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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 The United States Balance of Payments, 1946-1960 2 Current Financial and Business Developments 10 District Member Bank Earnings in 1960 14 VOL. 43 • No. 3 • MARCH ’6 1 The United States Balance of Payments 1946-1960 Introduction I n THREE YEARS, 1958-1960, the United States experienced deficits in its balance of payments averaging $3.7 billion per year. During this period an an nual average of $1.5 billion of U. S. gold reserves was transferred to foreign ownership. These recent U. S. payments deficits and related gold outflows have evoked considerable public concern both here and abroad with respect to the gold position of the United States. It is generally agreed that the United States must reduce its balance-of-payments deficit to well below the 1960 level of $3.8 billion if it is to arrest the out flow of gold, which amounted to $1.7 billion in 1960. The growth of foreign claims on U. S. gold reserves must be reduced. The United States Government, aware of the re quirements of its international payments position, has taken various actions to reduce certain payments abroad and to increase exports. The purpose of this article is to provide perspective for a better under standing of the deficit-reducing actions now being proposed or undertaken. The presentation is in two parts: (1) an examination of some basic concepts or principles underlying an analysis of the United States balance of payments, and (2) a review of changes in the United States balance-of-payments position from 1946 to the present time. T e B la c of In h a n e tern atio al P y e t : n a m ns S m B s P c le o e a ic rin ip s The balance of international payments of the United States (Table 1) is an accounting of all our payments to foreign countries and our receipts from foreign countries. Payments are for merchandise imports, travel expenditures and other purchases of foreign services, Government aid, and to carry out our private foreign investment. Receipts are from our exports of merchandise, sales of services, investment income, and flow of long-term investment funds to this country. Page 2 Balance-of-Payments Deficit U. S. payments (debits) result in increases in for eign-held dollar balances. U. S. receipts or credits result in corresponding decreases in foreign-held dol lar balances. Thus, when U. S. payments exceed U. S. receipts, the difference is generally reflected in acquisition of dollars which foreigners keep here on deposit or in liquid investments such as U. S. Govern ment securities, and— held by foreign governments if or central banks— may be converted into gold. The sum of the net increase in foreign-held dollar assets and the net transfer of gold to foreign ownership is the measure of the balance-of-payments “deficit” for the United States (Table 1). In the U. S. Balance of Payments for 1960 (Table 1) recorded payments ($30,2 billion) exceeded the re corded receipts by $2.8 billion. In other words, the recorded transactions created an excess of foreign claims against the U. S. in the amount of $2.8 billion. These claims (debits)1 were settled or offset by sales of gold (a credit item) of $1.7 billion and the net increase in foreign-owned dollar balances (also a credit item) of $2.1 billion. The increase in dollar balances consisting of deposits and security holdings may be regarded as foreign short-term investments in this country. The item ‘ unrecorded transactions” ( errors and omissions) amounting to $1 billion is derived by com paring the net debit balance on recorded transactions ($2.8 billion) with the total of recorded gold and dollar transfers ($3.8 billion). Since the volume of gold and dollar transfers which we have regarded as settlement items and a measure of the net deficit is more than the net balance on recorded transactions, we may assume that payments in the amount of $1 billion were unrecorded transactions, those which were not included in the nation’s reporting systems. 1 In 1960, foreign claims reflected in the net debit balance on recorded transactions w ere augmented by foreign claims aris ing out of "unrecorded transactions” in an amount of $1,040 million. T a b le 1 U. S. BALANCE OF INTERNATIONAL PAYMENTS FOR I9 6 0 * (Millions of Dollars) U. S. Payments (debits) Imports: Merchandise ................................................. $14,720 Services ...................................................... 8,550 Total imports of goods and services................ $23,270 Remittances and pensions ................................. 820 U. S. Government grants for non-military supplies and services ........................................................ 1,650 U. S. Government capital outflow (net)................... 1,050 3,440 U. S. private capital outflow (net)........................ Total recorded payments................................. $30,230 U. S. Receipts (credits) Exports: Merchandise ................................................. Services........................................................ $19,400 7,710 Total exports of goods and services................... $27,110 N e t cre dit b a la n c e on g o o d s a n d se rv ic e s. . . .$ 3 ,8 4 0 Foreign long-term investments in U. S................. Total recorded receipts................................... 360 $27,470 N e t d e b it b a la n c e on re c o rd e d t r a n s a c tio n s ...................$ 2 ,7 6 0 Se ttle m e n t o f th e b a la n c e a) Transfer of gold to foreign ownership..................................... b) Foreign acquisition of short-term dollar assets........................... $ 1,689 2,111 B a la n ce on u n re co rd e d t r a n s a c tio n s ...................$ 1 /0 4 0 Total debits ................................................. $31,270 $31,270 * Preliminary. Source: U. S. Department of Commerce. Deficits and Cold Outflows A balance-of-payments deficit does not necessarily lead to a net outflow of gold. As shown in Table 2, the volume of gold sales (Col. 7) does not always reflect the size of the deficit (Col. 5). During the period 1950-56, the United States ran deficits totaling $10.8 billion, but gold sales amounted to only $3.2 billion. In 1959, a deficit of $3.8 billion was accom panied by an outflow of gold of only $700 million. During the 1950-56 period and in 1959, foreign private creditors were willing to build up dollar bal ance holdings in preference to other currencies, and foreign monetary authorities were willing to build up dollar holdings in preference to gold. Since dol lars are freely convertible into other currencies and since they may be held in the form of interest-earning time deposits and income-yielding securities, the ad vantages of dollar balances over gold— non-earning a asset— appear to be substantial. And yet, nations have demanded some gold instead of permitting all of their dollar claims to build up into holdings of liquid dol lar balances. The desire for gold as a component of foreign offi cial reserves is of long standing— gold has always been regarded as the ultimate in safety. Foreign exchange holdings of particular currencies may have attractive ness with respect to earnings, but in the history of international finance, they have also been exposed to inconvertibility, blocking, devaluation, and even de fault