Full text of Review (Federal Reserve Bank of St. Louis) : September 1953

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

Monthly h im

September, 1953

Volume X X X V

Number 9

Federal Influence on the
Urban

Residential

J fo o M E OW NERSHIP has increased rapidly since 1940, influenced in part b y the
change in financing techniques stimulated by
Federal legislation.
Starting in the 1 930’s the Federal Govern­
ment established (1 ) the Federal Home Loan
Bank System for relief to lenders, (2 ) the
HOLC (now liquidated) for direct relief to
borrowers, (3 ) the FH A to insure mortgage
loans, (4 ) the Federal National Mortgage As­
sociation as a secondary purchaser of F H A insured mortgages and, somewhat later, (5 )
the public housing program.
During World War II the major Federal
housing agencies were combined, and veterans,
guaranteed loans were inaugurated.
The impact of Federal credit aids on mort­
gage financing has been sizable, with the FH A
and V A programs particularly effective. Al­
though fluctuations in market interest rates




F e d e ra l

Mortgage

Market

after rrdd-1947 adversely affected the volume
of these loans, advance com m itm en ts b y
“Fanny May” to purchase V A loans offset the
effects of rising rates.
The volume of FH A and V A loans was fur­
ther affected b y anti-inflationary home financ­
ing measures in 1950, and, significantly, by
the firming ot Government bond yields since
March, 1951. The rise in market interest
rates was partially offset b y builder and lender
absorption of discounts, and by raising V A and
F H A loan rates.
After Congressional hearings, the Federal
program was modified again in July, 1953, to
( 1 ) expand the role of “Fanny May,” (2 )
authorize builders and some sellers to absorb
(but not to pass on) the full discount on F H A
and V A loans, and (3 ) give the President
discretionary authority to raise FH A loan-tovalue ratios, in order to assure a free flow of
funds to the nations mortgage markets.

Bank
St. Louis

H om e o w n e r s h ip h a s in c r e a s e d ra p id ly
s in c e 19409 . . .
AN
MO
M OREhomesD they RE AM ERIC AN S areof living
in
own. The census
1950
was the first decennial census to show over 50 per
cent owner occupancy of nonfarm dwellings. Dur^
ing the decade of the HO’s the number o f owneroccupied urban units rose by over 70 per cent,
and since the years immediately preceding W orld
War II the proportion of total consumer spending
for the acquisition of homes has roughly doubled.
The increase in owner occupancy took a substantial
jump in 1950, though since early 1951 the propor­
tion owning homes has remained at about 54 per
cent.
The rise in owner occupancy is the result of
many forces of which two are predominant. A major
factor has been the long period of sustained high
levels of income with accompanying large increases
in liquid asset holdings and distribution changes
in favor of lower-income groups. No less important
has been the availability for urban real-estate financ­
ing of continuing supplies of credit on moderate
terms. Urban mortgage debt has more than trebled
since the end of 1945; today it stands at approxi­
mately $61.5 billion.
• . . in flu e n c e d in p a r t b y th e c h a n g e in
fin a n cin g te c h n iq u e s . . .
Under pre-1933 financing methods such an in­
crease in home ownership would have been im­
probable. Through the 1920’s the typical mortgage
loan was short-term, running three, five, or at most
ten years. Maximum loans were limited to 50,
60, or 66-2/3 per cent of appraised values with the
result that high-interest second and even third mort­
gages were common. Although there was some
experimentation with amortized mortgages, partic­
ularly by savings and loan associations, lump-sum
payments or partial amortization with “ balloon”
payments at maturity were the rule. Interest rates
on first mortgages were high, ranging on most
loans from six per cent in the money centers of
the East to eight per cent in the South, the South­
west, and the West, and rates on second mortgages
were considerably more. Such charges were in
part the result of the uninsured risk inherent in
loans to individuals; in part they reflected the ab­
sence of a steady national market for mortgages and
the lack of institutions which could assist lending
firms to meet withdrawal of investors’ funds in
times of economic stress.
. . . stim u la ted b y F ed era l le g is la tio n •
In a rapidly expanding economy the weaknesses
of the old mortgage instrument were apparent.
Page 122




During the 1920’s there were sporadic attempts on
the part of lending institutions and state govern­
ments to broader: the mortgage market and to
moderate the terms on which home loans were
made in most; areas. N^me of these were effective,
however, and it remained for the Federal Govern­
ment to institute a program which would enable
a large part of middle- and low-income families
to enter the housing market. The effects of Fed­
eral Housing legislation cannot be precisely meas­
ured, but, by aiding the flow of credit available
to borrowers at low interest rates and on a monthly
amortization basis, aggregate demand for housing
has been greater than it otherwise would have been.
The focus of this article is on Federal influence
on urban real-estate lending during the last few
years. Understanding and clarification of present
problems will be aided by a brief review of the
origin of Federal activity in urban residential fi­
nance.

S ta rtin g in t h e 19309 t h e F ed era l G o v e rn m e n t
s
e s ta b lis h e d ( 1 ) t h e F ed era l H o m e L oan B ank
S y s tem f o r r e l i e f t o le n d e r s 9 • • •
The Federal housing program had its inception
during the grinding deflation of the Great De­
pression. As in so much of the legislation of the
1930’s the laws affecting urban mortgage financing
mixed the motives of “ relief, recovery, and reform.”
Relief came first. W ith foreclosures rife during
the early ’30’s, steps were taken to aid (1) the
institutions which had committed a good portion
of their assets to urban mortgages, and (2) the
mortgagors who were losing their homes at an
unbelievably high rate.
T o help the home lending institutions Congress
created the Federal Home Loan Bank System,
which included eleven regional banks and their
member institutions under the supervision of a
Home Loan Bank Board. Membership was open
to all qualified institutional lenders, including sav­
ings banks and insurance companies, but in prac­
tice the savings and loan associations have consti­
tuted by far the greater part of the membership.
The chief function of the Home Loan Banks was
to lend money to member institutions on the secur­
ity of mortgages. Although Government contribu­
tions to the capital stock of the Federal Home Loan
Banks furnished most of the initial capital, stock
held by members grew rapidly in relative import­
ance after W orld W ar II. During the first half
of 1951 the Banks re-purchased the remaining
Government-owned stock, and as of July 1, 1951,
the capital stock of the Federal Home Loan Banks
was entirely owned by member institutions.

. . . ( 2 ) th e HOLC ( n o w liq u id a te d ) f o r d ir e c t r e ­
l i e f to b o r r o w e r s , • . .
In 1933 Congress came to the direct aid of home
owners threatened with loss 0 1 their properties
and further assisted lending institutions by creating
the Home Owners Loan Corporation (H O L C ),
also under the supervision of the Home Loan Bank
Board. Provision was made for direct loans to
individuals about to lose their homes. These loans
were for fifteen-year periods at an interest rate
of 5 per cent and were to be amortized on a monthly
basis. Making no new loans after June, 1936, the
HO LC refinanced more than a million homes and
disbursed nearly $3 billion in exchange for defaulted
mortgages.
Other means of increasing the supply of funds
available for mortgage lending were effected at
about the same time. The act which established
the H O LC also provided for the chartering of
Federal savings and loan associations, and the
Treasury was authorized to subscribe up to 50 per
cent of the shares of any one association. In 1934
the Federal Savings and Loan Insurance Corpora­
tion was established with capital provided by the
HOLC. The FSLIC received premium payments
from member institutions and insured the accounts
of shareholders up to $5,000 (later $10,000).
. . . ( 3 ) th e FHA to in s u r e m o r t g a g e lo a n s9 . • .
Early legislation made the Home Loan Bank
Board the major agency for stimulating a flow of
money into urban real estate finance. In 1934, with
the creation of the Federal Housing Administration,
emphasis changed from relief to recovery. T o stim­
ulate new lending a scheme of mortgage insurance
was devised whereby private lending institutions
could make first mortgage loans on one- to fourfamily dwellings and on large rental properties with
substantially less risk than heretofore. A plan of
insuring loans for repairs to real property, at
first considered purely temporary, became a part of
the permanent plan. Over the nineteen years of
its existence the Federal Housing Administration
has added considerably to the scope of its operations.
From the first the FH A was intended to insure
mortgages with loan-to-value ratios as high as
80 per cent, low interest rates, and amortization
over twenty years. In 1938, however, the FH A was
permitted to insure up to 90 per cent of the ap­
praised value of newly constructed homes which
sold for $6,000 or less. In 1941 Congress passed
Title V I of the National Housing Act to encourage
house building in defense areas, and after the war
low-priced housing under Title V I was made avail­




able to veterans of W orld W ar II. In addition, the
Federal Housing Administration insured loans to
finance low-cost housing, cooperative housing for
rental or sale, rehabilitation rental housing, rental
housing for military and atomic energy personnel,
and programmed housing in designated critical de­
fense areas. Thus, the accomplishment of social
aims, such as securing inexpensive housing for vet­
erans or for war workers and improving the quality
of rental properties for the general populace, has
become a part of the FH A concept.
. . . ( 4 ) t h e F ed era l N ational M o rtg a g e A ssocia tion

as a s e c o n d a r y p u r c h a s e r o f FH A 4nsured
m o rtg a g es9 . . .
The National Housing Act of 1934, which es­
tablished the Federal Housing Administration, also
provided for privately owned national mortgage
associations in order to create a secondary mortgage
market on a national scale. No attempts were made
under this early law to form such associations. In
1935 the RFC Mortgage Company, owned by the
Reconstruction Finance Corporation, began the pur­
chase of mortgages on urban commercial properties.
Not until 1938, however, was legislation passed
aimed at Government sponsorship of a secondary
residential mortgage market. In that year the
Federal National Mortgage Association (F N M A )
was set up with RFC capital. Although FN M A
— dubbed “ Fanny May”— was not of major import­
ance at the time of its establishment in 1938, it did
furnish a market for F H A loans by buying them
whenever and wherever private capital was unavail­
able and by selling them at a premium in certain
areas at appropriate times. A decade later FN M A
became a major influence in urban residential
financing.
• • • a n d , s o m ew h a t la ter 9 ( 5 ) t h e p u b lic h o u s in g
p rogra m .
From the beginning of the depression emergency
there was considerable interest in the provision
of low-rental housing to underprivileged families.
So-called “ public housing,, began with efforts by
the RFC and later by the Public Works Administra­
tion to make loans to private housing companies.
When these a ttem p ts met with little success,
another turn was taken to provide adequate dwell­
ings for low-income groups. In 1937 the U. S.
Housing Authority (U SH A) began the practice of
making loans to local public housing authorities
established by municipalities. Through its public
housing program the Government added reform to
the earlier objectives of relief and recovery.
Page 123

