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September 1955 Volume X X X V II Number 9 A Decade of District Income Growth L OUR FAST MOVING NATIONAL ECONOMY all areas respond to the dominant forces of national growth which have char acterized the postwar period. As growth implies change, local economic activity must adapt itself to continuous shifts in consumer demand, in government expenditures, and in business investment. District areas have shown wide diversity, therefore, in their income variability and rate of growth, reflecting differences in their resource endowment—illustrated by coal, gypsum, forest land—and mtterns of production. fe d e ra l H e se w e Bank &fpSt. Louis District Member Bank Earnings—p. 109 Survey of Current Conditions—p, 110 In our fast moving national economy all areas respond to the dominant forces of national growth which have characterized the postwar period. T jH E TEN YEARS which have passed since World War II are good evidence of the remarkable flexibility and vitality of the American economy. In these years the economy not only grew at a rapid rate but surmounted major problems of adjustment to changes in our national defense requirements. Among file major events, or economic mileposts, of these years was the reconversion from war to peace, when an abrupt cut in government demand was more than offset by an upsurge in private expenditures. Several million returned servicemen found civilian jobs and the first new automobiles off the assembly lines attracted crowds of spectators wherever they appeared. Then came the first postwar recession of 1949, followed by the Korean emergency with a tre mendous increase in the output of both military and consumer goods. Late in 1953 began another reces sion which appears in retrospect as one of the mild est in United States history. This year, at mid-summer, the total flow of goods and services making up the gross national product moved at an annual rate of $385 billion, 65 per cent higher than in 1947, which might be considered the first "normal” postwar year. Even after adjustments for price changes which have occurred since that time, the increase in the real flow of goods and serv ices still amounts to nearly 40 per cent, an impres sive achievement for so short a time As growth implies change, local economic activity must adapt itself to continuous shifts . . . These changes in the national economy, its growth as well as the many shifts in its component industries, have had differing impacts from time to time upon the various major sections of the country and upon the many individual communities within each major region This article is primarily concerned with the implications of the postwar decade for the economy of the Eighth Federal Reserve District and its several parts. As national income grows, the effective demand for most goods and services produced in any local in come area tends to grow also. Yet the vast variety of products made by the American economy will not benefit equally from this growth. Consumers will spend their larger incomes not only for more, but also for new and different goods produced by new and often more efficient methods of production. These Page 102 continuous shifts in consumer demand and produc tion techniques will affect various industries to differ ent extents, and as these industries differ in their relative importance for local areas, the impacts of national economic growth on individual segments of the economy vary. The participation of each local area in the phenomenal upsurge which has charac terized the postwar decade has thus depended part ly on its ability to use local resources and skills for the many new products and techniques developed during this period. This Bank has estimated the volume and sources of income payments to residents in 99 income areas of the Eighth Federal Reserve District for the last eight years. These estimates show the many differ ent ways in which district communities have adjusted themselves to the challenge of national growth. They also indicate the wide diversity among local areas in the variability of their incomes from year to year as well as in their long-range growth patterns. The major national influences upon incomes in dis trict areas in the postwar decade may be grouped under changes in consumer demand, government expenditures, and business investment. The responses of the district areas to these influences have been partly determined by differences in their resource endowments, proximity to markets, labor force char acteristics, and historical patterns of production. . . . in consumer demand, . . . Personal consumption expenditures in the nation increased from $165 billion in 1947 to an annual rate of $250 billion in mid-summer 1955, an increase of just over 50 per cent. Part of the increase is account ed for, of course, by higher prices; yet even after price adjustments American consumers enjoyed an in crease of 30 per cent in their aggregate “real” con sumption. One reason for this advance is the larger number of consumers. Among the most striking and unex pected developments of the last decade has been the sharp and sustained rise in the birth rate, adding 25 million citizens to the United States population, more than in any previous period of equal length. Yet the population growth of the last decade from 140 million in 1945 to 165 million in 1955, has brought with it not only an increase in the total demand for consumer goods, but also a tremendous shift in the composition of goods bought. There are today more old people and many more youngsters demand ing goods and sendees appropriate to these age groups. Population 1 9 4 7 = 100 DISTRICT NON METROPOLITAN METROPOLITAN 1_____________________ I_____________________ 1_____________________ I 10 0 10 5 110 115 Moreover, population growth is distributed quite unevenly among the different communities of the nation as migration, too, has been of unprecedented magnitude since the war. The historical trend to move away from farms and rural communities to metropolitan areas, and the more recent tendency to move away from the centers of the large cities to the urban fringe, both have been accelerated over the last decade. As a result, while some rural areas have just maintained or even lost population, many urban centers producing for national markets have also added substantially to their local markets with expanding populations. New workers attracted by growing industry, no matter what facilities they leave behind them, need new housing, schools for their children, stores for their shopping, and a host of other new consumer services. associated with the shift toward suburban living