annual - dallas fed
TRANSCRIPT
Annual
Statement for
1964
FEDERAL RESERVE BANK OF DALLAS
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library ([email protected])
FEDERAL RESERVE BANKOF DALLAS
To the Member Banks in the
Eleventh Federal Reserve District:
The Statement of Condition and the earnings and expenses of the
Federal Reserve Bank of Dallas for the year 1964, with comparativefigures for 1963, are shown herein. Lists of the directors and officers of
the Bank and its branches as of January 1, 1965, are also included.
A review of economic and financial developments in the Nationand the District during 1964 is being presented in the January 1965
Annual Report Issue of the Business Review of this Bank.
Additional copies of these publications may be obtained upon request
to the Research Department, Federal Reserve Bank of Dallas, 400 SouthAkard Street (mailing address: Station K, Dallas, Texas 75222).
Sincerely yours,
WATROUS H. IRONS
President
Statement of Condition
Dec. 31, 1964 Dec. 31, 1963
ASSETS
940,099,000196,865,000
1,362,562,000
1,384,372,000489,178,791
11,202,98226,403,980
2,645,094,542
Gold certificate account. . . . . . . . . . . . . . . $Redemption fund for Federal Reserve notes. .. . .
Total gold certificate reserves. . . . .Federal Reserve notes of other Banks .Other cash .Discounts and advances .U. S. Government securities:
Bills .Certificates .Notes .Bonds .
Total U. S. Government securities .
Total loans and securities .Cash items in process of collection ......•.................Bank premises .Other assets .
TOTAL ASSETS .
647,555,67651,174,531
698,730,20731,003,050
4,203,53221,810,000
225,598,000
$ 515,499,70544,628,041
560,127,74622,625,000
8,253,4201,824,000
158,567,000270,566,000678,845,000177,873,000
1,285,851,000
1,287,675,000307,096,327
11,895,35418,104,531
2,215,777,378
LIABILITIES
908,197,550240,310,825
3,162,013
978,952,290
844,299,42250,523,0889,120,0004,255,040
2,130,622,678
1,050,702,50747,510,30912,540,0004,922,766
1,115,675,582345,011,129
34,610,610
2,583,923,242
1,088,625,921
TOTAL LIABILITIES .
Federal Reserve notes in actual circulation ...Deposits:
Member bank - reserve accounts .U. S. Treasurer - general account .Foreign . .Other .
------Total deposits .
Deferred availability cash items. . . . . . . . . .Other liabilities .
CAPITAL ACCOUNTS
Capital paid in 30,585,650Surplus 30,585,650
TOTAL CAPITAL ACCOUNTS. . . . . . . . . . . . . . . 61,171,300
TOTAL LIABILITIES AND CAPITAL ACCOUNTS $2,645,094,542
28,384,90056,769,800
85,154,700
$2,215,777,378
Earnings and Expenses
1964
CURRENT EARNINGS
1963
Discounts and advances
U. S. Government securities.
Foreign currencies
All other
TOTAL CURRENT EARNINGS.
CURRENT EXPENSES
.. $ 965,397
51,185,796
363,107
24,917
. . . . . . . . 52,539,217
$ 585,957
45,650,694
116,460
22,852
46,375,963
Current operating expenses.
Assessment for expenses of Board of Governors.
Federal Reserve currency:
Original cost. including shipping charges .
Cost of redemption, including shipping charges.
Total .
Less reimbursement for certain fiscal agencyand other expenses .
NET EXPENSES
9,569,964
498,300
758,624
43,806
10,870,694
828,499
10,042,195
9,373,164
434,400
205,736
36,805
10,050,105
841,654
9,208,451
PROFIT AND LOSS
Current net earnings . . . . . . . . . . . . . . . . . . . . . . 42,497,022
Additions to current net earnings:
Profit on sales of U. S. Government securities (net). . . . 24,030
All other . . . . . . . . . . . . . . . .. ... . . . . . . . . . . . . . . 16,458
Total additions . . . . . . . . . . . . . . . . . . . . . . 40,488
Deductions from current net earnings. . . . . . . . . . . . 10,588
Net additions . . . . . . . . . . . . . . . . . . . . . . . 29,900
Net earnings before payments to U. S. Treasury. . . . . . . .. 42,526,922
Dividends paid . . . . . . . . . . . . . . . .. 1,797,729
Payments to U. S. Treasury (interest on F. R. notes). 66,913,343
Transferred to surplus . . . . . . . . . . . . . . . . . . . . . ... -26,184,150
Surplus, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . .. 56,769,800
Surplus, December 31. . . . . . . .. 30,585,650
37,167,513
11,845
24,089
35,934
24,808
11,126
37,178,639
1,668,435
32,204,404
3,305,800
53,464,000
56,769,800
Directors
FEDERAL RESERVE BANK OF DALLASROBERT O. ANDERSON
CARL J. THOMSEND. A. HULCY
MURRAY KYGERMAX LEVINE
J. EDD McLAUGHLINJ. B. PERRY, JR.
RALPH A. PORTERH. B. ZACHRY
ROGER B. CORBETTGORDON W. FOSTER
ROBERT W. HEYER
ROBERT F. LOCKHARTC. ROBERT McNALLY, JR.
CHARLES B. PERRYDICK ROGERS
DONALD B. CAMPBELLJ. A. ELKINS, JR.
