per cent. Some banks found

taxes. The ratio of dividends to capital remained

it necessary to borrow in order to meet the loan de­

about the same in 1959 as in the previous year. While

mands of their customers, and they paid substantially

approximately the same amount of dividends was

higher rates on these loans. Interest payments on
borrowed funds by district member banks increased
by $1.4 million.

Net Profits
Net operating earnings advanced to a record $103

paid in 1958, the relative share of net profit was small­
er, 41 per cent.
Retained earnings amounted to 56 per cent of net
profits (after taxes) in 1959, 3 percentage points below
1958 and 4 points below 1957. Largely as a result of
retained earnings the capital to deposits ratio in­
creased. It is primarily through retained earnings that

million, an increase of about 17 per cent. The ratio of

banks in postwar years have built up their capital

net current earnings to capital increased from 13.6 per

accounts.

cent in 1958 to 15.2 per cent in 1959.1 The net oper­
ating earnings were partially offset by $29 million of

Earnings and Expenses

net losses and charge-offs. In 1958 banks had a net

Eighth District Member Banks

gain of over $2 million on the sale of securities. As a

(In Millions of Dollars)

result of the losses incurred on the sale of securities
net profits (before taxes) fell to $73.5 million or 19
per cent below those of 1958.
Income taxes took 35 per cent of net profits in 1959
compared to 45 per cent the previous year. Taxes took
a smaller portion of net profits in 1959 in part because
banks held more tax exempt municipal securities and

1957

1958

1959p

Interest and Discount on Loans.............

139.6

141.4

160.5

Interest on Government Securities........

47.6

51.6

56.3

Interest on Other Securities..................

12.7

14.9

15.7

Service Charges on Deposits..............

9.3

10.6

11.7

Other Current Earnings........................

18.0

18.5

Total Current O p e r a tin g E a r n in g s . . 227.2

2 3 7 .0

19.9
264.1

Salaries and W ages...........................

63.7

66.4

69.9

banks suffered losses on the sale of securities. Net

Interest on Time Deposits.....................

22.6

27.0

30.8

profits after taxes amounted to $48 million in 1959,

All Other Expenses.............................

50.7

55.2

60 5

only $2 million less than in the record-breaking year

Total Current O p e ra tin g E x p e n se s.

137 .0

148.6

161.2

of 1958. Net profits after taxes as a per cent of capital

N e t Current O p e ra tin g E a r n in g s . ..

9 0.2

88.4

102.9

decreased by almost one percentage point between

Net Losses and Charge-offs..................

11.5

—

2.2

29.5

1 A table of Operating Ratios for Eighth District Member Banks
for 1959 and 1958 is available. Copies of these tables have been
sent to member banks in the Eighth District and to others who
have requested them. Copies can be obtained from the Research
Department, Federal Reserve Bank of St. Louis.




N e t Profits Before T a x e s ..............

7 8 .7

9 0 .6

Taxes on Net Income.........................

1958 and 1959, to a level of 8.0.

73.5

33.1

40.4

25.6

N e t Profits A fte r T a x e s .................

4 5 .6

50.2

4 7.8

Cash Dividends on Common Stock..........

18.2

20.7

20.9

p— Preliminary

Page 7

AGRICULTURAL DEVELOPMENTS

Farm Income in 1959
ARMERS in the Eighth District in 1959 apparentIy did as well financially as in the previous year de­
spite a substantial downturn in farm income national­
ly. Furthermore, farm cash receipts in district states
in 1958 were relatively high compared to levels of
recent years. Cash receipts from farm marketings in
Eighth District states rose from $6.4 billion in 1958
to $6.5 billion last year. Nationally, cash receipts
declined from $33.6 billion to $32.8 billion.

per farm in three of the seven district states was great­
er for 1959 than in the previous year, according to
preliminary estimates by the United States Depart­
ment of Agriculture.