D u rin g W orld W ar 11 t h e m a jo r F ed era l h o u s in g
a g e n c ie s w e r e c o m b in e d • • •

• • . a n d v e te r a n s 9 g u a r a n te e d lo a n s w e r e

With the onset of W orld W ar II the necessity
of providing houses for war workers superseded all
other objectives. Government funds for wartime
housing were appropriated directly, and private
construction was financed through F H A under Title
V I of the National Housing Act. In 1942 the major
Federal housing agencies— the Federal Home Loan
Bank Board, the Federal Housing Administration,
and the Federal Public Housing Authority (formerly
U S H A )— were combined under the National Hous­
ing Agency. Its function was to centralize and
coordinate, presumably for the duration of the war,
the financing and construction of both public and
private housing.
In 1947, under the President’s Reorganization
Plan No. 3 of that year, the first peacetime over­
all housing agency was created “ . . . with the
responsibility of coordinating the principal housing
programs and functions of the Government, and of
providing a focal point for cooperative effort by Gov­
ernment and private enterprise in solving housing
problems.” 1 At the outset the Housing and Home
Finance Agency included the Office of the Adminis­
trator, the Home Loan Bank Board, the Federal
Housing Administration, and the Public Housing
Administration. The chief officers of the component
agencies comprised an Executive Council; this
group, with representatives from other interested
agencies, made up the National Housing Council.
In 1950 the Federal National Mortgage Association
was transferred to the H H FA from RFC. The
present composition of the Housing and Home
Finance Agency is shown in the accompanying
chart.

Meanwhile, the Servicemen’s Readjustment Act
of 1944 made provision for the guarantee by the
Veterans Administration of first and second mort­
gage loans made by private lenders to veterans for
the purchase of homes. Under the original Act the
Administrator of Veterans Affairs could guarantee
50 per cent of a loan up to a maximum of $2,000 ;
in the next year the maximum guaranty was in­
creased to $4,000. Under Section 505a of the original
act it was possible to combine an F H A loan with a
VA-guaranteed second mortgage for the down pay­
ment, and a veteran could finance a $20,000 home
without any cash outlay. The combined F H A -V A
loan was eliminated effective October 20, 1950.
Thereafter, it was only possible to obtain a guar­
antee of 60 per cent of the value of a property to a
maximum of $7,500.

1First Annual Reportf Housing and Home Finance Agency, 1947, p. 1-27.

in a u g u ra ted .

W ith the concurrence of the Treasury, the Admin­
istrator of Veterans Affairs could, after August,
1948, permit an interest rate as high as Ayi per cent,
but the rate was left at 4 per cent until quite re­
cently. The guarantee, made incontestable in 1948,
has meant a cash payment to the lender should a
borrower default. In the event that it is necessary
to foreclose on a property, the Veterans Adminis­
tration, at its option, allows the lender to take the
cash guarantee and keep title to the property or
makes a cash settlement for the full amount of the
indebtedness.2
2 F H A loans are, of course, insured rather than guaranteed. In the
event of default on payments on an FH A -in su red loan, every effort is
made to avert foreclosure. I f such efforts fail, a mortgagee m ay, depend­
ing upon the conditions, retain title to the property or assign the mortgage
to the F H A and receive debentures in return. The debentures issued under
Section 203, which covers proposed or existing one-to-four-fam ily dwell­
ings, carry an interest rate of 3 per cent and mature three years after July
1 following the maturity date of the mortgage. Thus, mortgagees do not
receive a cash payment in the event of default, though they may immedi­
ately dispose of their debentures in the market.

H O U S I N G A N D HO M E F I N A N C E A G E N C Y
OFFICE OF THE ADMINISTRATOR!
includes

Federal National Mortgoge Association
Slum Clearance and Urban Redevelopment
Housing Research
Miscellaneous Lending Programs

HOME LOAN BANK BOARD

^
H
Federal Home Loan Bank System
H
Federal Savings and Loan Insurance ■
Corporation
H
Federal Savings and Loan
H
Operations
■
includes

Page 124




FEDERAL HOUSING
A D M IN IS T R A T IO N

I
I

T h e im p a ct o f F ed era l c r e d it a id s
o n m o r t g a g e fin a n c in g h a s b e e n siz a b le • . .
Some notion of the impact of Federal credit aids
on urban residential construction and finance during
the past two decades is given by three indicators:
1. From 1935 through 1952 about 4J4 million new
dwelling units were financed with mortgage loans
insured by the FH A or guaranteed by the VA . This
number represents about 40 per cent of all new
dwelling units built during the period and equals
more than one-half of the entire volume constructed
during the 1920,s. Of the 4%. million new dwelling
units nearly 3 million were financed with FH A and
V A loans made during the seven postwar years 1946
to 1952.
2. Construction of privately financed rental units
has become almost entirely dependent on F H A in­
surance, in recent years running to more than 90
per cent of all such units.
3. Although the proportion has been declining
slightly during the last two years, not far from onehalf of all residential mortgages held by institutions
carry Government insurance or guarantee.
. . . w ith th e FHA a n d VA p r o g r a m s
p a r ticu la r ly e f f e c t i v e .
The outstanding fact of the Federal housing pro­
gram in the post-World W ar II period has been the
rapid growth of FH A and V A loans. A high rate
of population increase, an even greater rate of family
formation, and the restrictions on wartime building
led to a tremendous demand for both new construc­
tion and existing dwellings. Institutional investors,
after years of extremely low yields, were more than
willing to meet the accompanying demand for funds
to finance home purchases. It is estimated that
nearly 90 per cent of the home mortgage debt now
outstanding has been undertaken since the end of
W orld War II and that approximately three-fourths
of the debt has been incurred since the outbreak of
the Korean conflict. The contribution of FH A insur­
ance and V A guaranty to such an increase has been
great indeed. In the postwar period the annual
amounts of insured or guaranteed nonfarm mort­
gages of $20,000 or less built up rapidly to a peak
of $5.6 billion in 1950, of which $4.7 billion was loans
for new construction. This total figure was 34 per
cent of the amount of nonfarm mortgage recordings
of $20,000 or less for that year. In 1951 both the
dollar and percentage figures remained approxi­
mately the same. The data for 1952 showed a sharp
reduction in Federally underwritten loans, these
loans falling from one-third of nonfarm mortgage
recordings of $20,000 or less in 1951 to about onefourth in 1952. Beginning in mid-1952 and con­




tinuing through the first half of 1953, V A and FHA
loans have risen somewhat but are still well below
earlier high levels.

A lth o u gh flu ctu a tio n s in m a rk et in te r e s t ra tes
a ft e r m id-1 9 4 7 a d v e r s e ly a ffe c t e d th e v o lu m e
o f t h e s e lo a n s9 . . .
During most of the postwar period the rise in the
general pattern of interest rates has been a force
operating to restrict F H A and V A financing. A l­
though interest rates on loans insured by the FH A
and guaranteed by the V A have been permissibly
flexible within narrow limits, they have in practice
tended to be rigid, for officials of both the Veterans
Administration and the Federal Housing Adminis­
tration have been understandably reluctant to raise
the financing charges for housing under their con­
trol. Thus, fluctuations in the market rate of inter­
est have had a pronounced impact on the volume of
loans made under these programs.
No set rules may be laid down regarding the
spread required by institutional investors, particu­
larly insurance companies and mutual savings banks,
between the yields on long-term Government bonds
and mortgages. According to informed sources the
cost of servicing loans, home-office expenses, and
risk considerations appear, however, to make a
differential net yield of from 1.25 to 1.50 percentage
points necessary. V A loans have been particularly
sensitive to changes in the prices of other securities.
When the V A program became important in 1946,
yields on long-term Government bonds were at an
all-time low of approximately 2.15 per cent. V A
mortgages at 4 per cent and F H A ’s at 4.25 per cent
were attractive then, but as yields on long-term Gov­
ernment bonds rose beginning in mid-1947 there
was a marked falling off in V A home loans.
. • . a d v a n ce c o m m itm e n ts b y “F an n y M ay9
9

t o p u r c h a s e VA lo a n s o ffs e t t h e e ffe c t s o f r is in g
ra tes •
As the supply of funds for V A loans threatened
to dry up, the Federal National Mortgage Associa­
tion was authorized, beginning July 1, 1948, to pur­
chase V A as well as FH A mortgages. Limited at
first to the purchase of 25 per cent of the eligible
mortgages of a lender, FN M A was given authority
to purchase 50 per cent of such eligible mortgages
in August, 1948, and 100 per cent in October, 1949.
Further, FNM A had authority to issue advance
commitments whereby lenders could make loans
to builders secure in the knowledge that the mort­
gages could be sold at par when construction was
completed.
These commitments, which enabled
mortgage lenders to originate FH A and V A loans
with the intention of selling them immediately to
Page 125