M. M. GALLOWAYJOHN E. GRAY
EDGAR H. HUDGINSLOVETT C. PETERS
(VACANCY)
G. C. HAGELSTEINHAROLD D. HERNDON
MAX A. MANDELFORREST M. SMITHJOHN R. STOCKTON
DWIGHT D. TAYLORJ. R. THORNTON
(Chairman and Federal Reserve Agent), Owner, Lincoln County Livestock Company,Roswell, New Mexico(Deputy Chairman), Senior Vice President, Texas Instruments Incorporated, Dallas, TexasChairman of the Board, Lone Star Gas Company, Dallas, TexasChairman of the Board, The First National Bank of Fort Worth, Fort Worth, TexasChairman of the Board, Foley's, Houston, TexasPresident, Security State Bank & Trust Company, Ralls, Texas
President and General Manager, Perry Brothers, Inc., Lufkin, TexasPresident, The State National Bank of Denison, Denison, TexasPresident, H. B. Zachry Company, San Antonio, Texas
EL PASO BRANCHPresident, New Mexico State University, University Park, New MexicoPresident, Food Mart, Inc., El Paso, TexasSenior Vice Chairman and President, Southern Arizona Bank & Trust Company,Tucson, ArizonaVice President, The State National Bank of El Paso, El Paso, TexasRancher, Roswell, New MexicoChairman of the Board, First State Bank, Odessa, TexasPresident, First National Bank in Alpine, Alpine, Texas
HOUSTON BRANCHWorks Manager, Sabine River Works, E. J. du Pont de Nemours & Company, Orange, TexasChairman of the Board, First City National Bank of Houston, Houston, TexasPresident, First Capitol Bank, West Columbia, TexasPresident, First Security National Bank of Beaumont, Beaumont, TexasRanching - Partner in Hudgins Division of J. D. Hudgins, Hungerford, TexasVice President - Transportation and Supplies, Continental Oil Company, Houston, Texas
SAN ANTONIO BRANCHPresident and General Manager, Union Stock Yards San Antonio, San Antonio, TexasIndependent Oil Operator, San Antonio, TexasPresident, The Laredo National Bank, Laredo, TexasPresident, National Bank of Commerce of San Antonio, San Antonio, TexasProfessor of Business Statistics and Director of Bureau of Business Research, The Universityof Texas, Austin, TexasPresident, Pan American State Bank, Brownsville, TexasChairman of the Board and President, State Bank and Trust Company, San Marcos, Texas
FEDERAL ADVISORY COUNCIL MEMBERJAMES W. ASTON I President, Republic National Bank of Dallas, Dallas, Texas
Officers
FEDERAL RESERVE BANK OF DALLASWATROUS H. IRONS, President
P. E. COLDWELL, First Vice President
Roy E. BOHNE, Vice President
JAMES L. CAUTHEN, Vice President
J. L. COOK, Vice President
RALPH T. GREEN, Vice President
CARL H. MOORE, Vice President
G. R. MURFF, Vice President andSecretary of the Board
JAMES A. PARKER, Vice President
T. W. PLANT, Vice President and Cashier
W. M. PRITCHETT, Vice President
FREDRIC W. REED, Vice President
THOMAS R. SULLIVAN, Vice President
ARTHUR H. LANG, General Auditor
GEORGE F. RUDY, General Counsel
ROBERT H. BOYKIN, Assistant Vice Presidentand Assistant Secretary of the Board
J. Z. ROWE, Director of Research
JAMES O. RUSSELL, Chief Examiner
LEON W. COWAN, Assistant Vice President
E. H. BERG, Assistant Cashier
TONY J. SALVAGGIO, Assistant Cashier
E. A. THAXTON, JR., Assistant Cashier
E. W. VORLOP, JR., Assistant Cashier
EL PASO BRANCH
T. C. ARNOLD, Cashier
FREDRIC W. REED, Vice President in Charge
FORREST E. COLEMAN, Assistant Cashier
HOUSTON BRANCHJ. L. COOK, Vice President in Charge
B. J. TROY, Cashier
W. C. HARTUNG, Assistant Cashier RASCO R. STORY, Assistant Cashier
SAN ANTONIO BRANCHCARL H. MOORE, Vice President in Charge
A. E. MUNDT, Cashier
ALVIN E. RUSSELL, Assistant Cashier FREDERICK J. SCHMID, Assistant Cashier
business•revIew
january 1965
FEDERAL RESERVEBANK OF DALLAS
contents
Annual Report Issue
further economicgrowth in 1964
economic developments 3
financial highlights 7
district developments 12
furthe,- economicgrowth in 1964
The Nation's economy continued to expandthroughout 1964, thus sustaining one of thelongest business advances of record - whetherin peace or war time. Probably the highlightof the year was the early passage of thelargest tax cut in U. S. history, a fiscal innovation designed to accelerate the pace ofeconomic growth by unleashing the privateeconomy from war-induced levels of Federaltaxation. Both in anticipation of and in responseto the passage of the Revenue Act of 1964,businesses and consumers pushed spending tonew highs. The private economy was joined inits upward climb by state and local governments, which continued to expand outlays during the year at a strong rate. This underlyingeconomic strength was reflected in the financialarea, as bank loans, the money supply, anddemands in capital markets expanded strongly.
Through the first three quarters of 1964,the economic advance was evenly paced andwell balanced, apparently free of the excessesand distortions which have historically characterized sustained upswings in business activity.Plant capacity was generally adequate to meetthe rising calls for final products. Overall,wholesale prices were comparatively stable, withincreased costs for some commodities beingabout offset by lower prices for others. Thecombination of relatively short and certaindelivery schedules and stable prices encouragedbusinesses to apply their improved knowledgeof inventory control to keeping stock accumulations within quite modest bounds. Marketsfor most consumption and investment goods remained highly competitive, although some crudematerials, especially the nonferrous metals, werein short supply by early summer.
Beginning late in the third quarter and continuing through the remainder of 1964, theeconomic expansion acquired a somewhat different coloration, largely because of labor unrest. A number of important economicactivities were significantly affected by strikesand strike threats, the consequences of whichpartly masked the underlying strength of demands. The vigorous demand for steel in theOctober-December period was heightened byearly attempts at strike-hedge stockpiling of themetal, which imparted an impetus to the growthof manufacturers' inventories. The work stoppage on October 1 at East and Gulf Coast portsled to an inflated pace of merchandise tradewith foreigners during the period of the 80-dayTaft-Hartley injunction. Especially important,also, were the strikes in the automotive industryduring October and November, the impact ofwhich slowed, temporarily, the rate of growthof economic activity in the Nation.
economic developments
Although the rate of economic advance wasreduced considerably in the fourth quarter, thevalue of goods and services produced and consumed (that is, gross national product) during1964 was impressive, totaling approximately$623 billion for the year, or 6.7 percent over1963. Personal consumption outlays rose inabout the same proportion as GNP, while stateand local government spending climbed somewhat faster. Business fixed investment increased14 percent.