REALIZED NET IN CO M E PER FARM
EIGHTH DISTRICT STATES
(In dollars)
1959

1958

................... $2,286

$1,874

CASH RECEIPTS FROM FARMING

................... 3,187

4,056

EIGHTH DISTRICT STATES

................... 2,188

2,736

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

1,650

1,611

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

1,472

1,393

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

2,075

2,351

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

1,385

1,396

................... $2,364

$2,767

(In millions of dollars)
From Crops
1959

1958

Arkansas ...... $

472 $

365

Illinois ..........

819

783

Indiana

From Livestock
1959
$

223 $
1,163

Total

1958
231
1,301

1959
$

695 $
1,983

1958
596
2,084

........

379

341

649

748

1,028

1,090

Kentucky ......

293

250

282

298

575

Source: U . S. Department of Agriculture, The Farm Income Situation.

548

Mississippi . . . .

355

278

261

266

616

544

Missouri ........

373

333

721

759

1,093

1,092

Tennessee . . . .

273

217

247

272

519

489

Eighth District
States
$ 2,964 $ 2,567

$ 3,545 $ 3,876

$ 6,510 $ 6,443

United States . . $14,441 $14,259

$18,336 $19,301

$32,777 $33,560

(Detail may not add to totals due to rounding.)
Source: U . S. Department of Agriculture, The Farm Income Situation.

Realized net farm income in the nation declined
from $13.1 billion to $11.0 billion or almost 20 per
cent from 1958 to 1959. Realized net income per farm
declined from $2,767 to $2,364. Realized net income
Page 8



The major factor in the increased income in district
states was larger crop sales, particularly in the cotton
producing states of Arkansas, Mississippi, and Ten­
nessee. An excellent cotton crop generated sufficient
income to increase cash receipts from crops in each of
these states more than 25 per cent above 1958 levels.
Cash receipts from crops were also somewhat greater
in the other four district states. A decline in livestock
marketings, however, was sufficient to offset crop gains
in Illinois and Indiana so that a drop occurred in
total farm commodity sales in these states. Total sales
in the other five district states remained the same as
or greater than in the previous year.

Livestock and Poultry Inventories
X jIV E STOCK and poultry numbers on the nation’s
farms at the beginning of 1960 were almost 4 per cent
higher than a year earlier and the second highest on
record according to the United States Department of
Agriculture.1 Total numbers of livestock on farms,
combined so as to reflect differences in value, were
20 per cent above totals at the beginning of the 1950
decade but 4 per cent below the record in 1944. Num­
bers of meat animals (beef cattle, hogs, and sheep)
were up 4 per cent from levels of a year earlier. Cat­
tle kept for milk were unchanged and poultry numbers
were down 4 per cent.
Cattle and Calves—
The total number of cattle and
calves in the United States reached a new high of
101.5 million head on January 1, 1960, an increase of 5
per cent during the past year. This was 13 per cent
more than the 1949-58 average and 5 per cent higher
than the previous record on January 1, 1956.
All states except Maine, Vermont, Massachusetts,
Rhode Island, and Delaware showed an increase in
cattle numbers during the year. Increases in the
Eighth District states ranged from 3 per cent in Illinois
to 7 per cent in Tennessee. Other large percentage
gains occurred in the southern part of the district
with Arkansas and Mississippi showing increases of 5
and 6 per cent respectively. The major cattle feeding
states of Illinois, Indiana, and Missouri had gains of
3, 4, and 4 per cent, respectively, for the year.
Hogs and Pigs—
Hogs and pigs at the beginning of
the year totaled 58.5 million head, which was 3 per
cent more than a year earlier, 7 per cent above the
1949-58 average, and the largest total since 1952.
Compared with a year earlier hog numbers increased
in all regions of the nation. The largest percentage
increases, however, occurred in states outside the Corn
Belt. Hog numbers were up only about 1 per cent in
the North Central states, which have about 73 per
cent of the hogs and pigs in the nation. Of the Eighth
District states, greatest percentage increases were
reported in Arkansas, Mississippi, Missouri, and Ten­
nessee-each reporting gains of 15 per cent or more
for the year. Illinois had an increase of 4 per cent,
and hog numbers declined 6 per cent in Indiana.
1 United States Department of Agriculture, Livestock and Poultry

Inventory, January 1.