by the debtor country. Convertibility of key currencies held as reserves collapsed during World War I; was partially re-established in the period 19261931; again collapsed in 1931; and from that time to 1958, most currencies of the world (except the dol lar) were exposed to a host of restrictions. Dollar convertibility, i.e., convertibility of dollars into gold or into other currencies, has not been impaired in this century except briefly in 1933 and 1934. At the present time, foreign exchange reserves in the form of strong convertible currencies play a more important role than gold in the settlement of pay ments deficits, but most central banks still choose to hold a proportion of their monetary reserves in the form of gold. When their total monetary reserves increase, as they have during the last ten years, central banks usually convert some of their newly acquired foreign exchange reserves into gold. While numerous factors, including uncertainty as to the future, may influence a foreign decision to con vert dollar claims into gold, the balance-of-payments deficit is of fundamental importance. The continuing U. S. deficit position built up large foreign holdings of dollar balances, and as long as nations regard gold as an integral part of foreign reserves, some of these accumulating dollar balances are likely to be con verted into gold. Page 3 Transactions in Goods and Services The largest part of the balance of payments in dol lar volume is that section which incorporates the recorded expenditures and receipts relating to mer chandise items and services. In the 1960 U. S. bal ance of payments (Table 1), for example, the im ports of goods and services amounted to $23 billion, or approximately 77 per cent of all recorded payments. Receipts from the export of goods and services (serv ices defined broadly to include income from the use of our foreign investments as well as transportation services, tourist travel in the U. S., etc.) accounted for practically all recorded receipts.2 Since 1946 total U. S. exports of merchandise and services have exceeded total imports of these items in every year except 1959 (Table 3). In every year of the period, 1946-1960^ the United States maintained an excess of merchandise exports over imports. From 1946 to 1960, U. S. merchandise imports increased at an average of 14 per cent a year. U. S. merchandise exports grew on the average 5 per cent per year, with growth moving in fits and starts apparently reflecting changes in the rate of foreign industrial activity. In 1960 exports expanded sharply while imports declined moderately. The deficit balance in services since 1952 reflects largely services received in connection with the main tenance of military installations abroad. (Table 3). These military expenditures abroad now account for 38 per cent of our annual imports of services and about 10 per cent of all recorded expenditures. U. S. Government Aid and Private Capital Outflows In the eleven years, 1950-1960, total recorded pay ments resulting from United States loans, unilateral transfers (nonmilitary) both public and private, and private investment abroad (Table 4) exceeded in each year (except 1957) the sum of the credit balance on goods and services3 and the receipts derived from foreign long-term investment in the United States. Since 1950, the net payments position of the United States has fluctuated sharply. (Table 2, col. 5). The explanation for the appearance of a large deficit in 1950, the small deficit in 1951, and the jump in the 2 Receipts in the form of loan repayments are not shown in the simplified 1960 balance of payments. They are deducted from U. S. loans abroad to obtain the net amount extended in a given year. (For details on U. S. Government loan repay ments through 1959, see T able 4.) 3 In 1959 goods and services transactions showed a small deficit balance (Table 3). Page 4 deficit level in 1958 does not appear in the data on U. S. Government aid and private capital outflows (Table 4). The total of these payments fluctuated much less than the over-all deficit position. Generally, as shown in Chart 1, fluctuations in the size of the Chart 1 U. S. Balance of Payments I960 Data by Quarters, Seasonally Adjusted at Annual Rates. * Net goods and services, less military transfers under grants. * * Minus figures indicate balance of payments deficits, settled by net gold sales and increases in foreign-held dollar assets. (Payment of subscrip tions to international institutions in 1946, 1947, and 1959 excluded from totals.) Source: U. S. Department of Commerce. over-all deficit from year to year showed an inverse relationship to fluctuations in the balance on goods and services. The year 1960 is the only exception. T e P s a E p rie c h o tw r x e n e 1 9 4 6 -1 9 6 0 Since 1946, the balance-of-payments position of the United States has been marked by four distinct phases: (1) a surplus position averaging $2 billion per year between 1946 and 1949; (2 ) a deficit posi tion averaging $1.5 billion from 1950 to 1956; (3) a small surplus position of $0.5 billion for 1957; and (4) a large deficit position averaging $3.7 billion from 1958 through 1960. Balance-of-Payments Surplus, 1946-49 In the immediate postwar period the United States was almost the sole source of supply for many indus trial goods needed by a war-torn world. With little to sell but much to buy, foreign nations under the impact of dwindling international monetary reserves of gold and dollars would have been forced to en gage in a drastic curtailment of imports in order to balance their accounts. But American economic aid in the form of grants and loans (Table 4) made it possible for foreign nations to start the process of re- T a b le 2 U. S. BALANCE OF PAYMENTS POSITION 1946-19601 Note: Payments deficits, increases in liabilities to foreigners, and gold sales are shown by (— ). (Millions of Dollars) | Year (1) Recorded Receipts2 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 + 14,735 + 19,737 + 16,789 + 15,851 + 13,954 + 19,045 +18,246 + 17,287 + 18,193 +20,349 +24,235 +27,094 +23,349 +24,012 +27,470 — — — — — — — — — — — — — — — 13,004 15,714 16,790 16,534 17,526 19,858 19,843 19,685 19,876 21,944 25,846 27,374 27,206 28,621 30,230 (4) Net Unrecorded Transactions (5) Net Payments Position (6) Change in Liquid Dollar Liabilities to Foreigners4 (7) U. S. Gold Sales + 1,731 +4,023 — 1 — 683 — 3,572 — 813 — 1,597 — 2,398 — 1,683 — 1,595 — 1,611 — 280 — 3,857 — 4,609 — 2,760 (2) Recorded Expenditures'** (3) Net Balance on Recorded Transactions + 195 + 936 + 1,179 + 775 — 30 + 470 + 505 + 296 + 167 + 446 + 643 + 748 + 380 + 783 — 1,040 + 1,926 +4,959 + 1,178 + 92 — 3,602 — 343 — 1,092 — 2,102 — 1,516 — 1,149 — 968 + 468 — 3,477 — 3,826 — 3,800 + 1,303 +2,110 — 352 — 72 — 1,859 — 396 — 1,471 — 941 — 1,218 — 1,108 — 1,274 — 330 — 1,202 — 3,095 — 2,111 + 623 +2,849 + 1,530 + 164 — 1,743 + 53 + 379 — 1,161 — 298 — 41 + 306 + 798 — 2,275 — 731 — 1,689 1 I9 6 0 data are preliminary. 2 Sum of exports of goods and services (less goods shipped under military grant), and, from 1950 to date, direct and long-term portfolio invest ment by foreigners. 3 Sum of imports of goods and services, net unilateral transfers (less military aid grants) and net outflow of U. S. capital. Payments of subscrip tions to international institutions amounting to $3,385 million in 1946 and 1947, and $1,375 million in 1959 are excluded from totals of recorded expenditures and gold sales. 