Business confidence and consumer optimismwere at a high level in early 1964, reflectingthe favorable economic developments of theprior year and the expectation of reduced cor-
business review/january 1965 3
Consumer income and spending each roseto a new high in 1964 ...
porate and personal income tax rates in thenew year. Business profits had set a recordin 1963, as had corporate cash flow (retainedearnings plus depreciation allowances); andbusinessmen anticipated further gains in themonths ahead in both sales and profits. Sincepersonal income had posted a long series ofsuccessive new highs, consumers anticipatedmore of the same.
INCOME:AHNUAL RATEBl LlIONS OF DOllARS
510
UNITED STATES15eo$0"011,odjll$lld) SALES
BilliONS OF DOLLARS
24
declined rather sharply in the final period, asthe shortage of cars in dealer showroomsduring October and November significantly reduced the sales pace of durable goods.
Despite some slackening in durable goodssales during the fourth quarter, consumeroutlays for hard goods during all of 1964 stillplayed a pacesetting role in the year-to-yearclimb in personal consumption spending.Outlays for services and nondurable goods eachposted a gain over 1963 slightly in excess of6 percent, while durable goods volume advanced somewhat faster, reflecting record spending for automobiles and household appliances.
22
21
L....L--'-..L......J":"":19"=63=-,-J........L---l.......J-L.......L--'-..L......JL....L1-='964:-:-'--'-J........L-'--J 2 0
p-Pr,limlnory.I-E.'il'/lof.d.SOURCES: U.S.Dlportmlnl of COlllmlrcl.
Federal R....... Bonk of 00110••
The tax reduction bill was passed in lateFebruary and went into effect on March 5. Consumers did not wait, however, to step up theirrate of spending. Relying partly upon borrowedfunds - consumer credit spurted an adjusted$725 million in February alone - consumerspushed their spending for a broad range ofgoods and services $8.7 billion above the seasonally adjusted annual rate for the last 3months of 1963. This January-March spurt wasthe largest quarterly increase in consumeroutlays since the scare buying period during theearly months of the Korean War. Increases inconsumer spending continued above the $6 billion level in the two subsequent quarters but
The sharp rise during 1964 in businessspending for new plants and equipment waswidely shared by most industry groups and reflected a number of favorable influences, notthe least of which was the reduced corporatetax rate. But also contributing were a sizablebacklog of funds derived from retained earningsand depreciation allowances, high and risingutilization rates, a competitive spur towardcost reduction, and the anticipation of furthersales gains.
The largest relative increase in capital spending by any major industry was posted by therailroads, which boosted outlays about 33percent over 1963. This significant gain mirrored the determination of the industry tocompete more effectively with other modes oftransportation by offering faster service atlower cost. Railroad investment last year washeavily concentrated in rolling stock. Fixedinvestment by all other transportation industriescombined moved up 20 percent, with much ofthe advance accounted for by the Nation'sairlines.
The 18-percent climb in manufacturing outlays for new plants and equipment last year wasabout evenly divided between durable andnondurable goods producers. Almost two-thirdsof the increase in spending by the manufactur-
UNITED STATES
MANUFACTURING ACTIVITY
to increase both the volume of output and theyield of the lighter hydrocarbons, particularlygasoline, per barrel of crude oil.
The marked rise in state and local government outlays last year reflected both the continuing struggle to meet the burgeoning demandsof an urban society and the impact of thePublic Works Acceleration Act passed by theU. S. Congress in 1962. State and local government spending advanced across a broad spectrum of goods and services, but particularlystrong increases were noted for streets andhighways, public buildings, and utilities - allof which added strength to construction activityover the year.
Construction activity fluctuated within a comparatively narrow range around the $66 billionlevel, on a seasonally adjusted annual-ratebasis, and totaled about 6 percent higher thanin 1963. A downtrend in spending for privatenonfarm housing developed after March. Thisdownswing in residential construction wasoffset, however, by increasing expenditures forindustrial buildings and hospitals in the private sector and by larger public spending forschools, hospitals, roads, and water and sewerage systems.
In response to the stepped-up pace of consumption and investment in the Nation'seconomy, the combined sales of the three echelons of business - manufacturers, wholesalers,and retailers - climbed to new montWy highsduring 1964, with the total for the year showing about the same relative increase as GNP.Business sales evidenced a general uptrendthrough the first 7 months and then fluctuatedwithin a fairly narrow range until October,when a shortage of 1965-model cars in dealers'hands lowered retail volume rather sharply.Needless to say, the value of shipments bymanufacturers during the month was reduced,also, by the work stoppage in the automobileindustry. Subsequently, however, a recordChristmas season at the retail level and a new
61
~9
63
67
6~
17.0
17.~
19.0
EMPLOYMENTMILLIONS OFFERSONS
19.~
MANUFACTURERS'INVENTORI ES
MANUFACTURINGPRODUCTION
IS.asonollJ OdjUl'ld)
MANUFACTURERS'SHIPMENTS
34
35
36
38
37
130
126
122
134
PRODUCTION INDEX19'7-'9-100
142
138
3 3 L....>.---'--L-.J'-,19.L63:-'-.l.-I.--'-..L...JL....L..:-'-.l..-J.---'-19...1.64--'--'--'---'--...l.-J ~ 7
ers of durables came from the steel and automotive industries, while about the same proportion of the investment gains in nondurableswas directed to chemical and petroleum production facilities.
p-Preliminor,.I-E,timot'd.SOURCES: Boord 01 Go¥ern(lft,F.deral Re~erve Srslem.
U.S.Oe9orf",enl 01 Commerca.U.5.[)e:portmMlto'lobor.Ftdtrol RtMrv, Bonk Of Dolle •.
