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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.