Sheep and Lambs—
Sheep and lamb numbers in the
country increased 2 per cent in the past year to 33.6
million head on January 1, 1960, the largest number
on farms at the beginning of any year since 1948.
Eighth District states, however, moved counter to the
national trend, with declines averaging about 4 per
cent.
Chickens—
Chickens at the beginning of the year
totaled 366.9 million, a decrease of about 4 per cent
from a year earlier. Most Eighth District states fol­
lowed the national trend; the exceptions were Arkan­
sas and Mississippi, with increases of 4 and 20 per
cent, respectively.
Conclusion—
Translating livestock and poultry num­
bers into farm commodity output in 1960, the nation
may expect some decline in per capita meat produc­
tion, about the same quantity of milk, and fewer eggs.
Production per animal unit has increased steadily in
recent years, and 1960 is not expected to be an excep­
tion since feed supplies are more than adequate, and
favorable relationships between feed prices and live­
stock commodity prices encourages liberal feeding. A
smaller spring pig crop is expected to offset gains in
other meat products.
LIVESTOCK A N D POULTRY O N FARMS
UNITED STATES
(Data as of January 1)
in thousands
1960
.......... 101,520

1959

Average
1949-58

96,560

89,612

Cows— 2 years old and
older kept for milk1 .......... ..........

21,331

21,488

23,361

......

58,464

56,924

54,478

.........

33,621

32,945

31,167

.......... 366,859

383,529

407,448

5,923

5,173

..........

5,673

1 Included in cattle.
Source: U. S. Department of Agriculture, Livestock and Poultry Inventory,
January 1.

Page 9

Farm Real Estate Values

T

HE RATE OF INCREASE in the value of farm
real estate per acre in the nation was 8 per cent per
annum in each of the consecutive four-month periods
ending July 1 and November 1, 1959 according to
the United States Department of Agriculture. This
compares with an increase of 8 per cent for the twelve
months ending March 1, and an average rate of 7
per cent for the three years ending March 1, 1959.

District, namely: Illinois, Indiana, Mississippi, and
Tennessee. Other Eighth District states had farm
real estate value increases at the annual rate of 6
to 11 per cent.

Average farm real estate values remained generally
unchanged in the Eastern Corn Belt, central south
and the Great Plains states in the four months ending
November 1, 1959. Included in this group are four
states located partially in the Eighth Federal Reserve

Lower returns on farm land have probably been
the major factor in reducing the rate of gain in farm
real estate values. During World War II and imme­
diately thereafter realized net income per acre rose
rapidly, reaching a peak in 1948. Value per acre of
farm real estate rose but at a substantially slower rate.
By 1948, land prices were low relative to earnings as
judged by historical relationships. Uncertainty as to
the permanence of high earnings was probably the
major factor. Early in the 1950’s earnings on farm
land began to be capitalized into progressively higher
values, and prices on farm land continued to rise
through 1959. The high level of farm land prices
has resulted in an unusual situation with respect to
returns on land relative to returns on other forms of
capital. For example, in four of the last five years
returns on the market value of farm real estate have
been below the interest rate on farm mortgages. Fur­
thermore, the return of 3 per cent on farm land in
1959 was the lowest rate of return on such property
in more than twenty years and less than the average
rate of return on either common stocks or corporate
bonds.