1 1 8 L....o..~~---'-~~~-'--'---"-~~~-'----'---"-~'---'---' 16.~
SHIPMENTS INVENTORIESBILLIONS OF DOLLARS 81LUONS OfOOLLAAS
39 69
The steel industry emphasized modernizationin its expansion program during 1964 in aneffort to reduce costs and improve the qualityand variety of products still further. The needfor increased capacity and more flexible production equipment set off the wave of capitalspending by the producers of motor vehiclesand parts. The manufacturers of chemicals expanded plants and equipment to meet the sharplyincreased demands for basic industrial chemicals and plastics. In the case of the petroleumindustry, the Nation's refiners invested in order
business review/january 1965 5
p-P,.Ii""llo'~,
.-Ellimol,d.SOURCES: U.S.D.porlm'l'll 0' Lobor,
F.d,ral R... ' .... Bonk 01 Dollen.
UNITED STATES
(I9~T·'9·100)~~~GErN,--T ---,
The significant expansion of the Americaneconomy last year raised civilian employmentby July to a record 72.4 miUion persons, whichreflects a year-to-year advance of ].6 millionpersons. The seasonally adjusted rate of unemployment drifted downward intermittentlyduring the first half of the year, declining from
parted an upward bias to the movement ofwholesale stocks. However, retailers generallymaintained a conservative inventory policy.
To provide the primary energy, materials,and products needed for the economic expansion, the Nation's factories, mines, and utilitiesboosted the physical volume of output lastyear to 6 percent over the 1963 level. Althoughall of the major industry groups contributedto this upward movement, over half of the 1964advance in industrial production came from thedurable goods manufacturing industries, withparticularly strong increases noted for ferrousmetals and nonelectrical machinery. Total industrial production had entered 1964 on astrong uptrend and set successive new highs inevery month except October, when the flow ofmotor vehicles and parts from the Nation'slargest manufacturing firm was halted for 3weeks of the month.
The Nation's mills poured a record 127 million tons of raw steel last year, which surpassesthe previous high set in 1955 by 8.5 percent.The steel industry began] 964 with an operatingrate of 64 percent of estimated ingot capacity.After reaching a spring peak of 79 percent inlate May, the weekly pace of ingot productiondipped less than seasonally during the earlysummer and then climbed until a level of 83percent was achieved at mid-October, wherethe pace held for the rest of the year. Apartfrom inventory building in the fourth quarter,the strong demand for steel came from a broadrange of durable goods industries, includingthose producing automobiles, structurals, appliances, farm machinery, construction equipment, freight cars, and machine tools.
NONFERROUS METALS
~-~_:::~-r_----- •..95
90
105
110
Commodity prices, on balance, edged upward in the latter months of 1964
montWy high in automobile output helped topush business sales at the end of the yeartoward a new peak.
Business inventories advanced less rapidlythan sales during the first 9 months of lastyear, with the result that the inventory-salesratio in September was a quite modest 1.47.This comparatively low ratio mirrors not onlythe continued cost consciousness of businessmen but also managerial innovations in stockcontrol centered around the use of electroniccomputers. In addition, improved communication and transportation systems in the UnitedStates have lessened the chances of temporary,localized shortages of materials, parts, orproducts.
In the fourth quarter, durable goods producers began the strike-hedge stockpiling ofsteel in anticipation of a work stoppage in thesteel industry on May 1 of this year, when thepresent labor contract expires. Thus, manufacturers' inventories began to climb upward at arelatively brisk pace in October. Increasedholdings of the metal at service centers also im-
6
5.6 percent of the labor force in January to4.9 percent in July. During the remainder of1964, however, the size of the labor force andthe level of employment generally moved in thesame direction and shifted in about the sameproportion. In consequence, the rate of joblessness, on balance, showed no further improvement, although the rate of unemploymentfor married men edged downward to 2.5 percentin November. This is the lowest monthly ratefor the family breadwinners since March 1957.
Larger employment and higher wages combined to push personal income to new highs inevery month of 1964, with the average for theyear being almost 6 percent higher than in 1963.Even in October, when wage payments in theautomobile industry decreased sharply, personal income edged upward $700 million, ona seasonally adjusted annual-rate basis. Duringthe month, wage losses in the transportationequipment sector were more than offset bypayroll gains in state and local government andthe trade and service industries.
More important from the standpoint ofspending than the uptrend in personal incomeover the year was the sharp rise in take-homepay, which spurted $8.3 billion in the firstquarter and $10.7 billion in the second. Sincethe immediate impact of the reduced payrollwithholding rate was felt in March and April,disposable personal income posted somewhatmore modest advances in the third and fourthquarters. Nevertheless, after-tax personal income for all of last year moved above the 1963total by approximately 7 percent.
Consumer prices inched upward last year atessentially the same rate and for about thesame reasons as in the previous 2 years. Muc1~of the upward drift in living costs was derivedfrom higher prices paid for services, especiallymedical care and public transportation, although food costs increased modestly. Prices ofcommodities other than food were little changedfrom 1963 levels.
During the first 9 months of 1964, wholesaleprices exhibited a pattern of stability thathas more or less typified primary market pricesin the current cyclical upturn, with much ofthe variation in overall prices accounted forby swings in the cost of farm products andprocessed foods. In the fourth quarter, however, industrial commodity prices strengthenednoticeably to a level that averaged about onehalf of 1 percent above that prevailing in theJanuary-September period. Moreover, thisaverage for industrial commodity prices was thehighest since the early months of 1960, whenthe previous business advance was approachinga peak. A relatively tight supply situation inprimary markets for most nonferrous metals,particularly copper and zinc, and price risesfor refined petroleum products, especially theheating oils, provided most of the upward pushto overall industrial commodity prices.
financial highlights
Financial developments during 1964 featuredstrongly expanding credit demands, rapidgrowth in the money supply, a high level offinancial savings, and relative stability of interest rates during most of the year. Monetarypolicy remained stimulative in an environmentof continued economic growth. Internationalfinancial considerations continued to have asignificant impact on domestic financial markets.