FNMA, were made until the end of March, 1950.
The dollar volume of V A and F H A loans continued
to rise on into early 1951, at which time the com­
mitments began to run out. Thus, for a period of
nearly three years FN M A in effect ceased to be a
secondary market facility and became a primary
supplier of funds. From 1948 through 1951 FNM A
purchased nearly $2.7 billion of Government insured
or guaranteed loans while selling some $600 million.
On balance, then, a little over $2 billion was put into
the urban residential market in less than three years.
Such purchases, combined with an easing of interest
rates during 1949, were among the factors that led
to the unprecedented building activity of 1950. At
the end of the latter year FN M A held an estimated
11 per cent of all V A loans outstanding.

T h e v o lu m e o f FHA a n d VA lo a n s w as fu r t h e r
a ffe c t e d b y a n ti-in fla tio n a ry h o m e fin a n c in g
m e a s u r e s in 1950 . . .
Meanwhile, another factor had become influential
on lending activity. In the fall of 1950 the Board
of Governors of the Federal Reserve System im­
posed Regulation X, raising down payments and
limiting maturities on conventional loans. FH A
loans, which had been under administrative credit
controls since mid-year, immediately went on the
same basis; terms on V A loans were tightened but
remained substantially more moderate than those
on FH A and conventional loans These restrictions
unquestionably affected both lending and construc­
tion activity in 1951 and 1952, but to a large extent
the high and rising level of the national income
mitigated the effects of the Regulation.
• . . and\ s ig n ific a n tly , b y t h e fir m in g

o f G o v e rn m e n t b o n d y ie ld s
s in c e M arch 9 1951 •
More important as an influence on Federally in­
sured and guaranteed mortgages was the sharp firm­
ing of yields on long-term Government securities
which followed the Treasury-Federal Reserve ac­
cord of March, 1951. Institutional investors, espe­
cially insurance companies, which had been shifting
out of these securities at or above par to purchase
urban mortgages, found it unprofitable to do so
as bond prices fell. Too, with the decline in the
prices of high-grade corporates their yields made
them more attractive than mortgages. During the
summer following the accord, prices of both FH A
and V A mortgages dropped below par in the
secondary markets throughout the country. Be­
cause of a somewhat higher interest rate and greater
familiarity to the investing public, FH A mortgages
were sold less consistently at discounts than were
V A mortgages, and the discounts were smaller. In
late 1951 and at the beginning of 1952 there was a
Page 126




moderate recovery in the sale prices of these mort­
gages, followed by a further gradual decline in
prices beginning in the spring of 1952 and con­
tinuing for about a year. By early 1953 discounts
had become substantial. F H A mortgages were
selling at prices ranging down to 97 and V A ’s
at prices ranging down to 90 or even below. Dis­
counts were not uniform throughout the country,
tending to be greatest in the Southwest and Pacific
Coast areas.
In most sections of the country, during 1952,
mortgage companies and correspondents of life
insurance companies and mutual savings banks
bought mortgages on a reduced scale, if at all,
and then on a basis of working in conventionals
with V A and FH A loans in a “ package” deal to
secure somewhat higher average yields.
Local
lenders continued to make V A and F H A loans
for their own portfolios, but these, by and large,
were made on a highly selective basis, either to
prime risks or for the accommodation of favored
customers. The result was a substantial drop for
1952 in the proportions of total recordings ac­
counted for by V A loans. V A mortgages, which
constituted 22 per cent of total recordings in 1951,
dropped to 15 per cent of the total in 1952. F H A
loans fell only moderately from a 1951 figure of
12 per cent of total recordings to 11 per cent in
1952.3 Yet despite the proportional reduction in
loans insured and guaranteed by the Government
during 1952, the yearly total of nonfarm mortgage
recordings on one-to-four family dwellings rose to
an all time high of $18 billion. Conventional loans,
made usually at interest rates of 5 or 5^2 per cent,
had more than taken up the slack.
Beginning in the early months of 1953 com­
plaints were forthcoming from builders and wouldbe home-purchasers throughout the country that
V A and FH A loans were not available. Actually,
for the first half of 1953 V A and F H A shares of
total recordings showed gains over the first half
of 1952. Those who complained about the scarcity
of mortgage money contended that, because of the
lag between application dates and the dates of
insurance commitments or guarantees, the slacken­
ing of the flow of money for V A and FH A loans
will be reflected in recordings figures for the later
months of 1953. FH A applications for April were
at the highest point since October, 1950, and V A
appraisal requests for May were higher than for
any month since the fall of 1950, but in June appli­
cations decreased and in July dropped further.
3In 1949 F H A loans had constituted 19 per cent of total recordings. In
1950 the proportion dropped to 15 per cent, even though the dollar volume
of F H A recordings was in that year at an all-time high of nearly $2J4
billion.

T h e r i s e in m a rk et in te r e s t r a tes w a s p a rtia lly o f f ­
s e t b y b u ild e r a n d le n d e r a b s o r p tio n o f d is­
c o u n ts • . •

Notwithstanding the factors noted which ad­
versely affected V A and F H A loan volumes, espe­
cially since early 1951, substantial amounts of
money have been available for Federally under­
written loans during the past two years, partly
because ways were devised of enabling an original
lender of funds to sell his paper without loss if he
chose not to hold it to maturity. Almost univer­
sally for V A loans the practice grew up of obtaining
from the builder of a house a sufficient sum to
assure reimbursement to the original lender for
any loss incurred in selling the mortgage below
par. There was never any question, of course, as
to whether or not a lender could sell V A or F H A
paper at a discount, for these mortgages have always
been assignable. The question lay in the legality
of obtaining from a builder enough points to com­
pensate for the discount at which the mortgage
was sold. Section 504 of the Housing Act of 1950
had required the Federal Housing Commissioner
and the Administrator of Veterans’ Affairs to issue
such regulations as they deemed desirable
. . for
the purpose of limiting the charges and fees imposed
upon the builder, veteran, or other purchaser in
connection with the financing of the construction
or sale of such housing . . .” Both the F H A and
the V A issued regulations which, in general, pro­
hibited a charge on the builder of more than 2 J2
/
per cent of his construction loan plus 5 per cent
simple interest on construction funds actually ad­
vanced, but various ways of circumventing the
provisions of the Veterans Administration were
found.4 Apprehension grew that builders, who
in effect were guaranteeing par paper to lenders,
were in fact passing the added charges on to the
buyers. Except in areas where builders had un­
usually high mark-ups this fear was probably well
grounded. On May 18, 1953, by a regulation which
raised a storm of protest, the Veterans Administra­
tion attempted to remove all possibility of circum­
vention by requiring builders to certify that they
had not paid or absorbed in any way fees and
charges other than those expressly authorized.
. . . a n d b y ra isin g VA a n d FHA lo a n r a te s .
Meanwhile, members of Congress became con­
cerned over reports from constituents of the failure
of F H A and V A rates to be effective in the sense
of bringing forth an adequate supply of funds.
Only administrative action was needed to increase
the interest charges on insured and guaranteed
4F H A was adamant in its refusal to permit the collection of more than
the authorized fees. H ow ever, the authorized fees, plus commissions on
insurance and the interest received by a lender for construction loans,
enabled m any lenders to absorb the smaller discounts at which F H A loans
were selling and come out whole.




loans. After several months of discussion the
rates were raised, effective during the first week of
May, 1953, from 4 to Ay2 per cent for V A loans
and from 4% to Ay2 per cent for most FH A loans.
Although it had been generally argued that an
increase in rates would bring these mortgages
back to par, the effect of the change has not been
as great as anticipated. As the debate over rais­
ing rates went on during the first months of the
year, yields on intermediate and long-term securi­
ties were rising about one-half of one percentage
point on the average. As of mid-August, 1953,
V A and F H A mortgages carrying the old rates
remained at substantial discounts. Those issued
at the new 4y2 per cent rates ranged generally from
par down to 98 or 97 and even lower in some sec­
tions and in outlying areas. V A loans continued a
little weaker than F H A ’s.