that has characterized the postwar period. Other durable goods purchases have fluctuated more wide ly and reflect some of the technological revolutions which have occurred in the last decade. Thus, the production of radio sets has been cut in half, while that of television sets has increased more than four fold since 1947. Where replacement demand has been less buoyant than in the automobile industry, the very durability of some goods has caused more notable fluctuations in their demand, as with ranges and refrigerators whose output in 1954 was below that in 1947. Consumer Demand 1 9 4 7 = 100 ALL ITEMS AUTOMOBILES HOUSING FOOD CLOTHING 10 0 Other expenditure shifts reflect the general tend ency of consumers, as their incomes increase, to spend a smaller proportion on traditional necessities and a larger share on “luxuries” which tend to be come ‘ necessities” with a higher standard of living. A general upgrading has thus occurred in most of the major expenditure items. Among foods the tendency to consume more red meat and poultry accounts for the favorable income showing of many areas turn ing to livestock and broiler production. 15 0 200 250 Industrial Production 1 9 4 7 = 100 ALL ITEMS m Still another shift in expenditures reflects the great gains in productivity which have permitted more leisure time despite rapidly increasing production. Today, a larger share of the consumers dollar is going into recreational and tourist expenditures. More than half the states rate the tourist trade one of their three largest sources of income. Finally, there has been the tremendous growth in automobile and home purchases, a development facilitated by consumer and mortgage credit. Both, automobile and home ownership, have been closely i________________________________i________________________________ i 0 100 200 . . . in government expenditures, . . . Government purchases of goods and services have advanced from $29 billion in 1947 to $77 billion in 1954, some 175 per cent In real terms this would be about a 120 per cent increase. The growth in government demand combines a steady advance in the expenditures of state and local units with a more erratic rate of Federal spending for national security. State and local government expenditures increased from $10 billion in 1946 to an annual rate of $20 billion by mid-summer 1955, in response to the pres sures for more roads, schools, and hospitals to make up for war deficiencies and to keep up with popula tion growth. The demands appear to be greatest where economic activity has encouraged in-migration of new workers. Federal expenditures for national security have varied with the fortunes of the cold war, moving from a low of $13 billion in 1947 to a high of $51 billion in 1953, and dropping back to $40 billion by the end of 1954. It is the variability in Federal out lays that has caused some of the postwar fluctua tions in aggregate economic activity. In addition to the major change in aggregate levels of national se curity expenditures that occurred over the last dec ade, far reaching shifts in the nature of military con struction and procurement programs have frequent ly influenced the demands made in specific communites and income areas, producing dramatic, though sometimes only temporary, growth of incomes in some areas. . . . and in business investment. Expenditures for private domestic investment moved from $30 billion in 1947 to an annual rate of $60 billion by mid-1955. As in the case of the ex panded governmental expenditures, the doubling of business investment over the past eight years often combined diverse movements in different types of capital expenditures. Spending for inventories has gone through several cycles in the postwar period, reflecting expected shortages of supply at times as well as shifts in business expectations about the fu ture course of consumer and government demand. Major liquidation of inventories occurred in 1949 and again in 1954. It was the inventory liquidation of early 1954, accentuated in turn by the downward trend in national security expenditures, that account ed for most of the recent recession. Currently, busi ness investment in inventories is again increasing. Page 104 Expenditures for business equipment have shown a more stable growth rate. Postwar variations in this category primarily reflect differences in the growth expectations of specific industries rather than major over-all shifts. Thus, railroad equipment purchases, though substantial in the aggregate, have fluctuated widely with traffic demands and amounted in 1954 to less than a third of their 1947 rate. There has been steady growth in many other capital goods in dustries, however. Electrical machinery, for example, had by late 1954 more than doubled its 1947 produc tion. The broad postwar upsurge in economic activity also encouraged the construction of new business plants, which doubled from $5 billion in 1947 to an annual rate of $10 billion in mid-1955. Additional trade and service facilities have gone up throughout the nation, yet often have followed rather than led local income trends. Of more basic importance for area economic development are new “export” facili ties to tap the national market, whether they serve consumers or producers, such as new tourist accom modations or industrial plants. District areas have shown wide diversity, therefore, in their income variability . . . Postwar gains in income and product attest to the American ingenuity in meeting rapid increases in consumer and government demand through con stant improvements in finished goods as well as in the methods of producing these goods. These tech nical innovations, together with the changes in final demand, have led to a continual shifting, however, in the relative importance of different industries in the aggregate national economy. And as each com munity has its own structure of industry, the impact of national growth and production changes on in dividual areas has been diverse. The map indicates the extent to which income pay ments in district areas have shown annual variation beyond the national average. It is to be expected that income payments in the geographically smaller district areas would fluctuate more than the national aggregate merely on the grounds that in the nation al economy many regional variations would tend to cancel out. The important fact is not that district area income payments vary more, but why and to what extent they do so. Clearly, the smaller the number of industries paying income in a community, the larger is the possibility that change in any one industrial activity will dominate total area income payments. Some local industries, such as