Loans at all commercial banks in the UnitedStates approached a level of $166.0 billion atthe end of 1964, reflecting an increase of $16.4billion - or 11 percent - over the 1963 level.Real estate and business borrowing accountedfor about 60 percent of the total dollar advancein loans. Partially in response to a high levelof construction activity, real estate loans advanced approximately $4.5 billion; this gain,however, was about $400 million less than inthe previous year. The advance in businessloans approximated 10 percent during the year,or slightly greater than the 1963 advance. Asin past years, a large volume of internally gen-
business review/january 1965 7
erated funds tended to reduce corporate relianceon bank credit.
Consumers expanded their bank indebtedness sharply during the year to finance purchasesof automobiles, appliances, and various othercommodities and to meet outlays for homeimprovements. The high level of economicactivity and the increased income made available by the tax cut undoubtedly contributedto the willingness of the consumer to incur debtduring 1964.
of higher-earning non-Government seCUrIties.The decline in holdings of Government securities was significantly less than in 1963, however, and tax-exempt obligations were acquiredmuch less vigorously. The average maturity ofcommercial bank holdings of Government investments was shortened slightly in 1964. Therewere modest increases in portfolios of Government obligations maturing within 1 year, butholdings of issues maturing in 1 year or longerwere reduced.
COMMERCIAL BANK LOANSAND INVESTMENTS
BILLIONS OF DOLLARS
170
160
150
140
130
102
UNITED STATES
(S,olollollyadjust,dl
LOANS ADJUSTED
Despite a substantial expansion in bankcredit, free reserves of member banks averaged about $120 million during the first 7months in 1964, little changed from the lasthalf of 1963. During the last 5 months of 1964,however, free reserves receded to an averagewhich was about half of that shown earlier inthe year, as member bank borrowing rose tothe highest levels since mid-1960. Borrowingfrom Federal Reserve banks in the August-December period averaged about $100 millionmore than in the prior 7 months.
TOTAL INVESTMENTS
98
96
94 L...J.-'---'--L.'9
='=6-=-3L....L-'--'--'--'----'--..L.......I--'-~,9"':-64--'---'------'--'--'-'
,·Elhrnol'dSOURCES: Boord 01 Goy.rno••, F'd,rol Rut.y, SY"em,
F.d,rol Ru ••weSonk of 001101.
As banks extended credit to meet loan demand in 1964, their liquidity positions receded,as measured by the loan-deposit ratio. Thisratio rose about 3 percentage points from January to December, reaching 63.0 percent at theend of the year.
In 1964, as in other recent years, commercialbanks reduced their holdings of U. S. Government investments and added to their portfolios
8
Individuals added substantially to their holdings of financial assets during 1964, but suchacquisitions were made at a somewhat slowerpace than in 1963. The net inflow of fundsinto savings and loan associations during thefirst three quarters of the year totaled $7.1 billion, or about 5 percent less than in the comparable 1963 period. Much of this slowdownoccurred early in 1964, when net receipts ofsavings ran as much as 23 percent below thelike 1963 interval. As the year progressed,however, the savings inflow accelerated; andin the third quarter, the volume of new savingssubstantially exceeded that shown for the likeperiod in the previous year. Mutual savingsbanks, which sought funds aggressively duringthe past year, recorded an inflow of savingsabout 2 percentage points greater than in 1963.Time deposits at commercial banks rose about$14.0 billion during 1964 to a level approximately 12 percent greater than in the prior
year; this rate of gain represented a moderateslackening from the 1963 pace.
The Nation's money supply expanded sharplyduring 1964 to approximately $160 billion, alevel about 4.2 percent greater than a yearearlier. This advance exceeded the pace recorded for any other year since 1951. FromMay through December, the rate of monetaryexpansion accelerated to 5.7 percent, comparedwith a rate of 2.0 percent earlier in the year.The monetary expansion during the year wasaccompanied by a further rise in the rate ofuse of money, as measured by the turnover ofdemand deposits at commercial banks.
The volume of mortgage financing continuedrelatively large during the year, but it is likelythat the aggregate increase in loans fell slightlybelow the $29.3 billion gain in 1963. This development was associated with a slackening inthe construction of nonfarm residential housing.Faced with the need to employ a growing vol-
MONEY SUPPLY AND DEPOSIT TURNOVERUNITED STATES
ume of savings funds profitably, lending institutions eagerly sought mortgage loans; as aresult, lending terms eased during the year.Although strengthening slightly in January 1964,interest rates and fees on conventional mortgages during the first 9 months of the yearaveraged below the comparable 1963 figures,while the maturity of mortgages and loan-priceratios rose. Foreclosures increased during theyear but remained a relatively small percentageof total mortgage debt outstanding.
Total borrowing by state and local governments in the capital markets during 1964 wasmaintained near the $10.0 billion level registered in the preceding year. The need to financeoutlays for education, utilities, and housingcoupled with less than adequate tax receipts- was principally responsible for the high levelof debt financing. As in past years, commercial banks were heavy purchasers of municipalobligations; but their appetites for these securities were dulled by the need to channel anincreasing proportion of loanable funds intocustomer loans.
t-Elllmoted.p-Pr,liminar,.SOURCES: Boord 01 GoYernors, Fed.rol Ruuve SYltem.
Federal Renrve Bonk of Dallal.
New corporate security issues reaching themarket totaled about $12.0 billion during 1964,up moderately from the 1963 level. Althoughprivate placements of debt offerings remainednear the record 1963 amount, the total amountof corporate debt financing receded as thevolume of issues offered publicly declinedmoderately. Stock issues reaching the market,however, swelled to more than double thelevel of 1963 offerings, largely as a result ofthe sale in the spring of shares in communication utilities. A relatively small amount - lessthan 5 percent - of the funds raised throughnew security offerings was used to retire existing obligations.
