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DIRECTOR-MANAGEMENT CONFERENCE of the
New Jersey Bankers Associaiton held
on April 4, 1962 at Cherry Hill Inn,
Cherry Hill, New Jersey.
CURRENT ECONOMIC AND FINANCIAL DEVELOPMENTS
DOMESTIC.
A.
Where we stand.
1.
G.N.P. - $548 billion.
(a) Highest rate ever.
(b) 9-10# above a year ago.
2.
Personal income.
(a) February $433 billion —
(b) Up
3.
record.
in year.
Since consumer prices are up only 1#, most
of gain is real.
Industrial production.
(a) In February rose to 115# (1957)*
B.
Yet no one is happy —
1.
why?
Equals all-time high.
(Especially bankers)
10# increase from recession low.
(a) Increases by quarters*
Quarter
Quarter
Quarter
Quarter
2.
Industrial production*
Quarter
Quarter
Quarter
Quarter
3.
2.... ..... plus $15 billion
3••••••••
"
10
"
4 .......
"
16
"
1 ('62)..
"
6
"
2....... ... + 5 »6#
3....... ... +3*7"
4 ....... ... + 1.7"
1 (*62)..
+0.7"
Mainly subbomness of unemployment.
(a) high.................
February 1962 still....
7-0)6 in May 1961
5 -656 of civilian labor force.
-
2-
(b) Civilian labor force 71*8 million.
grown in year.
Has not
(1) Decline in older men.
S.S. changes.
(2) Part-time students.
(3) Lack of vigorous demand.
4.
In short —
Rate of expansion has slowed down.
(a) Early in the recovery.
(b) While there is still unused capacity.
(1) Manpower.
(2) Plant + Equipment (83#).
C.
Where has weakness come from?
1.
Where it has not come —
(a) Government purchases.
(1) State + Local —
(A) Now 54.5 billion.
(B) Increases @ 3 - ^ billion —
up 4.2.
(2) Federal —
(A) Now 61.1 billion —
up 5*5
(b) Consumers.
(1) Services.
(A) Now 147.3 — up 10.
(B) Increases 8-9 billion.
(2) Non-durables.
(A) Now 160.2 — up 6 .5 .
(B) Increases 4-5 billion.
(c) Business.
(1) Inventories.
(A) From - 4.0 to + 7.2 —
Not yet!
(2) Durable equipment.
(A) From 24.2 to 28.5 but only + 0.5 last
quarter.
-3-
2.
Weak spots.
(a) Consumer durables.
(1) Now............
44.5
(2) Above year ago (39*4) but - $1 billion last quarter.
(b) Residential construction.
(1) Above year ago.
(2) But down $2 billion in last quarter.
(c) Net exports —
G + S.
(1) Now $3*3 billion.
(2) Down from year ago (5-3) and last quarter (4.0).
D.
Domestic prospects.
1.
No one ever knows.
2.
Over-all, only 1# below optimistic forecasts.
3- Settlement of steel contract.
4.
Optimism on autos.
5.
Jfy own view upward forces still predominate.
6.
But no boom.
7* Unemployment will remain a problem.
DOW-JONES MORNING SUMMARY (4/4/62)
HOUSING t- Home building this year will probably
not go as high as the 10 per cent gain over 1961
which some economists were predicting late last
year. But despite recent gloomy federal statis
tics, there are still solid reasons for expecting
the number of houses and apartment units built
this year to exceed the 1,276,000 units of 1961.
That is the consensus that emerged from Dow-Jones
interviews with builders, bankers and housing
economists around the country.
CONSUMER CREDIT:Instalment buying picked up
in February sparked by rising demand for motor
cars. Consumers added 236,000,000 dollars to their
instalment debt during the month after seasonal ad
justments, the Federal Reserve Board reported. The
February increased followed a 215,000,000 dollar
rise in January and an increase of $264 million in
December.
-4-
II.
FOREIGN.
A.
Post-war reconstruction.
1.
2.
B.
Bretton-Woods, 1944.
Marshall Plan.
Success has brought new problems, both BASIC and TECHNICAL.
1.
A competitive world.
(a) We have a large surplus on trade account —
on goods and on services.
e.g.
both
$3 billion last year, excluding exports
financed by Government grants and capital.
(Low imports because of recession.)
(b) Surplus not large enough to pay for —
(1) Foreign Defense Expenditures.
(2) Foreign Aid Programs.
(3) Private Investment.
(c) Our over-all deficit averaged $3»7 billion
from 1958-1960 and was $2.5 billion in 1961.
(d) Restoration of equilibrium.
(1) Will not come overnight. 1962 will probably
again show a deficit — and some further gold
losses.
(2) Governmental activities.
(A) Defense.
Foreign purchase of U.S. equipment.
(Dillon estimates $■§■ billion more.)
More U.S. equipment supplies for our
armed forces overseas.
(B) Economic assistance.
More ”in kind” less in dollars.
(C) Persuade allies to shoulder larger burden.
Our deficit is their surplus.
(D) Bargain for lower tariffs.
(E) Incentives for domestic investment.
-5-
(3) Private activities.
(A) Remain competitive.
Keep costs down.
(B) Seize export opportunities.
(C) Export-Import Bank.
Credit insurance.
Commercial + political risks.
2.
Convertible currencies.
(a) Gold exchange standard.
Dollar is pivot.
Foreign dollar holdings - $22i billion.
(b) Massive movement of funds.
(1) Interest differentials.
(2) Speculative.
e.g.
German + Dutch revaluation of 5#«
$100*s millions.
London to Zurich.
Frankfurt.
(c) Financial defenses.
(1) $6 billion — 10 nation.
Standby credit of I.M.F.
(2) Cooperation among central banks.
(Basle statement in 1961.)
(3) Treasury Stabilization Fund.
(4) Federal Reserve foreign currencies.
(5) Financial defenses give time to work out
fundamental adjustment.
They do not solve basic problem.
III.
FEDERAL RESERVE OPERATIONS.
A.
Basic principle!
B.
Which way is the wind blowing?
1.
^ a n against the breezes of
inflation or recession.
Domstic recession and unemployment.
Relatively easy credit.
-6 -
2.
C.
Balance of payments.
Deficit and short-term money flows —
Relatively tight credit.
Resolution of conflict.
1.
The tradition to adapt.
Supply reserves for expansion without undue downward
pressure on short rates.
(a) Supply reserves by dealing in longer Governments.
(b) Treasury supplies more bills to market.
IV.
CONCLUSION.
A.
The dollar gap of a few years ago removed with considerable
help from U.S. — and appropriate domestic policies abroad.
B.
The dollar surplus can be removed by appropriate domestic
policies on our part — coupled with warranted help in our
mutual obligations.
Moderately optimistic — not just to be fashionable,
BUT after examining the evidence!
@FedFRASER