farming or tourist services, may be greatly influenced by the m i Variability of Area Income in the Postwar Years National income fluctuates from year to year due to cyclical variations and growth trends. Area income follows and often exceeds these fluctuations, depending upon the cyclical sensitivity of key in dustries in the area. Income payments have fluctuated most widely in areas with major defense activities, as in the lower Ohio Valley. Evansville, Indiana, shows the highest income variability among district metro politan areas, indicating its importance as a center of durable goods production. Large construction projects have contributed to income variations in Paducah, Kentucky, and Mountain Home, Arkansas. Railroad shop employ ment and lead mining have fluctuated in the DeSoto, Missouri, area. The Ozark counties surrounding Springfield, Mis souri, have suffered in recent drouth years. Vari ations in cotton production and prices are reflected in the Mississippi Delta. weather: many district farm communities had wide fluctuations of output and incomes in recent years because of the drouth. Some industries are subject to more frequent shifts in the demand for their serv ices: district communities geared to the national se curity program experienced income fluctuations due to shifts in the demand for military procurement items. Some local activities are by their very nature temporary and unstable: a large construction project for hydroelectric development will increase area in come, yet is not likely to maintain local income pay ments of the same magnitude once the project has been completed. Thus, differences among communities in per capi ta income growth are smaller than those in total income growth. This tendency toward equalization of local per capita income as a result of the free migration between labor markets is characteristic not only of movements within the district but also of the relation between district and national in come. While district total income has remained about 5 per cent of national income, its per capita income has grown from 72 per cent to 76 per cent of the national averaged Per Capita Income . . . and rate of growth, . . . Dollars While income payments for the district as a whole advanced 45 per cent over the postwar period, the growth of individual district areas ranged from 8 to 88 per cent. At the lower end of the scale, area in come hardly kept up with the postwar rise in the general price level. At the upper end, the estimates indicate a spectacular growth within a brief time span. In either case, there is a close relationship be tween the movements of income and the movements of people. Where total income growth is lagging, people move to employment opportunities elsewhere, though such adjustment may be painful and slow. Where income is growing rapidly, new workers are attracted who in turn add to local income payments. Page 105 Differences in the rate of total income growth are again, as in the case of income variability, in fluenced by community size. The smaller the area, the larger the influence of any one industry, not only on income stability but also on income growth. Thus, small areas are bound to show wider varia tion in relative growth rates than the larger metro politan centers. Moreover, the same change in ab solute terms means relatively more to the small community than to a larger region. Relative in come growth therefore stands for different develop ments in the town where a new plant may double the community payroll and in the metropolis where a new industry may add little, percentagewise, to total income payments. As district income areas vary widely in their size, differences in their growth rates should, therefore, be interpreted with care. . . . reflecting differences in their resource endowment—. The responses of local economic activity to the shifting national markets are influenced by a number of factors such as resource endowment, proximity to markets, characteristics of the labor force—all of which in turn determine the historical pattern of production. Natural resources influence both the type of activity and the returns expected from a particular resource use. A soil just right for tobac co, for example, will tend to be used for that pur pose. Mineral wealth, productive forest stands, scenic attractions and so on suggest the principal manner in which an area s resources might be used. . . . illustrated by coal, . . . The economies of some district areas have been based upon a particular resource for which national demand is declining. In such areas the problems of adjustment to technological change may be diffi cult. Coal, long the main product of many areas in southern Illinois, has been the major source of energy for the industrial development of the West ern world and still provided about 40 per cent of United States energy requirements in 1950. Yet, postwar advances in the efficiency of coal use, com petitive inroads of other fuels, and resumption of coal mining in other countries after the war, have reduced the world demand for coal mined in the United States since 1947 by almost one-third. One major technological shift, the “dieselization” of the railroads, accounted for a considerable part of the decline in domestic demand. In the West Frankfort-Harrisburg-Marion area, the number of miners employed fell 25 per cent between Page 106 1947 and 1953, partly as the result of a decline in out put and partly as the result of efforts to reduce oper ating costs in the mines by substitution of machinery for manpower where possible. The relative decline in employment in terms of manhours was even greater than the decline in number of miners because the workweek was also reduced. Unemployment in the area ranged as high as a fifth of the labor force in early 1954. One adjustment underway has already been men tioned: the effort to increase mine efficiency. Increase in efficiency enables the areas mines to maintain a higher level of production than they could if they did not change their techniques. Another type of adjust ment that has been taking place is a basic change in the occupational pattern of former mining communi ties. Manufacturing employment in the area more than doubled from 1947 to 1953. In fact, the number of new manufacturing jobs in the area exceeded the decline in mining employment over the period. How ever, there was not a simple transfer of former miners to new manufacturing employment. The new jobs were filled largely by women and new entrants into the labor force at somewhat lower rates of pay than skilled miners received. Consequently, local unem ployment sometimes increased despite the remark able growth in