Treasury demands in the money and capitalmarkets during 1964 were considerably lighterthan anticipated. Despite a large tax reduction,the Federal Government ran a cash surplus of$5.0 billion in the first half of the year, little
1964
IS'OJonall, odjutltd)
1963
ANNUAL RATE OFTURNOVEROF DEMAND DEPOSITS
(337 REPORTING CENTERS)
27
29
30
31
1962
33
32
TURNOVER RATE
28
145
150
155
BILLIONS OF DOLLARS
165
160
business review/january 1965 9
changed from the like 1963 period. As a resultof this favorable development, net debt repayments approximated $900 million in the firsthalf of the year; and the Treasury's cashbalance rose to slightly over $10.0 billion. Thiscomfortable cash position was interpreted bythe market as an indication that the Treasurywould not be a heavy borrower in the last halfof the year and, thus, was a factor in theeasing of interest rates during the summermonths.
SELECTED FINANCIAL INDICATORSUNITED STATES
PERCENT PER A"'NUN4.6
U.S. GOVERNMENT BONDS(LONG-TERM)
4.2
3.8
3.4
"'- EFFECTIVE RATEON FEDERAL FUNDS
MILLIONS OfDOLLA"S
+500
01-"-""'''-'''==------------~,;9
- I00 L..L-'--'--.L.,-'96-3.L.....l-'----'---.L.....l-'----'---..L....J-'-::',96:-:4~L.....-'--'-..L.....J
,,·Eatimol.d.p.P"liminorr.
SOURCES: 90Clrd ot tiovI'"oU,F,d,rol Rntrvt Sr",m.F'dlrol R...rnBonkof 00110'.
The Treasury actively employed the advancerefunding technique (first used in June 1960)to achieve a more even distribution of the Federal debt and to lengthen its average maturity.In July the Treasury, in the largest advancerefunding operation ever conducted, offeredholders of almost $42.0 billion in securitiesthe right to exchange them for three long-termissues. The lengthening of the maturity of thepublic debt achieved through the advance refunding technique was only sufficient, however,
10
to prevent the average maturity of the debtfrom shortening. At the end of October, theaverage maturity of the marketable debt was5 years 2 months, or unchanged from a yearearlier.
Interest rates in most sectors of the moneyand capital markets rose slightly in the firstquarter of 1964, largely in response to investor and dealer expectations of a surge in creditdemands to finance a growing economy stimulated by the Revenue Act of 1964. Expectationsof higher rates were reinforced when the discount rate of the Bank of England was increasedfrom 4 percent to 5 percent in February. Itwas widely anticipated that a firmer domesticmonetary policy would be required to moderatea surge in credit demands and to combat potential outflows of funds internationally. Rateseased in the second and third quarters of theyear, however, as the supply of loanable fundsproved fully adequate to meet the Nation'scredit demands. In September, money andcapital market rates were little changed fromthe December 1963 levels.
Money market rates moved up in latesummer and early fall, as market partIcIpants were generally apprehensive regardingthe short-term outlook for interest rates. Nearthe end of November, the change of the discount rate of the Bank of England from 5 percent to 7 percent and a hike in the discountrates of the Federal Reserve banks to 4 percentfrom 31/2 percent contributed to further increases in rates, notably in the short-term area.
During the month of November, rates on91-day and I-year Treasury biIJs rose 29 basispoints, while rates on intermediate-termTreasury issues advanced 11 basis points.Yields on long-term Government bonds werelittle changed. Prices of corporate securitiestrended downward in sympathy with developments in the Government bond markets, whileprices of municipal obligations rose. The declinein rates on tax-exempt obligations reflected an-
ticipations of increased bank purchases of theseobligations to employ an inflow of time andsavings deposits stemming from higher interestrates permissible under regulation Q.
When it announced the discount rate changesof the Reserve banks, the Board of Governorsalso announced the amendment of regulationQ, effective November 24, to allow memberbanks to pay maximum rates of 4 percent onsavings deposits, regardless of the time theyare held, and 4th percent on time deposits witha maturity of 90 days or longer. Responding tothis permissible change in the regulation, anumber of banks raised to 4 percent the ratepaid on all savings deposits. Although somebanks have made upward adjustments in theirrates on time deposits, there has been a definitereluctance to increase rates to the new maximum level.
Federal Reserve operations during 1964were conducted with a view to encouragingfurther economic expansion and, at the sametime, to maintaining conditions in the moneyand capital markets which would tend to discourage the outflow of funds internationally.Bank reserves were supplied during eachquarter of the year to support the expansionin bank credit and money. This stimulativemonetary policy, together with a high rate ofsavings, was also a factor in maintaining interestrates at levels compatible with emerging economic developments.
Action by the Reserve banks and the Boardof Governors in late November to increase thediscount rate from 3112 percent to 4 percentreflected the concern of the monetary authoritiesthat the recently established 7-percent discountrate of the Bank of England and the resulting3lh -percentage-point spread between the discount rates of the United Kingdom and theUnited States would attract funds abroad insubstantial volume, thereby contributing to aworsening of the Nation's balance-of-paymentsproblem. This action reaffirmed the Nation's
determination to protect the status of thedollar internationally. Thus, the increase in thediscount rate was prompted by internationalconsiderations and did not reflect a desire ofthe Federal Reserve System to restrain domesticcredit expansion.
The deficit in the Nation's international accounts continued to be a major considerationin the formulation of monetary policy in 1964.Largely reflecting a substantial improvement inthe first half of the year, the balance-of-payments deficit for 1964 likely will decline fromthe $3.3 billion level recorded for 1963. On aseasonally adjusted annual-rate basis, a deficitof $1.8 billion was shown in the January-Juneperiod.
The U. S. balance-of-payments position during the first half of 1964 benefited from severalfactors which must be regarded as temporaryin nature. Among these, exports of agriculturalcommodities to the Soviet Union in the January-March period and unusually large incomereceipts from direct investments abroad wereperhaps the most notable. The deterioration inthe balance of payments in the final half ofthe year largely reflected an expansion in imports, associated with the continued growth ofdomestic economic output.
10 August 1964, the interest equalization taxwas enacted by Congress to impose a tax onforeign securities sold to U. S. residents. Thelegislation also provides for the extension ofthe tax to long-term bank loans to foreignersif the President finds that such loans are beingused to circumvent the purpose of the legislation.