A fter C o n g r e s s io n a l h e a r in g s , th e F ed era l p r o g r a m
w as m o d ifie d a g a in in J u ly 919539 to ( 1 ) ex p a n d
t h e r o l e o f “F a n n y M ay ” . . .
The uncertain mortgage situation of late May
and early June led to Congressional hearings on
the subject of urban mortgage lending. On June
30, 1953, certain amendments to the Housing Act,
intended to assure a free flow of funds into the
mortgage market, were approved. The provisions
which in the long-run seem likely to be most
significant are the following:
(1)
The Federal National Mortgage Association
has been given a new role. Since 1950 the pur­
chasing authority of FN M A has been increased
from $2.75 billion to $3.65 billion, but mortgages
other than defense and disaster mortgages have
continued within the $2.75 billion limitation. Pur­
chases of F H A and V A mortgages have been on an
over-the-counter— i.e., non-commitment— basis and
have been in limited amounts from originating
lenders only. Under the recent legislation pur­
chases of V A and F H A mortgages will be permitted
under a one-for-one purchase and sale provision.
By this plan FNM A will sell mortgages which
it presently holds at prices ranging from 96 to
par, depending upon the rate which the paper bears,
at the same time issuing a commitment to the
purchaser to buy, within a year and at par, an
equivalent dollar amount of F H A and V A mort­
gages bearing the recently authorized higher in­
terest rates. Purchasers who want FN M A com­
mitments will be charged a 1 per cent commitment
fee and a further y2 of 1 per cent service charge
when new mortgages are sold as much as a year
later. FN M A continues to purchase mortgages on
defense, disaster, and military housing both on
an over-the-counter and on a commitment basis.
Page 127

Advocates of the one-for-one plan of F N M A
operation were enthusiastic about it. W h at the
plan provides is a Government-assured take-out,
at par, for lenders to builders undertaking new
construction. Suppose that a mortgage broker or
other temporary lender wishes to finance a builder
but is reluctant to do so because of the uncertainty
of the market. If he today purchases mortgages
from F N M A , for which he pays, say, $500,000, he
may obtain a commitment from F N M A to pur­
chase an equal dollar value of mortgages within
one year of the date of the contract. The lender,
who has previously found a buyer, sells the pur­
chased mortgages at once so that he regains his
funds immediately. A t a cost o f 1^4 points, or more
if the mortgages purchased from Fanny M ay are
sold at a further discount, the lender is assured of
selling the mortgages which will result some months
hence from his builder’s activity. Lending to
builders is presumably stimulated, and F N M A ’s
mortgage holdings become a revolving fund obviat­
ing further Government appropriations.

. . . ( 2 ) a u th o riz e b u ild e r s a n d s o m e s e lle r s to

a b so rb ( b u t n o t to p a ss o n ) t h e fu ll d is c o u n t
o n FHA a n d VA lo a n s . . .
(2)
Henceforth, the originating lender on either
an F H A or a V A mortgage may get any number
of points from the builder to assure himself par
paper. (On V A loans the rule also applies to the
seller of existing property; so far it does not apply
to the seller of existing property in the case of
F H A loans.) The law provides that such charges
paid by a builder (or seller) shall not be passed
on to the mortgagor-buyer. Thus if a lender origi­
nating loans to a builder sells the mortgages to
a permanent investor for, say, 96, he may require
the builder to reimburse him for the discount of
4 points involved in the sale of the mortgages.
Furthermore, if the originating lender had to pay
a “take-out” commitment fee of one point to the
permanent investor, that point may be obtained
from the builder. If, however, after obtaining a
take-out commitment at 96 the original lender sells
the mortgages for 98, he can require the builder
to reimburse him only for the actual discount plus
the commitment fee. The details of the transaction
must be reported to the guaranteeing or insuring
authority.
Authorized builder absorption of secondary mar­
ket discounts, by allowing whatever yields the
market demands, should result in a greater flow
of funds to these mortgages. A special virtue of
such a discount system is the geographical variance
of yields which it permits.
But this rule will
not modify the tightness of the general mortgage
Page 128




market, and it is a question whether the same end
might not have been better achieved by allowing
another ^ of 1 per cent increase in the rate on
V A and F H A loans.5 For the discount system,
which assures competitive yields to ultimate hold­
ers, assures them at a cost to someone. It is
unlikely that builders (or sellers) will pay sub­
stantial discounts without ultimately raising the
price of the product. Some mortgagor-purchasers
will have the protection of the V A Certificate of
Reasonable Value, since a home sold at a price
over “reasonable value” is not eligible for a loan.
The F H A , however, does not limit sale price but
only limits, by its appraisal, the insurable amount.
A possible outcome is that V A loans will decline
as builders turn to F H A financing, which places
no ceiling on selling prices. Those who are in­
terested in maintaining long-run, enthusiastic ac­
ceptance of the F H A program look with some
misgivings on the administrative difficulties and
embarrassments which may result.

• . . a n d ( 3 ) g i v e t h e P r e s id e n t d is c r e t io n a r y

a u th o r ity t o r a is e FHA lo a n -to -v a lu e ra tio s9 . . •
(3)
Authority was given the President to in­
crease, at his discretion, the loan-to-value ratios
on FHA-insured loans. W here the mortgagor is the
owner-occupant and approval for mortgage insur­
ance is obtained before construction begins, a ratio
as high as 95 per cent may be authorized on mort­
gage amounts not exceeding $12,000. This legisla­
tion, vigorously supported by the National A sso­
ciation of Home Builders, is intended for use should
a downturn in housing starts appear likely.
It
should be stressed that the lower down payments
are not to be effective until the President declares
them to be.
Because of the time required for preparing the
necessary rules and regulations, the Housing
Amendments of 1953 did not all become effective
until mid-July or later. It is therefore too early
to report fully on the effects of the legislation
on the availability of money for FHA-insured and
VA-guaranteed mortgages. One result is presently
indicated, however. There has been difficulty in the
use of the one-for-one plan of F N M A for the reason
that the selling prices have been set too high.
F N M A will sell 4 per cent mortgages at 96, 4J4
per cent mortgages at 97^4, and 4 y* per cent paper
at par. But in August the 4 per cent mortgages
were selling in the open market at from 91 to 93,
and the other paper at below the Fanny M ay sell­
ing rates. Thus, in addition to the commitment fee
and service charge, prospective lenders have to
5A m o n g lenders there is strong support for simply removing the m axi­
m um interest-rate provisions and allowing competition am ong lenders to
assure a reasonable rate.

take a loss of several points on the mortgage when
it is sold. This makes the “ take-out” quite expen­
sive, and so far the volume of commitments sought
from FN M A has not been very large.

. . . in order to assure a free flow of fund*
to the nation’s mortgage market•
•
Congress has thus tried to maintain a flow of
funds to mortgagor-purchasers who qualify for
FH A and V A loans while preserving for these
buyers certain advantages over conventional loans.
The attempt has been made without resort to
devices such as unlimited purchasing authorization
to FN M A or an extension of the now very limited
authority of the Veterans Administration to lend
directly to veterans— both of which involve Gov­
ernment entry into the market. Should the down­
ward drift in market yields which has been going
on since mid-June persist, the recent steps may
prove sufficient to assure plentiful funds at the
present maximum rates. As of mid-August, how­
ever, money for Federally underwritten mortgages
was generally reported inadequate throughout the
country, including Eighth District cities. Although
the supply of conventional money varied among
cities in the Eighth District, largely because of

traditional differences in the willingness of individ-'
uals to invest in mortgage instruments, the avail­
ability of funds for conventional mortgages was in
August generally satisfactory as it was for the
United States as a whole.
One thing is certain. There is no disposition
on the part of private interests or Government
officials to effect a serious withdrawal of the Fed­
eral Government from the urban mortgage market.
In the event of a downturn in economic activity
prompt action by Governmental agencies to stim­
ulate the construction industry may be expected,
as is evidenced by the “ standby” authority recently
given the President to lower down payments. A
review of the extensive Congressional hearings,
held on housing matters over the past two years,
reveals universally sympathetic attitudes on the
part of Congressmen toward the problems of homeseekers. Such attitudes indicate that present un­
certainty is but a passing phase in the evolution
of a Federal program which has by now become
a permanent part of the structure of the American
economy.
Ross M. R obertson

Survey of Current Conditions
the
District
B USINESS A C T IV IT Y in July Eighth the high
fell off somewhat during
from
rate of earlier months as strikes and plant-wide
vacations interrupted operations. Construction ac­
tivity and department store trade declined more
than seasonally. Industrial operations, however,
declined about the usual amount and employment
in the district’s major areas continued close to the
level of June. Agricultural prospects improved in
areas where the drouth was relieved by the scat­
tered rains in the last half of July and early
August. T o finance operations and inventories for
the fall season, business loans expanded more than
seasonally during July.
By mid-August, available indicators showed some
recovery from July. Industrial operations increased,
construction activity picked up after the strike
settlement in St. Louis, and preliminary trade re­
ports indicated a continuing high rate of consumer
spending. Department store sales in the first three
weeks of August were nearly equal to the advanced
level in the same period a year earlier and auto­
mobile sales showed some strength.




Activity in the nation was at a high rate during
July, but showed some of the same movements
noticeable in the district. On the one hand, non­
farm employment was greater than during any July
on record. Total personal income continued to in­
crease as gradually rising pay scales combined with
the record employment more than offset income
declines in the farm sector. Industrial activity con­
tinued at a high rate, after allowance for seasonal
slackening. And although consumer purchasing at
department stores declined more than usual in July,
in the first half of August it equaled the rate of a
year earlier. On the other hand, construction activ­
ity expanded less than seasonally and the number
of nonfarm houses started in July was off slightly
more than the usual amount. Steel mills, in con­
trast to early 1953, continued operations below
capacity rates in July and the first half of August.
Automobile and truck output was at near-peak
rates in July but fell off somewhat in August.
Wholesale price averages fluctuated within a
narrow range between mid-July and mid-August,
reflecting primarily price movements in farm prod­
ucts and processed foods.
Page 129

Bureau of Labor
Statistics
( 1 9 4 7 -4 9 = 1 0 0 )

CONSUM ER

U nited States.......................