4 Short-term liabilities to foreigners and long-term U. S. Government securities. Prior to 1950, includes direct and portfolio investment in the United States by foreigners. Source: U. S. Department of Commerce. Table 3 U. S. BALANCE OF G O O D S A N D SERVICES (Millions of Dollars) MERCHANDISE 1 Year Exports 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 I9602 11,707 16,015 13,193 12,149 10,117 14,123 13,319 12,281 12,799 14,280 17,379 19,390 16,263 16,225 19,400 Imports — — — — — — — — — — — — — — — 5,073 5,979 7,563 6,879 9,108 11,202 10,838 10,990 10,354 11,527 12,804 13,291 12,951 15,315 14,720 Balance 6,634 10,036 5,630 5,270 1,009 2,921 2,481 1,291 2,445 2,753 4,575 6,099 3,312 910 4,680 Exports 3,028 3,722 3,596 3,702 3,784 4,740 4,786 4,800 5,150 5,723 6,326 7,343 7,062 7,239 7,710 Total — — — — — — — — — — — — — — — 1,918 2,229 2,786 2,823 2,990 3,940 4,922 5,654 5,734 6,410 7,025 7,632 8,102 8,245 8,550 SERVICES Imports Military — — — — — — — — — — — — — — — 493 455 799 621 576 1,270 1,957 2,535 2,603 2,823 2,955 3,165 3,412 3,090 3,020 TOTAL G O O D S AND SERVICES Other — — — — — — — — — — — — — — — 1,425 1,774 1,987 2,202 2,414 2,670 2,965 3,119 3,131 3,587 4,070 4,467 4,690 5,155 5,530 Balance — — — — — — — — — 1,110 1,493 810 879 794 800 136 854 584 687 699 289 1,040 1,006 840 Exports 14,735 19,737 16,789 15,851 13,901 18,863 18,105 17,081 17,949 20,003 23,705 26,733 23,325 23,464 27,110 Imports — — — — — — — — — — — — — — — 6,991 8,208 10,349 9,702 12,098 15,142 15,760 16,644 16,088 17,937 19,829 20,923 21,053 23,560 23,270 Balance 7,744 11,529 6,440 6,149 1,803 3,721 2,345 437 1,861 2,066 3,876 5,810 2,272 — 96 3,840 1 Excludes military transfers under grant. 2 Preliminary. Source: U. S. Department of Commerce. building their economies by purchasing large quantities of critically needed goods from the United States. As shown in Table 3, in each of the four years 1946 through 1949, merchandise exports exceeded imports by $5 billion or more, while the surplus of service exports averaged about $1 billion. The surPage 5 plus balance on goods and services, together with unrecorded receipts, more than offset the large total of U. S. payments abroad in the form of Government grants, loans, and exports of private capital*. During this period in which the United States maintained a surplus in its balance of payments, total Government economic aid (grants and loans) averaged $5.2 bil lion as compared with an average of a little over $2 billion during the last eleven years (Table 4). The Shift to Deficits, 1950-1956 In 1950 the United States experienced a substantial drop in merchandise exports and an equally substan tial increase in imports. (Table 3). The balance on goods and services, reflecting this sharp change in the relationship of exports and imports, decreased sharply from $6.1 billion in 1949 to $1.8 billion in 1950. Although the degree of change in 1950 was un expected, numerous forces in existence prior to 1950 were operating to reduce the large gap between U. S. exports and imports. As European nations be gan to rebuild their productive capacities they were able to supply some of the goods that had been so scarce in the two or three years following the end of World War II. The rising U. S. price levels of 1947 and 1948 and the network of foreign restrictions on American goods also may have contributed to some sluggishness in U. S. exports while the rising incomes in the United States stimulated a growth in imports. The marked shift in the relationship of exports to imports in 1950 developed largely as a result of the Korean hostilities and the accompanying speculative rush for materials which accelerated U. S. imports. U. S. exports, though subject to similar war-induced demands for goods, were held down in 1950 because of widespread foreign import and exchange controls on dollar purchases. The currency devaluations in stituted by foreign governments in the fall of 1949 also had some influence. The cheapening of foreign currencies relative to the dollar had a contractive effect upon U. S. exports and an expansive effect upon imports. Another factor contributing to the appearance of a $3.6 billion deficit for 1950 was a marked increase in private capital outflow from $0.55 billion in 1949 to $1.26 billion in 1950 (Table 4). The United States payments deficits continued through 1956 (Table 2, Col. 5). The surplus balance on goods and services (Table 3 ), while above the 1950 level, was noticeably lower than the average of the immediate postwar years. Merchandise exports Page 6 continued to exceed imports. The positive balance of trade dipped in 1952 and 1953 as a result of a decline in exports^ but rose substantially from 1954 through 1956. The 1952-1953 drop in exports was mainly a reaction to the return to greater world stability after the sudden upsurge of world demand following the outbreak of war in Korea. A significant factor limiting our surplus of receipts on goods and services during this period (1950-56) was a substantial rise in our imports of services. Mil itary expenditures abroad, one of the service compo nents, jumped to over $2 billion in this period from a level of approximately $0.5 billion in the early post war years. Other services, including tourist expen ditures abroad, increased from $2.4 billion in 1950 to $4.0 billion in 1956. The smaller surpluses on goods and services were therefore too thin for complete financing of Govern ment grants, loans, and private capital outflows (Table 4). Government grants and loans continued at a level substantially lower than during the early postwar years (1946-1949) but private capital out flows, primarily long-term investments abroad, fluc tuated around the level attained in 1950. During this seven-year period in which the pay ments deficit averaged $1.5 billion, the gold outflow from the United States was relatively small, reflect ing the willingness of foreigners to accumulate dollars rather than gold. (Table 2, Col. 6). Payments Surplus in 1957 In 1957, the United States experienced its only pay ments surplus of the 1950's (Table 2). As shown in Table 3 the major cause of this over-all surplus was the exceptionally high level of merchandise exports providing a trade surplus of $6.1 billion and a surplus on goods and services of $5.8 billion. The upward surge in exports was influenced by an investment boom abroad and the Suez crisis which forced the European countries to turn to the United States for heavy ship ments of crude oil, petroleum products, and other basic commodities. Although this abnormal demand for U. S. commodities disappeared in the second half of 1957, it raised the annual level of merchandise exports to a record high of $19.3 billion. The Deficits of 1958-1960 In the period 1958-60 the over-all deficit in the balance of payments of the United States was at a new high level (Table 2). In 1958 the merchandise trade surplus dropped to $3.3 billion as compared T a b le 4 U. S. PAYMENTS ABROAD (Excluding Payments for Goods and Services) 1946-1960 (Millions of Dollars) Government Loans Year 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 I9601 TOTAL $— — — — — — — — — — — — — — — 6,013 7/506 6,441 6,832 5,428 4,716 4,083 