In financing its balance-of-payments deficit,the United States sold gold to foreigners andincreased its liquid liabilities to foreign monetary authorities and official institutions. Themonetary gold stock, however, showed a decline of only $127 million during the year,compared with a $465 million reduction in
business review/january 1965 11
INDUSTRIAL PRODUCTION INDEX
12o
OURABLE
MANUFACTURI NG1---,--,--..,---,.--'
e-Parll~ "limol.d.
Industrial production in the Southwest, asindicated by Texas data, moved upward lastyear to a level that was about 6 percent aboveoutput in 1963, or the same as in the Nation.The year-to-year gain in the region matchedthat registered for 1963. Industrial productionin the Southwest showed an orderly advanceduring 1964 as opposed to 1963, when mostof the expansion in industrial output occurredduring the first part of the year.
TEXAS
119'7-59 0 1001
NONOURABLE
MANUFACTURING
TOTAL
MINING
Although mining and the manufacturing ofboth nondurable and durable goods all postedoutput gains last year, the production of durablegoods registered the largest relative advanceabout 9 percent - over 1963. Among thedurable goods showing high rates of growthwere primary and fabricated metals, machinery,and transportation equipment. These categorieswere also among those in which output expanded rapidly at the national level.
Nondurable goods production rose almost 6percent in 1964, and mining output advancedabout 3 percent. Such nondurable manufacturesas apparel, chemicals, and rubber and plasticsshowed especially high rates of increase. Thestrong advance in the output of chemicals andapparel extended a trend that has been under
1963. Sales to foreign official institutions of nonmarketable U. S. Treasury securities denominated both in dollars and in foreign currencieswere a major factor in moderating the goldoutflow.
Also, for the first time since the establishment of the International Monetary Fund, theUnited States in February exercised its drawingrights under the terms of the Fund's charter.The proceeds of these drawings were mainlyused in aiding Western European countries inrepaying the IMF. A total of five drawings,aggregating the equivalent of $525 million invarious foreign currencies, was concluded during 1964. These drawings, however, were partially offset by the dollar drawings of othercountries; as a result, the net reduction inU. S. drawing rights was only $265 million.
Continued cooperation among the centralbanks of major industrial countries in mattersof mutual concern was a central feature ofinternational financial developments during theyear. Currency swap agreements between theFederal Reserve System and foreign centralbanks, which have made a significant contribution in past years to international financialstability, were developed further in 1964. Atthe time of the speculative attack on sterlingin late November, these swap facilities, plusresources available through the IMF, were ofincalculable value in easing the pressure onsterling. In addition to a $1.0 billion drawingfrom the Fund by the United Kingdom, 11 countries and the Bank for International Settlementsagreed to provide $3.0 billion to defend thepound sterling.
district developments
The Southwest shared in the broadly basednational economic expansion during 1964. Significant advances from 1963 levels were registered in manufacturing, mining, agriculturalproduction, construction activity, employment,personal income, and retail trade.
12
way in the Southwest for several years. Themodest, but important, rise in mining production reflects a continuation of the expansionevident in the output of petroleum productssince the early part of 1962, particularly in thelast three quarters of both 1963 and 1964.
Industrial production in the Eleventh Districthas shown marked growth during the currentbusiness expansion, which began in 1961.Nevertheless, output has lagged behind the rateof industrial expansion in the Nation duringthis period. This lag in industrial production isprimarily the result of the relatively slow rateof growth in mining activity in the District ascompared with manufacturing output.
Crude oil production in the District advanced2.7 percent last year. This was a significantlylarger gain than was recorded for the Nationas a whole and reflected the fact that much ofthe increase in national crude oil output wasprovided by District wells. Texas boosted crudeoil production 2.3 percent, while southeasternNew Mexico and northern Louisiana eachposted a still higher gain. The pace of cruderuns to District refinery stills rose 2.5 percentlast year. A new monthly record for refineryoperations was established in July, surpassingthe previous high set in February 1963 by 1.9percent. Overall, drilling activity in 1964showed little improvement in the District, although wildcatting picked up in northern Louisiana and the number of field wells drilled insoutheastern New Mexico increased somewhat.
The cumulative value of construction contracts in the southwestern states of Arizona,Louisiana, New Mexico, Oklahoma, and Texasin 1964 exceeded the very high 1963 level of$4.9 billion by about 2 percent. Aggregateconstruction activity remained well above thecomparable 1963 levels until the second halfof 1964, when residential construction activitybegan to weaken in each of the southwesternstates except Louisiana. However, nonresidential building and nonbuilding construction (en-
gineering and public works) continued to besources of strength in the southwestern construction picture throughout 1964. The advances in these sectors reflected the expansionof investments in manufacturing plants andcommercial facilities and further increases inspending for public works and utilities.
Weaknesses in the residential sector resultedfrom reduced construction of multiple-familydwellings, particularly apartment buildings.Some evidence of overbuilding and increasesin vacancy rates began to emerge during 1964in the larger metropolitan areas.
While metropolitan areas had about six timesthe volume of construction activity of nonmetropolitan areas (cities of 50,000 populationor Jess), the smaller urban areas enjoyed abuilding boom in 1964 when compared withthe larger ones. The source of this expansionwas new residential construction - the weakestsector in the metropolitan areas. This boom inresidential activity reflected a growing demandfor apartment units in smaller cities.
The value of nonbuilding contracts wasslightly below that for nonresidential construction. However, nonbuilding construction wasthe most rapidly growing segment of the construction industry in 1964. The primary sourceof strength in the nonbuilding sector was inwaterworks, sewerage, and irrigation-drainageprojects. Much of this activity reflected expanded programs of Federal spending for floodcontrol and dams under the Public Works Appropriations Act of 1964. The level of highwayconstruction in 1964 also advanced from thevery high 1963 level and, hence, was a primaryfactor in the strong nonbuiJding constructionpicture.