manufacturing. In the course of the adjustments total income pay ments in the area have not declined, although they have grown more slowly than for the district as a whole. A generation ago, the area received more than two per cent of total district income. By 1954, this share had fallen to less than 1.4 per cent. In the future the area may benefit from an increase in the demand for coal used in electric power production and other industrial uses for this basic area resource. Whatever the future may hold in the way of im proving demand for the area’s coal production, the local economy has had a long, difficult period of ad justment to the shifting national demand. . . . gypsum, . . . The impact of an increase in the national demand for a local resource can be illustrated in Martin County, Indiana, where development of gypsum de posits is underway. The deposits were discovered in 1951, and the investment of several million dollars in mine shafts and processing plants was begun in 1954. The postwar building boom made an extensive and costly search for new sources of this important build ing material worthwhile, and the Martin County gyp sum became, for the first time, an economic resource. The location of these deposits near the national center of population has made them especially valuable. Direct effects of the gypsum development are an increase in local land values and the employment of area residents in the new plants. Through the local spending of resulting royalty and wage payments, the incomes of people employed in local service and trade will also be favorably affected by these changes in the national demand for gypsum. An income area where per capita income has been far below the district average in the past, then will benefit greatly from a resource endowment that fits well into the postwar growth of the national market. . . . forest land— . . . Still another adjustment of local resources to chang ing national markets is illustrated by the Crossett income area, which includes Ashley, Bradley, Cal houn, Clark, Cleveland, Dallas, Drew, and Grant Counties in Arkansas. The primary local resource is forest land which covers 76 per cent of the area whose main product for many years was lumber. In the postwar period the national use of lumber has increased relatively little, despite the high rates of construction and manufacturing activity throughout the period. Other materials have increasingly entered into competition with lumber for markets, pressing lumber manufacturers to seek more efficient use of timber and labor in order to keep their costs down. From March 1948 to March 1955 lumber manufac turing employment in the Crossett income area de clined about 23 per cent as the result of changes in output and techniques. However, other manufactur ing employment increased substantially in the same period, almost offsetting the decline in lumber manu facturing jobs. The main sources of new manufac turing employment in the area are two industries whose growth rates in recent years have been well above the national average for all manufacturing— paper and aluminum. Since both of these industries pay much higher wages than does the lumber indus try, the increases in wage income from paper products and aluminum in the area have more than offset the loss of wage income from lumber manufacturing. The paper mills at Crossett and Cullendale (just outside the Crossett income area) which draw pulpwood from the forests of the area, produce kraft paper. Demand for kraft paper has risen at an ex tremely rapid rate in the postwar period largely as the result of growth in the use of paper and paper board shipping containers. A new mill under con struction at Crossett will produce bleached paper board for food packaging, another use which has shown remarkable growth in the postwar years. Pulpwood production of the area nearly doubled from 1947 to 1954. The pulp and paper industry has by no means sup planted the lumber industry in the area; more than 65 per cent of all manufacturing employment in the area is still in lumber manufacturing. The two indus tries complement each other, as the forests can pro duce pulp wood and sawtimber simultaneously. Neith er has the joint use of timber for lumber and paper impaired the basic forest resources. On the contrary, the forest resources are actually being improved. A major part of the Crossett area is reported by the United States Forest Service to be one of the few large areas in the country to show a substantial in crease in pine volume since the middle 1930,s. In effect, the area has been able to take advantage of the growing market for paper products without aban doning the lumber markets which for long were the main source of area income. The aluminum reduction plant near Arkadelphia, in the same income area, went into production in early 1954. It is part of a growing bauxite-aluminaaluminum-aluminum products complex in Arkansas and illustrates very well not only the relationships be tween a small area and national markets but also re lationships among small areas within a particular region, in this case the State of Arkansas. It draws power from a state-wide network and alumina from the Benton-Bauxite area, which in turn draws lime stone from the Batesville area in the northern part of the state. It supplies aluminum to users within the state as well as to national markets. The Crossett income area has thus successfully over come the threat of a relative decline in national lum ber demand and can look ahead to a new period of local income growth. . . . and historical patterns of production. In all these cases, resources have become econom ically useful through the skills of the local labor force and the capital invested in facilities to mine the min erals and to process the trees. In addition, there must be a host of other services to maintain the local labor force as well as to transport the fruits of their work to national markets. It is the complex of all these inter dependent factors, the skills of the labor force, the proximity to national markets, the capital facilities already available for local production and consump tion, that will condition the historical pattern of pro duction in each area. Page 107 In the vast free trade market of the national econ omy, much local activity is therefore geared to “ex port” local products whose production in turn de pends on a wide variety of local “imports” from other parts of the country. There are, of course, many activities that produce goods to be bought and sold primarily within each local area. Retail trade and personal service, home construction, small manufac turing and repair shops are found everywhere