Farm Real Estate

Return on M arket V alue of Farm Real Estate

CH A N G ES IN FARM REAL ESTATE VALUES
EIGHTH DISTRICT STATES
(annual rate)
4 months
ending
Nov. 1, 1959

4 months
ending
July 1,1959

Year
ending
Mar. 1, 1959

Year
ending
Mar. 1, 1958

Arkansas ...... ... + 6 %
Illinois ......... ... — 2
Indiana ........ ... + 2
Kentucky ...... ... + 10
Mississippi ...
-O Missouri ........ ... + ^1
Tennessee . . . . + 4

-0 -%
+ 3
+ 5
+ 4
+ 2
—0 + 2

+ 6%
+ 8
+ 5
+ 9
-j-10
-|- 8
+10

+ 7%
+5
-f-4
+5
-j-6
-J-7
+5

United States. . + 3

+ 3

+ 8

+6

Source: U . S. Department of Agriculture, T he Farm Real Estate Market.

Per Cent

In d ex of A v e r a g e Valu e per A cre*

Per Cent

1940

♦Farmland and buildings

Page 10



1945

1950

1955

1959

Some Influences in the Behavior o f Prices
(Continued from page 3)
days or so in a hospital at $30 or more per day with
the cost of several weeks in the hospital at $6 per
day that might have been required for a similar
illness some years ago? It is difficult to say how
much of the difference is a difference in price and
how much is a change in the services rendered.
Problems of comparability exist in commodities
also but appear especially complex for services.

Total demand
To this point we have been concerned primarily
with influences on supply, such as growth of pro­
ductive capacity at home and abroad and increases
in productivity. But what about factors influenc­
ing total demand? Two obvious candidates for
examination are monetary policy and fiscal policy.
Monetary policy has contributed to stability. A
sizeable increase in the money supply was permit­
ted during the recession, which is generally con­




sidered to have been conducive to recovery. In
1959, growth of the money supply and of total
bank credit was almost negligible. Therefore, it
does not appear that growth of the money supply
and bank credit can have contributed much to
inflationary forces over the past year.
The Federal budget has also been tending re­
cently in a less inflationary direction. The deficit
in the cash budget may have been desirably stim­
ulative during the recession, but it continued for
a while in the recovery period. Recently the bud­
get has been moving toward balance or a small
cash surplus as growth of personal income and
corporate profits caused revenues to rise.
President Eisenhower, in his State of the Union
message, mentioned the possibility of a small sur­
plus in the Federal Budget for the current fiscal
year (ending June 30, 1960) and a much larger

Analysis o f the Radcliffe Report
-A .

STUDY of

the implications of the

Radcliffe

Report for

United States monetary policy has been prepared for the Federal
Reserve Bank of St. Louis by Professor J. M. Culbertson of the
University of Wisconsin. A limited number of copies is available
to individuals.

Requests

are

to be directed to

the

Research

Department of the Federal Reserve Bank of St. Louis.
Dated August, 1959, the Radcliffe Report, the popular name
given to the Report of the Committee on the Working of the
Monetary System, is the first full-scale study of Britain’s monetary
system since 1931.

Page 11

one, of approximately $4.2 billion, in fiscal 1961.
Application of a surplus to reduction of the public
debt would be expected to contribute to restrain­
ing inflationary forces.

A problem
A possible shortage of skilled manpower in the
near future may be conducive to upward price
pressures. In the 1955-1957 boom gross national
product measured in current dollars grew but out­
put measured in real terms lagged, in part because
the number of people in the most productive age
groups in the labor force grew at an abnormally
small rate after 1955. Now again there are reports
of shortages of technical help. This situation may
become more serious before the flood of young




people starts coming out of the colleges in the
1960’s. A shortage of such a vital resource tends
to limit growth in total output. Therefore, total
demand may have to be restrained in some way
to keep activity at a sustainable rate without
inflation. Paradoxically, there may be an apparent
over-abundance of labor in the midst of a real
shortage. In February of this year, for example,
unemployment among professional, technical, and
managerial people was very low, while unemploy­
ment among semiskilled and unskilled workers
was much higher. The rapidity of technological
change and regional shifts in the location of activ­
ities leave pockets of unfortunate people who are
no longer wanted for the types of work they are
prepared to do or where they prefer to stay.