3,041 3,788 4,007 6,017 6,451 6,153 5,061 6,960 Total Net $— — — — — — — — + — — — — — — 2,701 3,907 1,024 652 156 156 420 218 93 310 629 958 971 358 1,050 Long-Term Loans Extensions Repayments $— 3,025 — 4,088 — 1,555 — 684 — 414 — 458 — 847 — 716 __ 306 — 383 — 545 — 993 — 1,176 — 1,018 n.a. $+ 86 + 294 + 443 + 205 + 295 + 305 + 429 + 487 + 507 + 416 + 479 + 659 + 544 + 1,013 n.a. Short-Term Net $+238 — 113 + 88 — 173 _ 37 — 3 + — — — — — — 2 11 108 343 563 624 339 353 n.a. Private Government. Remittances Grants and (Non-Military) Pensions $— — — — — — — — — — — — — — — 2,274 1,897 3,894 4,997 3,484 3,035 1,960 1,837 1,647 1,901 1,733 1,616 1,616 1,623 1,650 $— — — — — — — — — — — — — — — 625 715 617 630 523 457 545 617 615 585 665 702 722 779 820 Private Capital Outflow Total $— — — — — — — — — — — — — — — 413 987 906 553 1,265 1,068 1,158 369 1,619 1,211 2,990 3,175 2,844 2,301 3,440 Long-Term Net $— — — — — — — — — — — — — — — 103 798 790 740 1,116 965 1,064 536 984 1,020 2,462 2,917 2,538 2,212 2,000 Short-Term Net $— — — -f — — — 310 189 116 187 149 103 94 + 167 — 635 — 191 — 528 — 258 — 306 — 89 — 1,440 i Note: Payments of subscriptions to international institutions amounting to $3,385 million in 1946 and 1947, and $1,375 million in 1959 are excluded from Government loan totals. 1 Preliminary, n.a.— not available. Source: U. S. Department of Commerce. with the 1957 level of $6.1 billion (Table 3). Our exports contracted significantly after June 1957 as industrial production in Europe leveled off. The steep ness of the decline was due in part to the fact that U. S. exports had been exceptionally high in the winter of 1957. The over-all deficit of approximately $3.5 billion in 1958 (Table 2) reflected the marked shrinkage in receipts from exports in the face of a fairly stable total of military expenditures, capital investments and other transfers abroad (Table 4). In 1959, U. S. merchandise exports held their 1958 level, but imports jumped from $13.0 billion in 1958 to $15.3 billion. As a result our merchandise trade surplus dropped to a postwar low of $910 million, more than $5 billion below 1957 (Table 3). The sluggishness in U. S. exports for the years 1958 and 1959 reflected the leveling off of business activity in Western Europe in 1958 and a decline in capital investment expansion in Canada and Latin America. At the same time the United States began to feel the growing competition from foreign suppliers of such goods as electrical machinery, generating equipment, farm equipment, and automobiles. The marked rise in U. S. imports in 1959 (Table 3) reflected the business recovery of 1958-59, rising U. S. incomes, and the popularity of foreign automobiles, transistor radios, portable typewriters and finished manufactured goods in general. The import rise was also accentuated by orders for foreign steel placed in anticipation of the steel strike in this country. These orders were promptly filled because of excess Euro pean steel capacity. The sharp drop in the 1959 U. S. merchandise surplus accounted for the appearance of the first postwar deficit in the balance on goods and services (Table 3). With no recorded surplus receipts to lean on, the payments abroad required by Government loans and grants and private capital outflows, al though below the 1958 totals, created an over-all deficit position of $3.8 billion in the United States balance of payments (Table 2). The story of the 1960 deficit, in contrast to 1958 and 1959, lies essentially in private capital outflows rather than in the merchandise trade balance. The merchandise trade balance improved remarkably dur ing 1960 with a dramatic rise beginning in the second half of 1959 pushing U. S. exports up to the $19.4 billion level in 1960 while imports declined moderately from the 1959 level (Table 3). The excess of mer chandise exports over imports amounted to $4.7 bil lion in 1960, an increase of $3.7 billion over 1959. As a result, the net goods-and-services balance moved from a small deficit in 1959 to a surplus of $3.8 billion in 1960 (Table 3). The rise in exports in 1960 reflected primarily the high level of industrial activity and rising incomes in Page 7 Western Europe and Japan. The combination of relative price stability in the United States with rising costs and prices abroad also created a favorable en vironment for U. S. exports. Recent export growth may be attributable in part to a marked relaxation in discriminatory restrictions on imports of American goods. It may also be that the Government’s national export expansion program launched last spring has had some influence in developing more vigorous American selling efforts abroad. The 1960 surplus balance on goods and services of $3.8 billion, a marked improvement over the deficit of $96 million in 1959, was offset by significant changes in other components of the U. S. balance of payments. Recorded total payments on transactions other than goods and services increased almost $2 billion in 1960 (Table 4). The recorded inflow of receipts derived from foreign long-term investments in the United States declined approximately $200 million from the 1959 level. Unrecorded transactions which had shown net receipts of 783 million in 1959 swung sharply, par ticularly in the second half of 1960, to produce a debit balance amounting to $1 billion for the year. (Table 2, Col. 4). The rise in 1960 of net payments (excluding those for goods and services) resulted primarily from an in crease in the reported net outflow of private U. S. short-term capital. The reported outflow of $1.4 billion (Table 4) probably understates the actual net move ment of funds abroad since some shifting out of dollar assets— by private foreigners and Americans— seems to have escaped the reporting systems. Many observ ers believe the sizable debit balance on unrecorded transactions reflects, to a great extent, the unrecorded payments involved in private short-term capital out flows. A motivating force behind the outflow of capital in 1960 has been the spread between short-term interest rates in the United States and in principal European countries. The relatively high rates in Europe have induced both foreign and domestic holders of dollar balances to convert such balances into foreign cur rencies for investment abroad. The fact that many Western European currencies are now free from re strictions on convertibility has probably contributed to the sensitivity of short-term funds to interest rate differentials. While the recent short-term capital outflows have contributed to the U. S. balance-of-payments deficit and have accelerated gold outflows, they may be tem porary or short run. Interest rate relationships do change, and when they do the movements of short term capital may change their direction. There are already some indications of a narrowing interest dif Page 8 ferential in the recent easing of short-term interest rates in the United Kingdom, France, and Germany* In late 1959 and early 1960 short-term rates in the United States were higher than in most European countries (Chart 2) and as a result foreign holders of Chart 2 Yields on 3-Month Treasury Bills ll M on th ly A v e r a g e s o f W e e k ly Figure* Latest d a t a plotted: February |2 End o f M onth F igu re s on 6 0-9 0 D a y Treasury Bills Latest d a ta plotted: J a n u a r y |3 M on th ly A v