to serve the needs of the local population. Even in the trade and service industries, however, “exports” may be im portant. Shoppers for fashion goods turn to the met ropolitan centers whose department and specialty stores serve a large “hinterland.” Many financial serv ices are offered by banks in the reserve cities. Tour ist services are concentrated in convention centers and areas offering scenic attractions. Educational and related services are a main source of income in col lege towns. Government services dominate the state capital. Area industrial specialization is most pronounced in the fields of agriculture, mining and manufactur ing. These are the local industries that typically “export” their products to the rest of the country and are of key importance as a source of income payments to local residents who in turn spend part of their income for local consumption of “imports.” The great majority of district income areas have retained farm ing as their main “export” industry which explains the continuing importance of agriculture for the welfare of most district residents in spite of the fact that now fewer people are directly employed by this industry due to the rapid strides in farm productivity. There is, of course, considerable area specialization within agriculture. Thus, cotton still accounts for half of all income payments in the Mississippi Delta, and poultry raising contributes nearly 20 per cent of total income in the Fayetteville area of Arkansas. The extent to which a district income area relies on “export” industries as a source of income can be measured roughly by the ratio of local employment in specific industries to total local population, as “ export” industries will usually employ a larger proportion of persons than the population of that area would seem to require. St. Louis, for example, produces almost the entire district output of the aircraft industry, though it has only 12 per cent of the district popula tion. Or, the West Frankfort area in southern Illinois produces almost 40 per cent of the district coal out put, though it has only 1.5 per cent of the district population. Again, El Dorado, Arkansas, produces more than 20 per cent of district oil with only 1 per cent of the district population. In each area the major “export” industries will determine the local pattern of production. Where this local industrial structure favors industries with a growing national demand, the area will find it easy to adapt its resources to national growth. Where, on the other hand, area income has been built on “export” industries whose national market is shrinking, the historical pattern of production may become a burden rather than an asset. Further income growth will then depend on the willingness of area residents to “write off” part of their job investments of the past and to undertake the sometimes painful move toward industries which offer new opportunities to serve the national market. Not every area can enjoy total income growth far above the national average. As the nation grows, labor mobility among areas as well as among indus tries is an essential requirement for the productivity growth which has characterized the American econ omy. Local income areas, therefore, will and should continue to show variations in total income growth. However, the residents of each area can add to and participate in the benefits of a rising standard of living by serving the expanding national market and thus improving their per capita income. W erner H o c h w a ld A. Ja m e s M eigs Revised Indexes of Department Store Sales and Stocks Indexes of department store sales and stocks published by this Bank have been revised, following a review of the factors used in adjusting for seasonal variation. This review is part of a program for periodic examination of seasonal patterns in department store trade. In addition, indexes for the district and some of the metropolitan areas were revised as a result of expansion of the reporting samples. Revised indexes are available on request to the Research Department, Federal Reserve Bank of St. Louis, St. Louis 2, Missouri. Page 108 Di stri ct M e m b e r Bank Earnings l ET PROFITS AFTER TAXES of Eighth District member banks in the first six months of 1955 dropped $4 million or nearly 20 per cent from the level in the first half of 1954. This drop reflected primarily mod erate net losses and charge-offs in contrast to substan tial net profits on security sales in the like period a year ago. Net operating earnings reached a new high of $37 million in the first six months of 1955, exceed ing by $1.4 million the previous first half year peak attained in 1953. The increase in net operating earn ings resulted from a faster growth of operating earn ings than expenses. Taxes on net income declined by $1 million. Capital structures were strengthened and record first half cash dividends paid out. i Total operating earnings climbed to $91 million in the first half of 1955, compared with $85 million in the first six months of 1954. The increase in earnings was largely the result of an expansion in earning assets, which reflected both a growth in bank resour ces (matched by an increase in deposits and capital) and somewhat smaller cash holdings. Average rates of return on earning assets remained virtually the same as a year ago. Over half the dollar growth re sulted from increased interest and discounts on loans. In addition, preliminary data indicate that banks re ceived larger earnings from Government securities, municipal obligations and service charges on deposit accounts. EARNINGS A N D EXPENSES E IG H TH D IS TR IC T M EM BER BANKS (In millions ef dollars) Expenses of operating district member banks con tinued to climb. In the aggregate these expenses amounted to $54 million in the first half of 1955, com pared with $50 million in the corresponding period a year ago. Preliminary reports indicate that both out lays for wages and salaries and interest payments on savings accounts continued to rise. As a result of the $6 million increase in earnings and a $4 million rise in expenses, net operating earnings were up $2 million. However, the growth in operating earnings was more than offset by net losses and charge-offs of $2 million this year in contrast to net profits and recover ies of nearly $5 million a year ago. Thus, net profits before taxes of $35 million in the first half of this year were $5 million lower than in the comparable period of 1954. After taxes on income, profits amounted to $17.4 million or $4 million less than in the first half of 1954. Stockholders received $7.6 million in cash divi dends, the largest amount ever paid in the first half and only moderately less than the record $7.8 million paid in the second half of 1954. In addition, these banks retained nearly $10 million to strengthen their capital structures. Largely as a result of the retention of these profits, member banks as a group added to their capital structures at a rate exceeding the growth in their total assets, risk assets or deposits. N o r m a n N. B owsher S ELE C TED O PERATIN G RATIOS E IG H TH D IS T R IC T M EM BER BANKS (In per cent) First Six Months First Six Months 1953 1954 1955 1953 1954 Interest and Discounts on Loaus . . . . .4 7 .1 Interest on U. S. G ov ’t, Securities. . ____ 20.0 All Other Operating Earnings.............. . 