,

July, 53
114.7

June,’ 53
114.5

July,’ 52
114.1

Tiiiy 1953
compared with
June, ’ 53 J u ly /5 2
- 0 -%
+
1%

R E T A IL FO O D

?-f Iyabor
n S A - i .M
r , ,,,
(1 9 4 7 -4 9 -1 0 0 )
July, 53
113.8
U . S. (51 cities)..................
St. Louis............................
116.6

W H OLESALE

P R IC E IN DEX

T
.
Ju n e/53
113.7
115.0

J u ly /5 2
116.3
118.8

July, 1953
compared with
June/ 5 3
J u ly /5 2
- 0 -%
—
2%
+1
—
2

P R IC E S IN TH E U NITED ST A T E S

Bureau of Labor

j u| 1953
y>

(1 9 4 7 -4 9 = 1 0 0 )
J u ly /5 3
A ll Commodities.................
110.9
Farm Products...............
97.9
£<*>ds..................................
105.5
° ther..................................
114.8

J u n e /5 3
109.4
95.3
103.3
113.8

J u ly /5 2
111.8
110.2
110.0
112.5

J u n O ^ J u T y /^

+1% ' —
+3
+2
+1

1%

A slackening of demand in two of the district’s
major labor market areas marked July develop­
ments in employment. In addition, construction
employment in the St. Louis area continued low
until a twelve week strike was ended on August
12. Elsewhere in the district, developments were
more moderate.
In Evansville, the refrigerator industry, which
dominates the economy, cut employment by 20
per cent in May and June. In Paducah, Kentucky,
the slump in employment continued through July,
due largely to layoffs from the construction of the
nearby AEC plant. To these reductions, strikes
and vacation shutdowns added to the increase in
unemployment. As a result of the cutbacks in
these two areas, the labor situation eased some­
what. In July, both areas shifted from the cat­
egory of a balanced labor supply to one of moderate
labor surplus.
In the St. Louis metropolitan area, nonfarm em­
ployment decreased from mid-June to mid-July,
largely due to plant-wide vacation shutdowns. Con­
struction employment, which had dropped by 8,000
from May to June due to the strikes, increased by
about 1,700 in the following month. After the
strike settlement on August 12, construction em­
ployment recovered to near pre-strike levels, but
remained less than a year earlier.
In the Louisville metropolitan area, nonfarm em­
ployment continued to increase from June to July
when an estimated 237,500 were at work. Most
of the increase from June was the result of greater
employment in ordnance, chemical, and electrical
appliance plants and seasonal increases in food proc­
essing and woodworking activities.
Employment in nonagricultural establishments
in the nation as of mid-July remained virtually un-




Industry

— 11
—
4
+ 2

Employment

Page 130

changed from a month earlier at 49.4 million, in
contrast to a usual decline. In comparison with
a year earlier, nonfarm employment was 2.3 million
greater. More than one-third of the increase re­
flected the low level of a year earlier when a
nation-wide steel strike was in progress. H ow ­
ever, higher demand for goods and services led
to increased employment in most types of business.
Unemployment in the nation remained low in
July with only 1.5 million persons (2.4 per cent
of the civilian labor force) in the jobless category.

The production of factories in the Eighth Dis­
trict in July reflected vacation shutdowns and
strikes, yet remained at levels well above a year
ago when effects of the steel strike were felt. In
early August, some weekly indicators advanced
from those of July.
Manufacturing— Reductions— mainly seasonal—
from a month earlier in use of electric power ranged
from 5 to 11 per cent in the textile, electrical ma­
chinery, chemical and paper and allied products
industries. Several industrial groups, such as shoe,
stone-clay-glass, food and transportation equipment
manufacturers, increased their consumption of
power over the June rate. W ith only a few excep­
tions, energy use ran far above strike-affected July,
1952.

C O N S U M P T IO N O F E L E C T R IC IT Y — D A IL Y A V E R A G E *
July
1953
K .W . H
991
122
4,228
1,390
432
4,898

( K . W .H .
in thous.)
Little Rock.
.........
..........

June
1953
K .W . H .
981
144
4,419
1,621
603
5,266

12,061
13,034
Totals.................
* Selected M anufacturing firms.

July
1952
K .W . H .
834
125
3,717
1,121
321
4,432
10,550

July, 1953
compared with
J u ly /5 2
J u n e/53
+ 19%
+ 1%
— 2
— 15
+ 14
— 4
+ 24
— 14
+ 35
— 28
— 7
+ 11
+ 14%
— 8%

L O A D S IN T E R C H A N G E D F O R 2 5 R A IL R O A D S
A T ST . L O U IS
J u ly /5 3
113,926
Source:

J u ly /5 2
7 mos. ’ 53
A u g ./5 3 A u g ./5 2
108,461
31,800
33,393
685,251
110,795
Terminal Railroad Association of St. Louis.
J u n e/53

7 m os. ’ 52
660,081

—
C R U D E O IL P R O D U C T IO N [ D A IL Y A V E R A G E
( I n thousands
of bbls.)

T o ta l.................................

June
1953
77.1
161.1
35.8
30.4
304.4

July
1953
76.8
158.9
35.0
30.4
301.1

July
1952
76.6
165.1
32.5
33.5
307.7

C O A L P R O D U C T IO N

July, 1953
compared with
J u ly /5 2
J u n e /53
- 0
—
—
- 0

-%
1
2
-

- 0
—
+
—

-%
4
8
9

—

1%

—

2%

IN D E X

1935-39 = 100
Unadjusted
July, ’ 53

J u n e/53

109.6 P

118.0

July, *52
95.4

July, ’ 53

Adjusted
Ju n e/53

124.5 P*

125.5

July, ’ 52
108.4

Steel ingot production in the St. Louis area
rose from 94 per cent of capacity in July to 100
per cent in the first three weeks of August.
Southern pine output in July was at an average
weekly rate 4 per cent below June, but 2 per cent
above July, 1952. Southern hardwood producers
operated at a rate 9 per cent better than in June
and 8 per cent better than a year ago. While
production was running somewhat ahead of orders,
lumber stocks were reportedly moderate.
The number of livestock slaughtered in the St.
Louis area dropped 13 per cent in July from June,
but was 10 per cent above July, 1952.
Whiskey production improved somewhat with
33 Kentucky distilleries in operation at the end
of July compared with 24 at the end of June and
only 12 on July 31, 1952.
Coal and oil production— Coal and crude oil
production remained at practically the same level
as a month earlier. The July coal output was about
a sixth larger than a year ago, however, when
production was unusually low.

Construction
Value of construction activity in the nation in­
creased less than seasonally from June to July, but
was at a new monthly peak of almost $3.3 billion
in July, 2 per cent above that for June, and 8 per
cent above that of July, 1952.
In the first seven months of 1953 total expendi­
tures amounted to $19.3 billion, 8 per cent more
than in the same period last year. However, in­
creased costs have accounted for most of the gain;
physical volume has increased only slightly. Public
utility, commercial, educational, and residential con­
struction have set new records so far this year for
value of construction put in place.
In addition to the less than seasonal expansion
in construction activity, new housing starts de­
clined from 103,000 in June to 96,000 in July, a
slightly more than seasonal drop.
Although construction in the nation as a whole
was breaking records, construction activity in the
Eighth Federal Reserve District in July and early
August was below the high rates reached in 1951
and 1952. The reduction in activity was indicated
by lower construction employment in a number of
district areas.
Completion of portions of the Atomic Energy
Commission plant near Paducah has reduced ac­
tivity there. Furthermore, the work remaining to
be done before the December 1954 scheduled com­
pletion date of the plant will require a smaller
force than was employed last year. Tw o large




power plants being built to supply the AEC plant
have been partially completed. W ork on one of
them, the Electric Energy, Inc., plant at Joppa,
Illinois, was halted July 30 for a short period in
order to reorganize the work under a new con­
tractor.
In St. Louis a series of work stoppages, one
of them lasting from May 19 to August 12, slowed
construction of many projects and virtually halted
new work. Even before the strike, activity in
some types of construction had been slower than a
year earlier. Arkansas construction employment
was down about 20 per cent from its 1952 level,
and Memphis construction employment was off ap­
proximately 7 per cent. In the first half of this
year the Louisville area was a bright spot in the
construction picture with employment about onefifth greater than a year ago. However, approxi­
mately 450 construction workers were released
recently in the New Albany sector of the Louis­
ville area, and further major declines are expected
in the next few months.
Construction contract awards do not indicate any
major increase in Eighth District construction ac­
tivity in the near future. In the nation, record
activity this year was accompanied by contract
awards in the first seven months which were 5 per
cent larger than for the same period of 1952. In
the Eighth District, on the other hand, awards in
the period totaled $611 million, or 14 per cent less
than in the comparable months of 1952. Declines
in awards for the first seven months in St. Louis
and Louisville, as shown by the table, considerably
outweighed the increases in other metropolitan
areas.
T O T A L C O N S T R U C T IO N C O N T R A C T S A W A R D E D
F IR S T S E V E N M O N T H S
(D o llar amounts in millions)
1953
United States total.................................................. $9,701.2
Eighth District total........................................................6 10.8P
Non-metropolitan areas...................................................318.9
Metropolitan areas
St. Louis................................................................... ........ 136.3
Louisville........................................................................... 58.8
Memphis.................................................................... ........ 66.8
Little R ock.............................................................. ........ 1L 7
Evansville.......................................................................... 18.3

Per cent
change

1952
$9,269.9
713.0
339.6

+
—
—

5
14
6

219.7
75.8
59.6
+
10.8
+
7.5 + 1 4 4

38
23
12
8

P— Preliminary.
Source: F . W . D odge Corporation.