e r a g e s o f D a ily Figures Latest d a ta plotted: February dollar claims chose to hold liquid dollar balances in the United States. As shown in Table 2, (Col. 6 and 7) virtually all of the $3.8 billion deficit in 1959 was settled by an accumulation of new foreign-held dollar balances with only a small amount of the deficit reflected in gold sales. In 1960, however, the U. S. payments deficit of $3.8 billion was accompanied by a gold outflow of $1.7 billion. Virtually all of this outflow occurred in the last half of 1960 when U. S. short-term interest rates were substantially below rates in Western Europe. C n lu in O s r a n o c d g b e v tio s One lesson emerging from the record of the U. S. payments position since 1946 is the importance of policy moves designed to make American goods more attractive to both foreign and American buyers. The swing from a surplus balance-of-payments position in the late forties to the deficit position of the fifties and the large increase in the deficits of 1958 and 1959 resulted from substantial decreases in the excess of U. S. merchandise exports over imports. To make American goods more attractive or com petitive requires aggressive trade promotion, further relaxation of foreign restrictions on American goods, and export pricing within the framework of a general price structure free from inflationary distortions. The success of Western Europe in rebuilding its economy and strengthening its international reserve position during the last ten or eleven years is partly due to its resolve to conquer inflationary pressures with appro priate monetary and fiscal policies. The importance of Government foreign aid as a factor contributing to the U. S. deficit has been stressed by some observers. The data on Government loans and grants (Table 4), however, do not explain the shift from surpluses to deficits at the beginning of the fifties nor do they account for the sudden increase in the deficit level in 1958. As noted previously, fluctuations in the size of U. S. payments deficits have been more directly influenced by changes in the re lationship between merchandise exports and imports. There may be compelling foreign policy considera tions calling for changes in our foreign aid programs. Greater participation in foreign aid commitments by nations of Western Europe may be one of the appro priate changes. But, since the link between U. S. foreign aid payments and U. S. exports is so close, a change in the magnitude of U. S. foreign aid disburse ments is not likely to bring about a corresponding change in the size of the payments deficit. Military expenditures for maintenance of defense establishments abroad have been an important “out payment” in recent years. (Table 3). Within the limits of national defense and world security needs, reduc tions in military expenditures may be an appropriate secondary attack on the deficit. Movements of short-term funds in response to in terest rate differentials and speculative anticipations are likely to be a normal feature of the international payments system in the future. With the reestablish ment of currency convertibility in 1958, money bal ances have become more mobile and sensitive to interest rate differentials and speculative influences throughout the noncommunist world. These capital movements pose a problem for the United States or any other country which acts as a world banker, i.e., whose currency is held as a part of the international reserves of other nations. With a large outstanding volume of dollar liabilities to foreigners, there will be times when other nations may wish temporarily to move out of dollar balances in order to exploit higher short-term interest returns in other currencies and other money markets. Such outflows of capital may be accentuated whenever recession in the United States accompanies a boom in other countries. These outflows of short-term cap ital may impose serious strains on existing U. S. gold reserves. The result of a short-term capital outflow from the United States is an increase in foreign central bank holdings of dollar assets. This increase stems from the sale of dollar assets by foreign private holders ex pressing a preference for other currencies. This sale of dollar balances to central banks by foreign private holders commonly involves both the sale of previously existing dollar balances and the sale of newly accumu lated dollars acquired in those transactions in which Americans have purchased foreign short-term assets. As foreign official dollar holdings increase beyond desired levels, a part of these holdings are converted into gold. The problem confronting the policymakers at this point is that the objective of arresting the capital outflow may call for relatively higher short-term in terest rates in the United States, but the objective of resisting the domestic recession may call for more credit ease and lower rates of interest. This is an important policy question not easily resolved. You save more than money \ ANNIVERSARY J 16 91 / * * * * * * * * * w ith U.S. Savings Bonds Page 9 Current Financial and Business Developments T h e MONEY SUPPLY has risen slightly since October and the turnover of money, which was de clining last fall, has apparently leveled off recently. Bank credit rose in the fourth quarter last year but has declined slightly thus far in 1961. Member bank re serves, an important determinant of the amount of bank credit and the money supply, have been working up in recent months. The structure of interest rates has altered somewhat in January and February as short-term rates have risen while long-term rates declined slightly on balance. There have been some signs of improvement in the steel industry as users of steel appear to be nearing the end of their reduction of steel inventories. Retail sales and construction activity were down from the December level in January, in part because of the severe winter weather in parts of the country. Depart ment store sales declined from January to February. Unemployment was high in January and February in major metropolitan centers of the Eighth District and in the nation. Increases in prices of farm products in January and February offset declines in some indus trial materials to produce a slight increase in the wholesale price index. Reserves of Member Banks* Billions of Dollars W e e k ly A v e r a g e s o f D a ily Figu re s S e a so n a lly A d ju ste d Bank Reserves Reserves of member banks increased slightly during January and February on a seasonally adjusted basis. Effective reserves, i.e., total reserves adjusted for sea sonal variation and for reserve requirement changes, have fluctuated around the $19.0 billion level since last October. In early January 1960 reserves averaged roughly $18.6 billion and then declined to below $17.9 billion during late March and early April. During the period April-October reserves worked up to their present level. Bank Credit During January total loans and investments of com mercial banks, seasonally adjusted, declined; however, preliminary indications based on weekly reporting banks are that bank credit expanded during February. During the twelve months of 1960 commercial bank credit increased from $190 billion to $200 billion, a gain of over 5 per cent. Loans expanded almost steadily during 1960. Investments declined during