14.7 49.6 52J5 5.1 3.9 20.1 21.2 Net Profits (after taxes) to Capital Accounts. . . . 4.5 Cash Dividends to Capital A ccou n ts................... 1.6 1.6 15.6 17.1 Total Operating Earnings............ Total Operating Expenses . 85.3 50.1 90.8 53.7 1.7 0.27 59.1 Net Operating Earnings .............. Net Losses and C harge-offs................... Net Profits Before T a xes................ . Taxes on Net In com e............................... Cash Net Profits A fter T a xes..................... Dividends D ecla red ................. p— prrummary 81.8 46.1 35.7 2.1 . 33.6 . . 15.7 17.9 . 6.3 — 35.2 4.7 37.1 2.3 39.9 18.4 34.8 17.4 21.5 6.8 17.4 7.6 Net Profits (after taxes) to Total A ssets.............. . 0.30 Expenses to Total Earnings.................................... 56.3 2.6 1955 0.35 58.7 Net Losses and Charge-offs to Total Earnings. Incom e Taxes to Total E arnings.......................... 5.5 2.6 19.2 21.6 19.1 Net Profits to Total E a r n in g s ............................... 21.9 25.2 19.2 — Interest on Government Securities........................ 2.02 2.03 2.02 Earnings on Loans 4.63 4.64 4.62 .................................................. 6.6 6.8 7.0 Capital Accounts to Risk Assets............................. . 15.8 15.9 16.0 Capital Accounts to Total Assets............................. Capital Accounts to T o t a l D eposits........................ 7.1 7.4 7,7 Time Deposits to Total Deposits............................. 19.0 19.9 20.4 p— preliminary Page 109 o l _ B USINESS ACTIVITY in the Eighth District during August advanced slightly from its July level after allowance for seasonal factors. Industrial out put was at a high rate and the principal labor markets of the district continued to improve. The rise in business activity was reflected in a strong demand for credit, and interest rates rose further. H ow ever, consumer spending slowed, and construction contracts awarded declined. Growing conditions continued generally favorable, but price and income developments were adverse for district farmers. Industrial output was at a high rate . . . Industrial output in the Eighth District in August continued at a very high level, after allowance for seasonal changes. Several strikes curtailed produc tion, but other reductions were seasonal, reflecting vacations and model changeovers at automobile plants. Steel ingot production in the St. Louis area rose slightly to 100 per cent of rated capacity for the month. Shoe output in district plants was main tained at a higher level than customary for August. And lumber mills stepped up production in early August. In all three of these lines, steel, shoes and lumber, order backlogs were substantial, according to trade reports. Livestock slaughter in the St. Louis area was greater in early August, than in early July. Crude oil output of district producers in early August declined slightly from the 385,000 barrel daily average production mark of July. In July, coal pro duction in the district was down slightly, though still 18 per cent better than in July, 1954. Electric power use at selected manufacturing firms during July soared 25 per cent higher than a year ago and 10 per cent higher than in June, on a daily average basis. Nondurable goods industries showed more gains than durable industries. Of the 14 indus tries represented in the sample, all of the 7 nondurable goods industries increased use of power in July over that of both a month and a year earlier. Among the 7 durable goods industries, two, fabricated metals and electrical machinery, used less electric power than in June, although all used more kilowatts than a year earlier. . . . and the principal labor markets continued to improve . The faster tempo of business activity was reflected in the continued improvement in the principal labor Page 110 C U R R E N T C O N D I T l O N S markets of the district. At mid-August, the number of claims for unemployment insurance in St. Louis, Louisville and Memphis were less than a month earlier. In Evansville, claims rose somewhat, prim arily reflecting seasonal layoffs, but the increase was substantially less than in the same period last year. In July employment in nonagricultural establish ments in the St. Louis metropolitan area rose 12,000 from May and was 15,000 larger than a year earlier. Part of the improvement from May reflected the fewer number of persons involved in labor disputes, but the July figure was reduced by the number of workers on unpaid vacation and who are not counted as employed. In Louisville, non-agricultural em ployment dropped by nearly 3,000 from June to July as a result of vacations and labor management dis putes. In Memphis and Little Rock, employment in creased slightly, largely as a result of increased con struction activity. Demands for credit were strong and interest rates rose further. The demand for loans at district weekly reporting banks continued strong during the five weeks ended August 24. Most of the loan expansion was to busi nesses and consumers. Businesses added over $13 million, or roughly twice the average increase for the corresponding weeks in the previous four years. Most business groups increased their indebtednes. Com modity dealers, however, were an exception, making sizable net repayments, primarily at banks in St. Louis and Memphis. "Other” loans (largely con sumer) were up $8 million, the sharpest increase for any like period since 1950. Volume outstanding on August 24 was $443 million or 21 per cent larger than a year ago; in the previous twelve months the increase was only 3 per cent. Loans on real estate and securities were up moderately. An offsetting factor in the loan expansion was a sizable redemption of CCC certificates. During the five weeks ended August 24, indications are that the pressure for funds increased at district weekly reporting banks. Reserves with the Federal Reserve and other cash balances declined, and bor rowings, on a daily average basis, rose. Effective August 8, and August 30, the