B U IL D IN G P E R M ITS
M onth of July, 1953
Repairs, etc.
N ew Construction
Cost
Number
Cost
Num ber
(C ost in
1952
1953
1952
1953 1952
1953
1952
1953
thousands)
96
99 $
58 $ 116
$
242
107 $ 4,063 I
438
247
243
206
353
961
52
Little R ock......
968
118
194
196
87
1,062
177
4,196
209
274
299
204
2,433
.....1,674 1,985
377
329
509
1,180
4,264 20,696
267
1,108
925 $1,325 $2,036
.....2,193 2,588 $12,783 $26,540
F
964
917 $1,424 $1,916
2,047 i 8,839 5 6,445
June Totals......

Page 131

Trade
Retail sales during July, like everything else,
wilted under the hot summer’s sun as volume
dropped seasonally below that in June. But in
comparison to the relatively low level of sales in
July 1952, some lines registered gains. While there
were indications that sales of new automobiles
compared favorably with those in 1952, used car
sales were at a lower level. The rate of sales in
early August was reported to be somewhat ahead
of July. The used car market showed signs of
firming and sales of some makes of new cars were
larger than a year ago. In nondurables lines, sea­
sonal promotions in the first half of August were
moderately successful.
Sales at department stores in the Eighth Dis­
trict dropped more than seasonally from the ad­
vanced level in June. The index of daily sales
for July, adjusted for seasonal variation, averaged
107 per cent of the 1947-1949 base period, com­
pared with 122 per cent in June and 104 per cent in
July 1952. For the first seven months of 1953
district sales totaled 4 per cent larger than for the
same period a year ago. In major district shopping
areas, cumulative sales experience from 1952 ranged
from equal to last year at Fort Smith to an in­
crease of 14 per cent in Evansville. At mid-August
preliminary reports indicated that the cumulative
rate of gain from 1952 would be maintained in the
month.
Specialty store sales during July dropped sub­
stantially below those in June. In comparison to
July 1952 women’s specialty sales were somewhat
larger, while men’s wear store sales were about
equal to those a year ago.
District furniture store sales during July dropped
below those in both the previous month and in
July 1952. In a few communities throughout the
district, increased sales activity of television re­
ceivers was noted as new television stations began
broadcasting and the power of some existing sta­
tions was stepped up.
Inventories held by reporting retail lines on
July 31 were at about the same level as on June
30, except at women’s specialty stores where they
dropped sharply. Inventories this year were
at a higher level than a year earlier. Reflect­
ing a cautious attitude toward the future sales
level, department stores reported outstanding orders
substantially less than either a month earlier or
for the same period a year ago.
Page 132




DEPARTMENT STO R E S
Stocks
N et Sales
on H and
7 m o s .’ 53 July 31, ’ 53
July, 1953
compared with to same comp, with
June,’ 53 July,’ 52 period’ 52 July 3 1 ,’ 52

Stock
Turnover
Jan. 1 to
July 31,
1953 1952

... — 2 2 % + 2 % + 4 %
+ 14%
1.99 2.08
— 3
1.92
1.94
- 0 + 12
...— 13
— 3
+ 12
1.87 2.05
...— 15
+ 1
Quincy, 111..
— 2
+ 1
+ 15
1.91 2.09
— 19
+ 5
+ 14
2..— 23
+ 1
+ 3
2.12 2.20
+ '*S
. ..— 25
+ 5
+ 5
+ 18
2.00 2.05
— 1
...— 19
+ 14
1.76
1.89
+ 2
Memphis Area, Tenn.2.. ...— 14
— 1
+ 3
2.08 2.18
+ 11
_
4
A ll Other Cities3............. ...— 24
+ 5
+ 8
1.62
1.88
1 In order to permit publication of figures for this city (or area), a
special sample has been constructed which is not confined exclusively to
department stores. Figures for any such nondepartment stores, however,
are not used in computing the district percentage changes or in computing
department store indexes.
2 The sample for these areas is unchanged from the sample previously
repotted for the principal cities in these areas.
3 Fayetteville, Pine Bluff, A rkansas; Harrisburg, M t. Vernon, Illin o is;
Vincennes, In d ian a; Danville, Hopkinsville, Mayfield, K e n tu c k y ; Chilli­
cothe M issou ri; Greenville, M ississippi; and Jackson, Tennessee.
O U T S T A N D I N G O R D E R S of reporting stores at the end of July,
1953, were 8 per cent smaller than on the corresponding date a year ago.
P E R C E N T A G E O F A C C O U N T S A N D N O T E S R E C E IV A B L E
Outstanding July 1, 1953, collected during July
Instalm ent Excl. Instal.
Accounts
Accounts
Fort Sm ith........
%
44%
Little R ock....... 14
48
Louisville........... 18
45
M em phis............ 19
36

Instalm ent Excl. Instal.
Accounts
Accounts
Q uincy..................
17%
'
58%
St. L ou is..............
19
55
Other Cities........
9
47
8th F .R . D is t...
18
49

IN D E X E S O F D E P A R T M E N T ST O R E SA LE S A N D STO CK S
8th Federal Reserve District
June,
M ay,
July,
July,
1953
1953
1953
1952
Sales (daily average), unadjusted4...........
. 86
110
118
84
Sales (daily average), seasonally adjusl
122
.. 107
118
104
Stocks, unadjusted^..........................................
132
138
111
Stocks, seasonally adjusted^.......................
132
131
119
4 D aily average 1 9 4 7 -4 9 = 1 0 0
5 End of Month Average 1 9 4 7 -4 9 = 1 0 0
N O T E : Indexes revised August, 1953. Revised back data through 1947
available upon request to Research Department, Federal Reserve Bank of
St. Louis, St. Louis 2 , Missouri.
Trading da ys: July, 1953— 2 6 ; June, 1953— 2 6 ; July, 1952— 26.

R ETA IL F U R N IT U R E S T O R E S
______ N et Sales__________ Inventories
Ratio
July, 1953
July, 1953
of .
compared with
compared with
Collections
June,’ 53 July,’ 52 June,’ 53 July,’ 52 July,’ 53 July,’ 52
8th D ist. Total*...... — 1 2 %
— 8%
— 2%
+ 3%
19%
20% “
St. L ou is.................... — 8
— 16
— 3
+ 1
27
28
+ 1 0 — 1
+ 4
14
13
Louisville Area2..... — 14
Louisville.............. — 10
+ 1 0 — 2
+ 3
13
13
M em phis.................... — 28
— 3
*
*
12
12
Little R ock................ — 26
— 5
+ 4
— 5
15
17
Springfield................. + 7
+ 6
— 7
+ 6
15
16
* N o t shown separately due to insufficient coverage, but included in
Eighth District totals.
1 In addition to following cities, includes stores in Blytheville, Fort
Smith and Pine Bluff, Arkansas; Hopkinsville, Owensboro, K en tu ck y;
Greenwood, M ississippi; and Evansville, Indiana.
2 Includes Louisville, K en tu ck y; and N ew A lbany, Indiana.
PERCENTAGE

F U R N IT U R E SA LE S
July, ’ 53 June, *53 July, ’ 52
Cash Sales ........................................................................
16%
' “ 14%
~16% ~
Credit Sales.....................................................................
84
86
84
Total Sales

D IS T R IB U T IO N

OF

................................................................. 1 0 0 %

100%

100%

W H O L E SA L E TRADE
Line of Commodities
D ata furnished by
Bureau of Census,
U . S. Dept, of Commerce*

Dry Goods...............................
Groceries...................................
H ardware.................................
Tobacco and its Products..
Miscellaneous.........................
*Preliminar3'-.