the first six months of 1960 and then expanded rather sharply dur Billions of D ollars ing the last half of the year. Money Supply Latest d a ta p lo t te d :W e e k E n d in g M a rc h 8, 1961 •Reserves of member banks adjusted for changes in the percentage of reserves required, sometimes referred to as "Effective" reserves. Page 10 The money supply of the coun try, defined as demand deposits and currency, expanded during January and February according to preliminary data. This rise more than offset a decline from October to December last year. From Octo ber to February the money supply rose at an average annual rate of 1/2 per cent. Since June of 1960, time and savings deposits at com mercial banks have expanded at an 11 per cent annual rate. The turnover of money appears to have changed little in recent months. Velocity of demand deposits, which expanded rapidly early in 1960, reached a peak of over 26 times per year by the middle of the year at reporting banks outside the seven large financial cen ters. During the latter half of the year the turnover of these deposits declined. Liquid Assets Held by the Non-Bank Public Ratio Scale Ratio Scale Other Liquid Assets Short-term Government securities held by the non bank public, seasonally adjusted, probably expanded during January as the Treasury issued $500 million more bills than it redeemed in this month. From April through December of last year the quantity of short-term Government securities declined almost steadily. Other liquidity instruments, such as savings and loan shares and time deposit accounts, expanded continuously during 1960. On February 15 the Treas ury sold $7.3 billion 18-month certificates primarily to obtain funds to redeem $6.9 billion in notes which came due. It was announced by the Treasury that the decision to confine the issue to a relatively short maturity was influenced by current market conditions, the domestic economic situation, and the international balance-of-payments deficit. Interest Rates Treasury bill rates have moved up slightly in the first two months of the year. Yields on long-term M o n e y Su p p ly •Time deposits of commercial banks and mutual savings banks, savings and loan shares, U. S. Government savings bonds, and U. S. Government secu rities maturing within one year. Source: U. S. Department of Commerce. Government bonds declined on balance over the same period, a rise in January being more than offset by a decline in February. As a result, the spread between long-term and short-term yields narrowed in the period. Since mid-1960 three-month Treasury bills have fluctuated within the 2.10-2.60 per cent range. In this same period yields on long-term Governments have fluctuated within a very narrow range about the 3.80 per cent level. During the first nine days of March yields on both Treasury bills and long-term Government bonds declined moderately. Semi-Monthly A ve rage s of Daily Figures Sea so n ally Adjusted Billions of Dollars Billions of Dollars Yields on U.S. Government Securities Per Cent X W eekly Averages of Daily Figures ... 1 1 1 1 1 1| 1 "T 1 1 Per Cenf | 1 1 Long-Term Bonds \/\ \ i\ ■ 1 V A 3-5 Y ear Bonds 1 V \ f 3-M onth T reasury Bills - Latest data plotted: W eek E nd in g M a rc h 3, 1961 1 1 . J-------1 ------ L ____1___1__ 1____1 L___ 1 _ _ _ ----Latest d a ta plotted: Last h a lf o f F e b ru a ry estim ated 1960 J___ 1 ___ 1, ,1 ___ 1 _____ 1961 Page 11 On February 20, it was announced that the System Open Market Account will purchase in the open mar ket U. S. Government notes and bonds of varying ma turities, some of which will exceed five years. During recent years transactions for the System Account, ex cept in correction of disorderly markets, have been made in short-term U. S. Government securities. Au thority for transactions in securities of longer matur ity has been granted by the Open Market Committee of the Federal Reserve System in the light of condi tions that have developed in the domestic economy and in the U. S. balance of payments with other coun tries. Stock Prices In February and the first nine days of March, stock prices, as measured by the Standard and Poors 500 Stock Composite, averaged 63, up 16 per cent from Stock Prices* Monthly A v e ra g e s of D a ily Figures 1941-43=10 In early 1959 steel production was high, as inventories of steel were increased in anticipation of the steel strike. During the steel strike users of steel main tained their production rates by drawing on stocks and did not show signs of being seriously pinched for supplies until toward the end of the strike. Imme diately after the strike the steel industry attained high output rates again, very soon meeting demand for current use and for rebuilding inventories. From January to December production of iron and steel declined by 46 per cent. Output of the principal steel-using industries plotted in Chart 1, on the other hand, declined by about 8 per cent. Over the twelve months, inventories of steel held by users and by the steel industry were substantially reduced. Steel output in the St. Louis area has trended up ward from the low point at the end of last December, with increases registered in six of the first nine weeks of this year. But production for the year so far is still 19 per cent under the same period in 1960. At steel mills in the nation, despite the February upturn, the year s total output was 45 per cent under the year-ago volume. If users of steel stop reducing their stocks, the steel industry would have to increase its operating rate further in order to meet the rate at which steel is being used. How much improvement may be ex pected depends ultimately upon the final demand for goods. Manufacturers’ orders for durable goods in January declined 2 per cent from the December level, after Production of Iron and Steel compared with Machinery and Related Products4 1 1957=100 S e a s o n a lly A d ju ste d 1957=100 last October and 12 per cent from February 1960. Prices of industrial stocks rose at a slightly faster rate than prices of other issues. As a result of the increase in stock prices and a decline in corporate earnings, the eamings-price ratio and the dividendprice ratio have declined significantly. Inventories and Sales A rise of steel production in January and Feb ruary has raised some hopes that liquidation of steel inventories may be ending. As can be seen from the chart, the gyrations in iron and steel output have been much wider than the movements in activity of major steel-using industries over the past two years. Page 12 * Machinery and related products include farm machinery and tractors, metal working machinery, household appliances, trucks, automobiles, aircraft, and railroad equipment. Source: Board of Governors of the Federal Reserve System. seasonal adjustment, continuing a decline that started in October of last year. The automobile industry in particular reduced output sharply in January as deal- highway construction both declined. Private non residential construction continued to rise. Employment Manufacturers’ Sales, Inventories and Orders S e a s o n a lly A d ju st e d Ratio Scale Billions of D ollars Ratio Scale Billions of Dollars Source: U. S. Department of Commerce. ers’ orders and sales fell off. February production and the production scheduled for March were about at the January level or lower. The