Federal Reserve Bank of St. Louis raised its discount rate in two steps from 1% per cent to 25* per cent. Federal funds and other interbank lending became more expensive. Also, dis trict weekly reporting banks reduced their holdings of most types of securities. With the recent decline in prices of intermediate-term bonds and longer-term notes, it is likely that some sales were made at prices below cost. Deposits, both demand and time, de clined during the four weeks. Interest rates generally rose further in July and Au gust, reflecting the increased demand for funds, some decline in the rate of saving and the relatively tight reserve positions of banks. Average rate on new Treasury bills rose from 1.40 per cent on the issue dated June 30 to 2.09 per cent on the issue dated September 1. On the Government 2/fs of June 195962 the yield increased from 2.67 per cent on June 30 to 2.85 per cent on August 30. Over the same period rates on prime business loans rose of 1 per cent, rates on bankers acceptances advanced %of 1 per cent, and rates on commercial paper increased of 1 per cent. In capital issues, such as long-term Govern ment, corporate and municipal securities and mort gages, values have been drifting lower reflecting the increase in market yields. However, consumer spending slowed, . . . Consumer spending at district department stores during the first three weeks of August declined somewhat from the high rate of July, after allow ance for seasonal factors. Still, the rate of spend ing remained about 9 per cent larger than a year earlier and slightly above the rate for the first half of 1955 after seasonal adjustment. Sales of house hold durable goods, which advanced sharply in July over a year earlier, continued strong in the first part of August. Sales of automobiles apparently slowed in the first 10 days of August, if district trends followed those in the nation. While the early returns on August retail sales in dicated some slackening from the rate in July, total retail sales in the nation and district department store sales in July were at record rates after allow ance for seasonal factors. Furniture store sales in the district were also strong in July—10 per cent larger than a year earlier. . . . and construction contracts awarded declined. Construction activity in the district was at a high level in August, reflecting the large volume of con tracts awarded so far this year. Contracts awarded in the first seven months of 1955 totalled $789 mil lion, up 20 per cent from the same months last year. Recently, however, the seasonally adjusted rate of contract awards has declined. Most of this reduction reflects a sharp drop in the rate of residential con tracts awarded. This pattern continued for the first half of August when residential contracts awarded in the St. Louis territory of the F. W. Dodge Cor poration, which contains most, but not all of the Eighth District, were substantially below the same period a year earlier. The decline probably reflects in part the reduced availability of mortgage credit in recent months. On July 30, terms were tightened on Federally guaranteed and insured mortgages by an increase in down payments and shortening of maturities. While growing conditions continued generally favorable, price and income developments were adverse for district farmers. District farm production conditions were generally favorable during August. At major weather reporting stations in or near the Eighth District, moisture condi tions including rainfall plus soil moisture averaged about normal. Relatively moderate temperatures and favorable subsoil moisture conditions limited harm ful effects from less than normal precipitation in a few areas. August crop growing conditions were a continua tion of generally favorable temperatures and rainfall during the present season. Based primarily on Au gust 1 estimates of the U. S. Department of Agri culture, production of major crops in district states is expected to average 10 per cent higher than in 1954. In addition, the production of livestock com modities may average 4 per cent above last year, largely reflecting increased pork output. Hay and feed grains harvested this summer and fall will be fed to livestock which will be sold largely in 1956. Thus, increased crop production during 1955 may contribute only moderately to cash farm receipts during the remainder of this year. Farm income over the rest of the year will be adversely affected by acreage cutbacks for cotton, tobacco, wheat, and rice, which have been replaced largely by less profit able crops, and lower prices for farm products. Dur ing the first six months of 1955 Eighth District cash farm receipts were 7 per cent below the comparable 1954 period. District farm commodity prices remained relatively stable, in the aggregate, during August. However, prices received on August 26 averaged 6 per cent below a year earlier, reflecting primarily sharp drops in hog, soybean and com prices. And prospects for the remainder of the year, when farm product sales are heavily concentrated, suggest that average prices received for district products will continue below year-earlier levels. Page 111 7 find*1* ^ VARIOUS INDICATORS OF INDUSTRIAL ACTIVITY • 'pi&trUet Industrial Use o f Electric Power (thousands o f K W H per working day, selected industrial firms in 6 district citie s)....................................................................................... Steel Ingot Rate, St. Louis area (operating rate, per cent o f ca p a city )...................... Coal Production Index— 8th Dist. (Seasonally adjusted, 1 93 5 -1 93 9 = 1 0 0 ) ............ Crude Oil Production— 8th Dist. (D aily average in thousands o f b b ls .)................. Freight Interchanges at RRs— St. Louis. (Thousands o f cars— 25 railroads— Terminal R. R. A ssn .)............................................................................................................... Livestock Slaughter— St. Louis area. (Thousands o f head— w eekly a vera ge).......... Lum ber Production— S. Pine (Average w eekly production— thousands o f bd. ft.). . Lum ber Production— S. H ardwoods. (Operating rate, per cent o f ca p a city )............ July 1955 com pared with June 1955 July 1954 July 1955 + 10 % — 4 +13 + 1 15,271 96 145 p 379.4 106.5 76.5 200.8 84 +25% +68 +24 +16 + 1 — 4 — 5 — 9 +10 — 11 + 8 — 6 * Percentage change figures for the steel ingot rate, Southern hardw ood rate, and the coal production index, show the relative per cent change in production, not the drop in index points or in percents o f capacity, p Preliminary. BANK DEBITS1 July 1955 (In millions) Six Largest Centers: East St. Louis— National Stock Yards, 111............................... 