N et Sales
July, 1953
compared with
June, ’ 53
July, *52
+ 15%
+14%
+ 2
+28
+ 6
+54
+ 8
+ 3
— 19
— 4
+ 1
- 0 — 5
+25

Stocks
July 31, 1953
compared with
July 31, 1952
+

—

3%

+ 11
— 4
— 1
— 4
- 0 -

Banking

and

Finance

In the six-week period ended mid-August the
money market was at first comparatively easy
but later became progressively tighter. Within
this framework, bank credit rose sharply, largely
through subscriptions to Treasury anticipation
certificates. Bank loans increased moderately. Dur­
ing July interest rates in the capital markets con­
tinued to drift lower from the peaks reached in
June but firmed in early August.
Money market— Reserve positions of most mem­
ber banks in the nation were comparatively easy
in the first half of July. The easiness in the market
was primarily due to a reduction in member bank
reserve requirements in early July which freed
about $1.2 billion in reserves. Reflecting the im­
proved reserve positions the rate on Federal funds
dropped to 1/16 of 1 per cent.
From mid-July to mid-August bank reserve posi­
tions became progressively tighter. Borrowings
by banks increased, and Federal funds were again
exchanged at or just below the rediscount rate of
2 per cent. The tightness was the result of both
a loss of funds from a gold outflow, contraction
of float and Treasury operations and an increased
need for reserves to support a deposit expansion.
Reserve positions of district member banks were
about the same as in the nation over the entire
six-week period. Early in July, district banks were
drained of a large amount of funds by Treasury
operations, partially offsetting the decline in reserve
requirements.
District Banking— Earning assets of district
member banks increased during July and the first
half of August. The bulk of the growth was in
net purchases of Treasury tax anticipation certi­

E IG H T H

D IS T R IC T

ficates. Total loans rose $37 million at weekly
reporting banks, largely as a result of a more than
seasonal growth in loans to businesses in most
cities. Reports indicated that all types of businesses
except sales finance companies increased the in­
debtedness. Largest net borrowings resulted from
seasonal increases in operations of textile, apparel
and leather manufacturers at St. Louis. Security,
real estate and consumer loans showed little change.
Total loans at rural banks were virtually unchanged
during July.
Time deposits at district member banks were
up $12 million during July, rural area banks re­
porting the sharpest gain. The growth during the
month was more than in July last year; however,
for the year to date the increase was less than
during the same period a year ago.
Banking nationally— Loans and investments at
banks in leading cities of the nation also increased
substantially during July and early August. As
in the district, the largest growth was due to
subscriptions to tax anticipation certificates. Loans
to brokers and dealers for the purchase of United
States Government securities also rose substantially.
Advances to consumers, real estate owners and
businesses expanded moderately.
Largely as a result of the jump in bank credit,
the private money supply rose moderately in July
and early August. However, for the first seven
months of this year demand deposits and currency
of individuals and businesses contracted about $4
billion compared with roughly $2.5 billion in the
corresponding seven months a year ago. Time
deposits continued to rise in the six weeks ended
mid-August. United States Government accounts
rose sharply primarily as a result of new financing.

M E M B E R B A N K A S S E T S A N D L IA B IL IT IE S B Y S E L E C T E D
____________ A ll M ember___________
________ Large City B anksl_______
Change from :

( I n Millions of D ollars)
Assets
1. Loans and Investm ents............................................
a. Loans...........................................................................
b. U . S. Government Obligations.......................
c. Other Securities................. ....................................
2. Reserves and Other Cash Balances..... .............
a. Reserves with the F . R . B ank......................
b. Other Cash Balances^..........................................
3. Other A ssets...................................................................
4. T otal A ssets...... ........................... ................................
5.
6.
7.
8.
9.

Liabilities and Capital
Gross Dem and Deposits...........................................
a. Deposits of B anks.................................................
b. Other Demand D eposits....................................
Tim e Deposits................................................................
Borrowings and Other Liabilities.......................
T otal Capital Accoun ts............... ......... ............... .
Total Liabilities and Capital A ccounts............

G R O U PS
Smaller B anks2

Change from :__________

July,*53
$4,493
2,047
2,023
423
1,358
683
675
56

J u n e/53
to
July,*53
$ + 131
+ 29
+ 89
+ 13
— 27
— 30
+
3
+ 3

July,'52
to
July,’ 53
$ + 192
+128
+ 41
+ 23
+ 26
— 14
+ 40
+ 6

June,’ 53
July,’ 52
to
to
July,*53
July,*53
J u ly /5 3
$2,608
$+111
$+102
1,347
+ 30
+ 94
1,057
+ 77
+
3
204
+ 4
+ 5
834
— 30
+ 21
439
— 16
—
7
395
— 14
+ 28
33
- 0 + 1

$5,907

$ + 107

$ + 224

$3,475

——— —.
$4,350
653
3,697
1,073
80
404
$5,907

$ + 102
+ 15
+ 87
+ 12
—
6
—
1
$ + 107

$+173
+ 19
+154
+ 51
— 33
+ 33
~$ + 224

$2,664
617
2,047
509
73
229
$3,475

$+

81

$ + 124

$ + 78
+ 15
+ 63
+
3
- 0 - 0 ~ $ + 81

$ + 121
+ 19
+102
+ 20
— 30
+ 13
T$ + 124

Change from :

July,*53
$1,885
700
966
219
524
244
280
23
$2,432

June,’ 53
to
July,*53
$ + 20
—
1
+ 12
+ 9
+
3
— 14
+ 17
+
3
~$+

26

$ 1,686
$+
36
1,650
+
564
+
7
—
6
175
________
$2,432
~~$+

July,’ 52
to
July, *53
$ + 90
+ 34
+ 38
+ 1 8
+ 5
—
7
+ 12
+ 5
$ + 100

24
024
9

$ + 52
- 0 + 52
+ 31
_________
3
1
+ 2 0
26
“ $ + 100

1 Includes 12 St. Louis, 6 Louisville, 3 M em phis, 3 Evansville, 4 Little Rock, and 4 East St. Louis-N ational Stock Y ards, Illinois, banks.
2 Includes all other Eighth District member banks. Some of these banks are located in smaller urban centers, but the majority are rural area banks.
3 Includes vault cash, balances with other banks in the United States, and cash items reported in process of collection.




Page 133

Capital markets— During July yields on capital
market issues continued to drift lower from the
peaks reached in June. This was in sharp con­
trast to most of the first half of 1953 when there
was a marked acceleration in the upward move­
ment of interest rates. The July reaction resulted
from a continued high rate of savings and a re­
duction in capital offerings. With the improve­
ment of reserve positions in early July, banks
increased holdings of capital market issues. The
increased rate of purchases of longer-term Gov­
ernment securities by Treasury investment accounts
also added to the supply of funds. As the supply
of longer-term funds was increased the demand
for them fell off. The volume of corporate and
municipal issues in July was about half the June
total. In the first two weeks of August interest
rates firmed, reflecting in part the tighter condi­
tions in the money market.
Assets of life insurance companies—Assets of life
insurance companies rose $2.4 billion in the six
months ended June 30, virtually the same as in
the first half of 1952. The companies continued
to reduce their holdings of Government securities
but at a substantially lower rate than in the cor­
responding months of 1952 ($165 million compared
with $650 million). There was also a sizable de­
cline ($190 million) in cash holdings indicating a
slight decline in liquidity.
Funds were used primarily to purchase “ other”
securities ($1.6 billion) and mortgages ($1.0 billion).
As in the first half of 1952, roughly two-thirds of
the expansion in “ other” securities was in net
purchases of industrial bonds but most other types
of securities were increased also. One exception
was a net reduction in holdings of foreign gov­
ernment obligations. Net acquisitions of mortgages
were about the same as in the comparable period
last year. However, the net increases in V A mort­
gages were much lower, $45 million compared with
$180 million. And there were somewhat fewer net
purchases of FH A mortgages. On the other hand,
these companies increased their holdings of “ con­
ventional” mortgages more than in the first half
of 1952.
Checks cashed— Reflecting the continued high
level of business activity, the dollar volume of
checks cashed remained high during July. Debits
to demand deposit accounts (except interbank and
United States Government) at banks in 22 re­
porting centers of the district totaled $4.4 billion.
This was the highest July on record and was 11
per cent more than July a year ago. Normally
there are fewer deposit withdrawals in July than
in June, but this year the July total was about as
Page 134




D E P O S IT A C T IV IT Y
D ebits1
July
1953
(I n
millions)
Six Largest C enters:
East St. L o u is-N ational Stock Yards,
111......................................
Evansville, In d ..............
L ittle Rock, A rk ..........
Louisville, K y ................
M em phis, Tenn.............
St. Louis, M o ................
Total— Six Largest

Percent
Change from
June
July
1953
19522

Turnover
Year
Ended
July 31
19532

July
1953
(Annual
Rate)

$

127.4
173.9
155.1
727.6
587.2
2,099.5

—
—
—
+
—
—

2%
2
2
1
4
1

+
+
+
+
+

0 -%
16
9
10
14
12

25.7
18.0
15.5
24.2
22.6
22.3

27.0
17.0
15.7
24.5
25.4
20.7

$3,870.7

—

1%

+ 11%

22.2

21.7

$

36.0
14.5
27.0
46.6
21.4
9.9
7.0
20.1
61.0
38.0
43.6
33.2
34.2
12.3
72.4
25.0

— 16%
+ 3
— 1
— 8
— 5
+ 3
— 4
— 3
+ 17
— 9
+ 3
+ 2
— 5
+ 3
+ 1
+ 10

+
+
+
—
+
—
+
+
+
+
+
—
+
+
+
+

15%
12
14
1
14
3
8
4
15
11
4
11
6
10
4
37

12.6
12.8
11.3
13.3
12.5
9.4
10.2
10.8
10.9
13.3
15.9
12.6
14.7
10.4
13.7
17.0

12.1
11.5
10.9
13.5
14.8
8.9
13.0
11.4
11.4
15.4
14.1
14.6
14.3
9.9
14.2
13.3

$

502.2

—
—

+

7%

12.8

+ 11%

20.4

13.0
20.1

Other Reporting
C enters:
Cape Girardeau, M o ...
E l Dorado, A r k .............
Fort Smith, A r k ...........
Greenville, M iss............
Hannibal, M o ................
H elena, A r k ....................
Jackson, Tenn...............
Jefferson City, M o .......
Owensboro, K y .............
Paducah, K y ..................
Pine Bluff, A r k .............
Quincy, 111......................
Sedalia, M o .....................
Springfield, M o .............
Texarkana, A r k ............
Total— Other
Total— 22 Centers.....