steel industry, how ever, reported some improvement in orders from other industries during February. Total sales of retail stores declined from October through January of this year, with a substantial part of the decline occurring in the sales of automotive dealers. Bad weather in January no doubt accounted for some of the weakness in retail sales. In the three weeks ending March 4, sales at report ing department stores of the Eighth District were substantially higher than in the same weeks of 1960. Part of the increase may be attributed to the fact that Easter is earlier this year than last. The weather has also been better this year, except in Louisville where sales were adversely affected by a snowstorm in the week of February 25. For the year through March 4, sales at district department stores were about the same as in the same period of last year. Construction New construction, at a seasonally adjusted annual rate of $54.4 billion in February, was down 2 per cent from the January rate and was slightly lower than it was a year earlier. Private residential building and Nonagricultural employment, after seasonal ad justment, increased slightly in January. There were small increases in construction, State and local gov ernment, and in retailing (employment in retailing declined less than seasonally). In manufacturing, however, there were widespread reductions, especially in durable goods manufacturing. Unemployment, however, rose from December to January and again from January to February. In mid-February total unemployment in the nation reached 5.7 million, or 6.8 per cent of the civilian labor force, after allowance for seasonal influences. Since the end of last year unemployment has in creased sharply at all major labor market areas of the Eighth District. Throughout the district there have been heavy employment losses in construction, trade, and durable goods manufacturing. Not all the in crease of district unemployment in the early weeks of the year was seasonal. In the Louisville area unem ployment was particularly high in the metals indus tries. Cutbacks in automobile assemblies added to the number of jobless workers in St. Louis and Louis ville. In the week ending February 25 the number of workers receiving unemployment checks was sub stantially above the year-ago figure at all the large labor markets of the district. The increase from a year ago was greatest in the St. Louis area where the number of insured unemployed was four-fifths larger than in the same week last year. At the same time, new claims for unemployment compensation were down from the recent February level and were at the low for the year at all district areas. Prices Increases in prices of farm products were the main source of a slight rise in the wholesale price index between early January and February. There was some strengthening in prices of steel scrap, pos sibly reflecting the increase in steel production. Prices of copper and copper products were reduced. The cold winter has brought some increase in fuel oil prices. The consumer price index edged downward from December to January. Every major group, ex cept medical care, either declined or was unchanged over the month. (Continued on Page 16) Page 13 District Member Bank Earnings in 1960 O p e r a t in g EARNINGS, expenses, and net profits of Federal Reserve member banks in the Eighth District rose substantially from 1959 to 1960. Net profits after taxes totaled $62 million during 1960, 30 per cent more than in the year before and 24 per cent more than in 1958, the previous high (see Table, Line 18). The increase in district bank profits during the past year roughly paralleled the gains experienced by banks in other regions. Profits after taxes for all member banks in the country amounted to $1,686 million, 34 per cent more than in 1959. Member banks include all national banks and those state banks which have joined the Federal Reserve System. About 6,175 banks or 46 per cent of all com mercial banks belong to the System, but these banks hold approximately 84 per cent of all commercial bank deposits. In the Eighth Federal Reserve District 485 banks, 33 per cent, are members and they hold about two-thirds of all commercial bank deposits within the area. consist largely of items carrying the old rates. On the other hand, district banks reduced the average size of their investment portfolios from 1959 to 1960. Income received by district member banks from trust departments, service charges on deposits, and other charges and fees rose 7 per cent from 1959 to 1960, and amounted to 18 per cent of total earnings during 1960. Receipts from service charges on de posits have been rising rapidly in recent years. During 1960 these charges amounted to $12.5 million, 7 per cent above the amount collected in the previous year. Since 1953, service charges have more than doubled at district banks. By comparison, demand deposits held by these banks rose 7 per cent from 1953 to 1960 and deposit turnover rose 33 per cent. E A R N IN G S A N D EXPENSES Eighth District Member Banks (In millions of dollars) 1960 1959 1958 181.6 160.5 141.4 56.9 16.1 56.3 15.7 51.7 14.9 12.5 21.6 11.7 20.0 10.6 18.4 e a r n i n g s ................... 2 8 8 .7 2 6 4 .2 2 3 7 .0 7. Salaries and w ages............. 8. Interest on time deposits...... 9. Other current expenses........ 73.8 38.2 67.3 69.9 30.8 60.5 66.4 27.0 55.2 179 .3 161.2 148 .6 109 .4 103 .0 8 8.4 1. interest and discounts on loans 2. Interest on Government securi- Total operating earnings of district member banks amounted to $289 million in 1960 compared with $264 million in 1959, an increase of 9 per cent (see Table, Line 6 and Chart 1). Nearly seven-eights of the gain resulted from a rise in the amount of interest and discounts received on loans (see Table, Line 1). Dur ing 1960, district member banks had an average of $3.1 billion loans outstanding; during 1959, their loans averaged $2.9 billion. They received an estimated average of 6.35 per cent on their loans last year com pared with 6.25 per cent the year before.1 3. Interest on other securities... 4. Service charges on deposit ac5. Other current earnings........ 6. 10. T otal curre n t o p e r a tin g T otal curre n t o p e r a tin g e x p e n s e s ................. 11. Net curre n t o p e r a tin g e a r n i n g s ................... Income from investments rose about $1 million (1.4 per cent) from 1959 to 1960, with interest re ceived on both Government securities and other obligations rising (see Table, Lines 2 and 3). The increased return was occasioned by a higher average yield on securities, despite the fact that interest rates on newly acquired issues declined after reaching a peak early in 1960. For a while after a change in rates on new loans or investments, bank portfolios Net recoveries and profits (4~), losses (— ): Page 14 + — — 7.4 6.9 1.7 — — — 22.4 3.5 3.6 + — — 9.0 5.0 1.8 p ro fits — 1.2 — 2 9 .5 + 2.2 15. 16. ..................... N e t p ro fits b e fo re t a x e s 17. Taxes on net income........... 18. 1 Selected operating ratios of Eighth District member banks are being prepared. Copies of the summary tables may be ob tained from die Research Department, Federal Reserve Bank of St. Louis. on securities on loans others 12. 13. 