The rising levels of economic activity in theDistrict states of Arizona, Louisiana, NewMexico, Oklahoma, and Texas for 1964 resulted in expanded wage and salary employment. The average number of nonagricultural
business review/january 1965 13
FIVE SOUTHWESTERN STATES
wage earners last year was nearly 4.8 million,or about 2 percent above 1963.
Expansion in nonbuilding and nonresidential construction offset weakness in residential building in 1964 ...
recorded the greatest increase (24,000) in thenumber of workers employed, and trade postedthe second largest employment advance(22,000).
Automotive sales in major Texas marketsshowed healthy gains over 1963 during the firstthree quarters of 1964. However, the curtailedpassenger car production resulting from theOctober-November automotive labor troublessharply reduced sales during these months.Nevertheless, total new car registrations inDallas, Fort Worth, Houston, and San Antoniorose 8 percent above the high level recordedfor 1963. District department store sales advanced almost 11 percent above their 1963level.
Consumers in the District responded to thehigher levels of employment and disposableincome during 1964 by increasing their personal consumption expenditures further. Percentagewise, the step-up in consumer buyingfor durable goods was greater than the gain inpurchases of nondurables.
Although growing conditions were not particularly favorable in some sections, total agricultural output in the Southwest last year wasslightly above the high 1963 level. Higheryields per acre offset reductions in harvestedacreage, and total crop production increasedmodestly. In addition, output of livestock andlivestock products was substantially larger,principally because of increased cattle and calfproduction; production of mohair and poultryand dairy products also rose, however.
Prices received by southwestern farmers andranchers for all farm products in 1964 averagedmoderately below those of 1963. Prices forcrops were slightly weaker, and those for livestock and livestock products, particularly cattle,were substantially lower. As a result, total grossincome of southwestern farmers and rancherswas a little smaller than in 1963. Since production expenses were higher last year, net
+6
NONRESIDENTIALBUILDING
-2
TOTAL
The total civilian labor force, as measuredby the number of persons in the 18-64 agebracket, increased by about 40,000 persons;but employment rose by a greater amountmore than 111,000 workers - during 1964.The unemployment rate in the Southwest reflected this expansion in employment and easedto 4.4 percent of the civilian labor force, orfractionally below 1963. This downturn inthe unemployment rate reflected a 34,000 reduction between 1963 and 1964 in the averagenumber of unemployed workers.
,·Porll)' ..tirnol,d.SOURCES: F.W.Dod'lll CorpOI'otion.
Fld,ral R......... Bonk of 001101.
Manufacturing employment last year advanced 3 percent over 1963 in the Districtstates, and the number of nonmanufacturingwage earners rose a little over 2 percent. Inthe nonmanufacturing sector, which accountedfor almost 83 percent of total nonagriculturalwage and salary employment in the Southwest,the only employment category showing a decline from 1963 was transportation and publicutilities. Federal, state, and local governments
14
MEMBER BANK LOANS AND INVESTMENTS
ELEVENTH FEDERAL RESERVE DISTRICT
BILLIONS OF DOLLARS
8.0r--------------------,
7.6
7.2
6.8
6.4
6.0 INVESTMENTS
::C::, ~1963 1964
farm income was moderately lower than the$1.6 billion received in 1963.
The continued economic growth of the Southwest during 1964 was reflected in District banking developments. In order to satisfy a growingloan demand, member banks reduced theirtotal investments; borrowed through the Federalfunds market and at the Federal Reserve bank;and competed aggressively for time and savingsdeposits. The net result of these developmentswas a decline in District bank liquidity to alevel significantly below those recorded for otherrecent years.
At the end of the year, loans at all memberbanks in the District reached a total of $7.8billion, or 13.2 percent above a year earlier.The demand for consumer-type loans was especially vigorous; as a result, this category ofborrowing increased at a faster rate in 1964than in 1963. While the expansion in real estate loans was substantial in 1964, it was lessthan the sharp advance that occurred in the
preceding year. Commercial and industrialloans and loans to nonbank financial institutions were relatively weak during the year.Among commercial and industrial loan categories, however, loans to construction firmsrose sharply.
A continued inflow of time and savings deposits augmented the supply of loanable funds.Time and savings deposits, however, increasedat a somewhat slower rate in 1964 than in1963. The loan-deposit ratio of all Districtmember banks rose from 52.4 percent at theend of 1963 to an estimated 56.0 percent atthe end of the past year. Country member banksexperienced a sharper increase in their loandeposit ratio than did reserve city banks.
Member banks reduced their holdings ofGovernment obligations by about 10 percentin order to meet loan demand. Reserve citybanks decreased their holdings of Governmentsand increased their portfolios of non-Government securities at a faster rate than did countrymember banks. The average maturity of investment portfolios was lengthened, as Treasurybills and certificates of indebtedness were soldor redeemed while U. S. bonds maturing after5 years were acquired. A moderate amount ofnotes and bonds maturing within 1 year waspurchased.
District member banks continued to beactive participants in the Federal funds marketand, on balance, were net purchasers of funds.In fact, while District banks enlarged their purchases of Federal funds in 1964, they actuallyreduced their total sales of Federal funds belowthe 1963 level. During the year, member banksalso increased their borrowings from the Federal Reserve Bank of Dallas by a substantialmargin.
business review/january 1965 15
16
netcme.nbe."
bank
newpar
bank
The Uvalde National Bank, Uvalde, Texas, a newly organized institutionlocated in the territory served by the San Antonio Branch of the Federal ReserveBank of Dallas, opened for business December 14, 1964, as a member of theFederal Reserve System. The new member bank has capital of $200,000, surplusof $150,000, and undivided profits of $60,000. The officers are: James L.Cowan, Chairman of the Board and President, and William D. Tabor, VicePresident and Cashier.
The Peoples State Bank, Marshall, Texas, an insured nonmember bank locatedin the territory served by the Head Office of the Federal Reserve Bank ofDallas, was added to the Par List on its opening date, January 2, 1965. Theofficers are: W. L. Rudd, Jr., President; Barton S. Hill, Executive Vice President; Dr. H. D. Bruce, Vice President (Inactive); and Joe H. Sharp, Jr.,Cashier and Vice President.