$4,372.9

1%
1%

1 Debits to demand deposit accounts of individuals, partnerships and
corporations and states and political subdivisions.
2 Estimated.

large as the June figure. Activity was brisk na­
tionally also, debits at the 345 reporting centers
amounted to $148 billion, somewhat lower than in
June but 8 per cent more than in July 1952.

Agriculture
Agricultural conditions in the Eighth District
up to mid-August varied from good to very poor.
Prospects for the cotton crop in west Tennessee,
for example, were good. Corn and other crops in
areas receiving periodic showers also were in good
condition. However, moisture was short in wide
areas of the district and the drouth was particularly
severe in parts of Missouri and Arkansas. This
condition was further aggravated by the extremely
hot weather in late July and early August.
Crop production— Crop production estimates on
August 1 generally were above the estimates for
a month earlier, and pointed to a large total crop
outturn in the district.
District corn production was expected to be 351
million bushels, 2 per cent more than in 1952. Al­
though early planted corn in the mid-South was
damaged seriously by the drouth, corn that was
planted later has made satisfactory progress. The
condition of the crop varied greatly in different
local areas.
Oats and wheat production were estimated to be
21 and 38 per cent larger, respectively, than in 1952.

This August estimate represented an increase of
5 per cent for both crops from the July estimate.
The district rice crop made satisfactory progress
during July, the estimated 11,340 thousand bags
being 8 per cent larger than the 1952 production.
There was a 12 per cent decline in estimated burley
tobacco production which reflected reduced acreage
allotments and spotty rainfall in the Burley Belt.
ES T IM A T E D P R O D U C T IO N F O R M A JO R C R O P S
EIG H TH D ISTR IC T, A U G U S T 1, 1 9 5 3
( I n thousands)
Estimated
production
A u gu st 1, 1953
Corn ( b u .) .........................................
W h ea t ( b u .) ......................................
O ats ( b u .) ..........................................
Rice (b a g s ).......................................
H a y (to n s )........................................
Tobacco, burley (lb s .).................
D ark, air cured ( lb s .) ..............
D ark, fire cured ( lb s .) ............

351,336
70,015
52,487
11,340
8,166
193,275
24,090
20,767

Per cent
change
from 1952

Per cent change
from 1942-51
average

+ 2%

—

+ 38

+
—
+
—
+
—
—

+21

+ 8
+

5

—

6

— 12

+ 1

1%
84
13
56
15
7
19
28

Prices— Prices received by farmers remained un­
changed for the month ending July 15. Livestock
prices generally were higher but price declines in
several crops offset this increase. From mid-July
through the third week of August cattle prices
were steady to lower. H og prices declined season­
ally but moved upward after August 6. Prices paid
by farmers increased nearly 1 per cent for the month
ending July 15 reflecting higher feeder cattle prices
and higher wage rates. The parity ratio thus de­
clined to 93, ten points lower than a year ago.

______________________________________________
CASH
(I n thousands
of dollars)

Source: Adapted from Crop Production, U S D A , A u gu st, 1953.

Hay and pastures— Pastures generally made some
recovery in the district where the rains were
received. However, in southern Missouri and northcentral Arkansas the condition of pastures deteri­
orated further as a result of the prolonged drouth
and excessive temperature. On the average, pas­
tures were in better condition in August 1953 than
a year earlier. District hay production was expected
to be 5 per cent more than in 1952.
Cotton— The cotton crop in Tennessee, where
early plantings came up to excellent stands, was
expected to exceed 1952 production. Production
in other district states, however, was expected to
be less in 1953 than in 1952. The national crop,
estimated to be 14.6 million bales, will be somewhat
smaller than the 15.1 million bales produced in 1952.
Smaller acreage and larger abandonment nationally
account for the reduction. A substantial acreage
still in cultivation in the district is extremely late,
having germinated after July 20. This is partic­
ularly true in the Mississippi Delta. Unusually good
growing weather will be necessary if this late cot­
ton is to mature.
Soybeans— District soybean production is ex­
pected to be slightly larger than in 1952 reflecting
a minor increase in acreage.
EST IM AT ED S O Y B E A N A N D C O T T O N P R O D U C T IO N
EIG H TH D IST R IC T S T A T E S . A U G U S T 1
(Production in thousands)
_______ Soybeans
____________

Cotton

Per cent
Indicated Per cent change fro
Indicated Per cent
1942-51
production change
production change
average
from 1952
from 1952
bales
bushels
— 10%
— 10 %
1,225
13,194
— 5%
Arkansas............... ,,,,
+ 2
Illinois....................
+ 3
Indiana..................
K entucky..............
+ 11
— 2
+ 11
1,860
4,615
— 25
Mississippi........... .....
— 6
+ 7
370
....
33,552
+ 2
+ 20
+ 2
650
Tennessee..................
3,580
— 1
— 5
+ 5
4,105
+ 1
District States.... .... 183,556
— 4
+ 20
14,605
+ 1

June,
1953
22,609
.. 135,921
, 67,132
.. 27,228
.. 17,840
.. 72,730
..$370,251
..$159,633

FA R M

3%
8%

j

IN C O M E

June, 1953
compared with
M ay,
June,
1952
1953
+ 14%
— 16%
— 1
- 0— 7
— 10
— 16
+ 10
- 0 — 23
+ 17
— 3
+ 4
— 21
+
+

>

— 8%
— 10%

6 month total Jan. thru Junfe

1953
$ 134,477
861,745
453,889
245,779
138,040
391,946
173,318
$2,399,194
$1,018,378

1953
compared with
1952
1951
— 28%
— 2
— 5
- 0— 1
— 11
— 9

—
—
—
+
+
—
—

16%
3 ■
8
2
12
16
10

—
—

—
—

6%
8%

6%
9%

R E C E IP T S A N D S H IP M E N T S A T
N A T IO N A L S T O C K Y A R D S
Receipts

July,
1953
. 150,567
. 163,262
. 54,300
. 368,129

July, 1953
compared with
July,
June,
1953
1952
— 2%
— 24
— 27
— 17%

+ 20%
— 26
— 17
— 11%

Shipments
July. 1953
compared with
June,
July,
July,
1953
1953
1952
56,677 — 6 %
+ 6%
40,095 — 37
— 49 *
17,470 — 59
— 58 ;
114,242 — 3 2 %
— 34%

Department Store Indexes!I

EVISION of department store indexes of sales
and stocks for the Eighth Federal Reserve
District and of sales indexes for Louisville, Mem}
phis and Little Rock has been completed. Seasonal
adjustment factors in the sales indexes were re­
computed to conform with changes in the pattern
of consumer buying. In addition, sample coverage
for the district sales index was increased.
A new index of department store sales for the
St. Louis metropolitan area was established for
the period since 1940. The previous index of sales
for the City of St. Louis has been discontinued. The
revision of the district stocks index, computed by
the stocks-sales ratio method, covers the period
since 1947.

R

The revision of sales and stocks indexes and the
establishing of a St. Louis area sales index was
accomplished according to procedures developed
by Federal Reserve System representatives. Re­
vised indexes and a description of techniques used
are available upon request from the Research De­
partment, Federal Reserve Bank of St. Louis, St.
Louis 2, Missouri.

Source: Crop Production, Cotton Production, U S D A , A u gu st 1, 1953.




Page 135

CONSTRUCTION
EIGHTH

CONTRACTS

FEDERAL

SEASONALLY

ADJUSTED,

RESERVE

THREE -MONTH

AWARDED
DISTRICT

MOVING

AVERAGE

<<
*£
•>
O0
<
Millions of

Dollars

Source of

Unadjusted

0^
4

Data: F. W Dodge Corp.
.

O E A S O N A L L Y adjusted construction contract awards
^ for residential, all other, and total construction in the
Eighth Federal Reserve District are charted above for
the period January, 1946, to April of this year.
Indexes of construction contracts awarded in the
Eighth District are now available on a monthly basis
for the period from 1923 to date. Both unadjusted and
seasonally adjusted indexes of the value of awards for

residential building, all other than residential, and total
construction have been compiled with 1947-49 averages
as a base. Three-month moving averages of data sup­
plied by the F. W . Dodge Corporation are used. A
complete description of the technique employed and
back data from 1923 to date can be obtained from the
Research Department of this Bank upon request.
Current indexes will be published in the R ev ie w .

IN D E X O F C O N S T R U C T IO N C O N T R A C T S A W A R D E D
EIG H TH F E D E R A L R E S E R V E D ISTR IC T*
(1 9 4 7 -1 9 4 9 = 1 0 0 )
June
1953

M ay
1953

173.9**

193.0
198.0

206.4
251.1
185.6

Unadjusted
Residential..............................
A ll other....................... .........

June
1953

June
1952

190.6

Seasonally adjusted
T o ta l................................................ ...............
Residential..................................... ...............
A ll other........................................ ...............

*B ased on three-month m oving average of value of awards, as reported by

Page 136




F.

W.

M ay
1953

June
1952

154.5**

170.8
175.2

173.7
214.6
154.7

148.6P
157.2P

D odge Corporation.

168.7