14. N e t p ro fits a fte r t a x e s 19. Cash dividends on 108.2 73 .5 9 0 .6 46.0 25.7 40.4 6 2.2 4 7 .8 50.2 23.6 38.6 21.0 26.8 20.7 29.5 common 20. Net retained earnings.......... Chart 1 Earnings and Expenses Eighth District Member Banks Ratio Scale Millions of Dollars Ratio Scale Millions ot Dollars risen, (2) a larger share of bank resources has been placed in loans and smaller shares in cash and lower yielding investments, and (3) service charges have increased. Net Profits Net current operating earnings of district member banks advanced to $109 million in 1960, an increase of 6 per cent over 1959 (see Table, Line 11). Net losses, charge-offs, and transfers to reserves absorbed about $1 million in 1960, much less than usual. Losses on bad debts and increases in reserves for future losses were nearly matched by large net capital gains on security transactions. In 1958 banks also had unusually large capital gains on security sales. Net profits before taxes were $108 million, 47 per cent higher than in 1959 and 19 per cent greater than in 1958 (see Table, Line 16 and Chart 3). For all mem ber banks in the nation, net profits rose 12 per cent from 1958 to 1960. E en xp ses Again in 1960, as in six of the past nine years, district member bank expenses grew at a more rapid rate than total earnings. Total operating expenses climbed $18 million or 11 per cent from 1959 to 1960 while total earnings rose 9 per cent (see Table, Line 10). Interest payments on time deposits jumped about 24 per cent from 1959 to 1960. This was the sharpest increase in a major expense item and the eighth straight year of substantial increases in the amount of interest paid on savings and other time accounts. The gain resulted primarily from a rapid expansion in deposits although some banks raised the rate paid on these funds. In contrast to the increase in profits of banks, aggregate profits of nonbanking corporations through out the nation decreased somewhat from 1959 to 1960. Over the postwar period returns have been greater on capital invested in nonbanking businesses than on funds invested in banks. From year to year, however, bank earnings have been considerably more stable than corporate earnings generally. Income taxes absorbed $46 million of the profits of Eighth District member banks during 1960. These taxes amounted to 42.5 per cent of net profits. Income taxes as a share of bank net profits fluctuate from year to year, partly because of capital gains on security Chart 2 Expenses per $100.00 of Assets Dollars Eighth District M em ber Banks Dollars All other categories of expense incurred by district member banks rose in 1960. Salaries and wages, the largest expense item, increased 6 per cent from the previous year, about the same rate of increase as from 1958 to 1959. Local taxes, depreciation, interest paid on borrowed money, and directors’ fees each rose 8 per cent or more. During the entire postwar period, expenses of banks have been rising at a much faster rate than bank resources (see Chart 2). Operating costs equaled about $2.65 for each $100.00 of total assets in 1960. By comparison, they were $2.43 in 1959, $2.34 in 1958, $1.61 in 1950, and $1.20 in 1946. Banks have been able to pay these higher expenses and expand their net earnings in part because: (1) interest rates have I9 6 0 p relim ina ry Page 15 transactions in some years and losses in other years. For the eight years 1952 through 1959, income taxes averaged about 41 per cent of net profits of district banks. Chart 3 N et Profits Eighth District M em b er Banks M illio n s of D o lla rs M illio n s of D ollars Total Income Taxes D i v id e n d s U n d is t r ib u t e d P ro fits I 1950 1952 1 I 1954 1 __I— 1956 1958 1960 Banks declared nearly $24 million of cash dividends on common stock during the year, up 12 per cent from the amount distributed during 1959. Nevertheless, dividends paid in 1960 comprised a smaller share of net profits after taxes (38 per cent) than the average for the preceding eight years (41 per cent). Retained earnings, the principal source of new bank capital for many years, were approximately $39 mil lion in 1960, about $10 million more than during either 1959 or 1958. Largely as a result of the retained earnings, the capital-to-deposits ratio of district mem ber banks continued to rise during 1960. Preliminary data indicate that capital accounts averaged over 10 per cent of total deposits in 1960, as against 9.6 per cent in 1959, 9.0 per cent in 1955, and 6.0 per cent in 1946. Current Financial and Business Developments (Continued from Page 13) Farm prices and production The downturn in general business activity has ap parently had little effect on agriculture. Farm com modity prices rose an average of 4 per cent from last August to February of this year. Prices for most crops declined seasonally from August into the harvesting season and have since increased seasonally. Soybean prices, however, have increased much more than sea sonally. From last October s low of $2.04 per bushel for number 1 yellow in Illinois the price had increased to about $3.00 per bushel by the end of February. The strength in soybean prices reflects strength in both export and domestic demand coupled with a slight decline in supplies from the 1959-60 level. Sup plies of soybeans for the 1960-61 marketing year, which began last October 1, were estimated by the United States Department of Agriculture to be more than 600 million bushels, including the new crop and carryover from the prior year, or slightly below sup plies of the previous year. Domestic crushings are expected to be about 2 per cent larger than in 1959^ and exports may equal the record of last year. These estimates imply a carryover next October 1 of only about 10 million bushels, down sharply from last year’s level of 23 million bushels. Supplies of most other crops are more than ade quate, with large quantities of both food and feed grains in storage. Supplies of wheat for the market ing year, which began July 1, 1960, were at the record Page 16 level of 2,684 million bushels, or almost double esti mated domestic use plus exports. Carryover next July 1 is expected to total about 1,500 million bushels as compared with 1,314 million bushels last year. Prices of beef cattle, averaging $20.70 per hundred in February, were up $1.10 from last August. Hogs at $17.60 per hundred in mid-February were also above the August and December levels of last year. Prices of dairy products and eggs likewise rose. Al though egg prices were about 15 per cent below their November peak, they were still about 10 per cent above August levels. Whole milk prices advanced seasonally from $4.15 per hundred pounds in August to $4.35 per hundred in February. The flow of livestock products to market is expected to increase during the year from January levels. Six per cent more cattle and calves were on feed January 1 than a year earlier. A large proportion of these will be marketed in the first quarter of the year. Slaughter may continue throughout the year above last year levels, as the number of cattle on farms is at a record level for recent years. Pork supplies currently reflect the reduced fall pig crop, which was down 3 per cent from that of 1959. Based on last December farrowing intentions, how ever, the spring pig crop may be 5 per cent larger than that of last spring, and increased numbers are expected to be marketed after mid-year.