113.7 177.3 164.3 771.8 645.2 $3,973.5 Other Reporting Centers A lton, 111.......................... Cape Girardeau, M o .. El D orado, Ark............ Fort Smith, Ark........... Greenville, Miss............ H annibal, M o................ Helena, A rk................... Jackson, Tenn................ Jefferson City, M o. . . Ow ensboro, Ky.............. Paducah, Ky.................. Pine Bluff, Ark.............. Quincy, 111..................... Sedalia, M o................... Springfield, M o ............. Texarkana, Ark............ (In thousands o f dollars) June 1955 Percentage Change Jan. thru June June ’ 55 1955 from com pared with June,54 1954 1953 Arkansas. . . $ 21 Evansville, In d .............. Little R ock, Ark........... Louisville, Ky................ Memphis, Tenn............ St. Louis, M o............ Total— Six Largest $ 38.0 15.0 28.8 56.0 25.8 10.2 7.0 21.3 72.5 4 2.5 26.7 30.9 37.7 15.5 81.0 20.4 — 9 —11% + 5 2 + + 4 + 7 + 8 — 8% + 6% — 14% — 1 — 5 + 7 + 2 - 0— 6 — 7 + 17 — 6 — 6 — 4 — 14 — 1 — 3 — 2 + + + + + + — + + + 7% 4 13 16 15 5 — 15% — 1 — 7 —8 —8 1 11 8 14 — 10 + 9 + 4 + 19 + 9 + 15 Total— Other Centers ................... , $ 5 29.3 — 2% + 9% Total— 22 Centers $4,502.8 — 7% + 7% IN D E X O F BANK DE B ITS— 22 Centers Seasonally Adjusted (1 9 4 7 -1 94 9 = 100) 1955 1954 June July July 159.3 142.5 151.9 l Debits to dem and deposit accounts o f individuals, partnerships and corporations and states and political subdivisions. Indiana. . . . Kentucky. . . Mississippi. . Missouri. . . . Tennessee. . + — — — + 78,263 — — 7 States. . . . 8th District. — — 12 % 15 2 2 15 5 7 6 3 + 5% — 13 — 9 — 7 — 5 — 8 — 5 + 9 — — 6 — 14 — 30 — 9 — — — 10 — 11 9 7 Unadjusted T o t a l............ Residential. A U O th e r . . 220.1 215 .6 p 288.3 p 181.8 p Seasonally adjusted T o t a l............ 181.6 p R esidential. 246.4 p A U O t h e r ... 151.5 p — 12 315.2 175.9 2 15.6 244.3 203.3 194.8 278.9 155.7 181.7 208.8 169.4 * Based on three-m onth m oving average (centered on m id-m onth) o f value o f awards, as reported b y F. W. D od g e Corporation. p Preliminary ASSETS AND LIABILITIES EIGHTH DISTRICT MEMBER BANKS A ll M em ber Banks Change from July 27 June 29 1955 1955 W eekly Reporting Banks Change from July 20 Aug. 17, 1955 1955 (In Millions o f Dollars) Assets Loans* ................................................ Business and Agricultural . . . . Security ......................................... Real Estate .................................. Other (largely consumer) . . . . U. S. Government Securities . . . Other Securities ............................. Loans to B a n k s ............................... Cash Assets ....................................... Other Assets .................................... T otal Assets ............................... $1,484 714 48 298 444 982 247 10 865 42 $3,630 $+ — + + + — — + — — $— $2,339 8 6 2 2 $ + 41 9 37 2,001 1 495 —2 1,389 67 $6,291 _ ± !i 4 15 2 43 + 24 $ + 95 Liabilities and Capital $— 4 $ 669 $ 643 Dem and Deposits o f Banks . . . . $+ 8 — 26 3,844 2,074 Other Dem and Deposits .............. + 57 — 2 1,213 561 Tim e Deposits ............................... — 1 89 — 15 110 + 28 Borrowings and Other Liabilities 455 263 Total Capital A c c o u n t s ................. + 4 + 3 $6,291 $— 43 $3,630 $ + 95 Total Liabilities and Capital 1 For w eekly reporting banks, loans are adjusted to exclude loans to banks; the total is reported net; breakdowns are reported gross. F or all m ember banks loans are reported net and include loans to banks; breakdown o f these loans is not available. Percentage o f Accounts and Notes Receivable Outstanding July 1, ’ 55, collected during July. Excl. Instal. Instalment A ccounts Accounts 17 49 41 13 44 Net Sales 7 mos. ’55 July, 1955 to same com pared with period *54 July, *54 June, ’ 55 8th F.R. District T otal. . + 9% + 5 — 7% — 4 Fort Smith Area, Ark.1 . + 9 + 1? — 2 Little R ock Area, A rk.. . + 2 — 7 + 2 Quincy, 111......................... + 5 + 16 Evansville Area, I n d .. . . + 6 + t 19 48 Louisville Area, Ky., Ind. + !0 ± i — 5 Paducah, Ky..................... + 2 19 — 11 55 St. Louis Area, M o., 111. + 9 + 6 + 33 + 37 — 3 Springfield Area, M o .. . . — 4 14 37 Memphis Area, T e n n .. . + 6 + 1 — 1 11 42 + 12 All Other Cities 2 ............ + 5 1 In order to permit publication o f figures for this city (or area), a special sample has been con structed which is not confined exclusively to department stores. Figures for any such nondepartment stores, how ever, are not used in com puting the district percentage changes or in com puting depart ment store indexes. 2 Fayetteville, Pine Bluff, Arkansas; Harrisburg, Mt. Vernon, Illinois; Vincennes, Indiana; D an ville, H opkinsville, Mayfield, O w ensboro, Kentucky; Chillicothe, Missouri; Greenville, Mississippi; and Jackson, Tennessee. IN DEXES O F SALES A N D STOCKS— 8TH DISTRICT3 July June 1955 1955 102 106 132 108 116 Stocks, seasonally adjusted 5 ....................................................... . n.a. 126 3 Revised 4 D aily average 1947-49 = 100 5 End o f M onth average 1947-49 = 100 May 1955 120 120 121 121 July, 1955— 2 5; June, 1955— 26; July, 1954— 26. O U T STA N D IN G ORDERS o f reporting stores http://fraser.stlouisfed.org/ than on the corresponding date a year ago. Federal Reserve Bank of St. Louis (1 9 4 7 -1 9 4 9 = 100) June 1955 M ay 1955 June 1954 Source: State data from U SD A preliminary estimates unless otherwise indicated. DEPARTMENT STORES Trading days: INDEX OF CONSTRUCTION CONTRACTS AWARDED EIGHTH FEDERAL RESERVE DISTRICT* CASH FARM INCOME July, 1955 com pared with June July 1954 1955 at the end o f July, 1955, were 19 per cent larger July 1954 89 116 110 119 RETAIL FURNITURE STORES Inventories Net Sales July, 1955 July, 1955 com pared with com pared with June, *55 July, ’ 54 June, ’ 55 July, ’ 54 8 th Dist. T o ta l* . . .— 3°y St. Louis Area. . . .— 5 L ouisville A rea. . .— 4 M emphis A rea. . . + 3 6 Little R ock A rea. — 34 Springfield Area. .— 12 + 10% — 3 % — 4 + 11 —2 + 12 + -0I — 4 — 3 + 6% + 2 + 14 — 1 * Not shown separately due to insufficient coverage, but included in Eighth District totals. 1 In addition to follow ing cities, includes stores in Blytheville, Fort Smith, Pine Bluff, Arkansas; Owens boro, Kentucky, and Greenw ood, Mississippi. N O T E :- -Figures shown to revision. are preliminary and subject PE RC E N T AG E D IS TR IB U T IO N O F F U RN ITU R E SALES Cash Sales ................. Credit Sales ............... T otal Sales ............ July, *55 14% 86 100% June, ’55 14% 86 100% July, ’ 54 14% 86 100%
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