FEDERAL RESERVE BANK OF RICHMOND SEPTEMBER Digitized for FRASER Federal Reserve Bank of St.

FEDERAL RESERVE BANK OF RICHMOND SEPTEMBER 1962

2 Collection and Fiscal Agency Functions of... GENTRAL BANKS This is the third in a series o f articles on central banks ivith special reference to the Federal Reserve System. In addition to their principal task of form ulating and adm inistering m onetary policy, central banks perform a num ber of service functions for th eir n a tional governm ents, for commercial banks, and for the financial com m unity gen erally. T w o such functions are discussed below. T he n ature and scope of central bank service functions vary greatly from country to country, m aking it difficult to generalize about such functions. For that reason and also because information is more read ily availab le about the w ork of the F ed eral R e serve System, the discussion below gives more than usual em phasis to the service functions as they are perform ed in the U nited States. THE COLLECTION FUNCTION Demand deposits in banks make up the bulk of the m oney supply in the larger countries of the W estern W orld. Those deposits function as a m eans of paym ent or medium of exchange only when they are transferred, usually by checks w ritten against them. B illions upon billions of checks are w ritten every year and circulate w idely. The task of the banking system is to develop a system or mechanism in which each check can quickly and econom ically be returned to the bank on which it is draw n and in which that bank can easily, quickly, and safely m ake paym ent to the bank presenting the check. U nless there is such a system, the delays and costs involved w ill impede the free use of deposit money and cause it to circulate at varyin g discounts in different parts of the country. W hile the collection of checks is not an essential central bank function and has relatively little sig nificance for m onetary policy, it is in some countries an im portant service w hich a central bank can p erform for the public. The im portance depends upon the banking structure, the geographical area of the country, and the extent to which checks are used in m aking paym ents. A Good Collection System A good syste m of check collection has several ch aracteristics. It in cludes, so far as possible, all the banks in a country. If it does not, there m ust be duplicate system s, entailin g unnecessary shipments of checks and currency and the accom panying delays and costs. T he banking system of the U nited States afforded outstanding exam ples of such disadvantages before 1913. Second, the system provides for the quickest and cheapest possible methods of collection. T his requires the best utilizatio n of all availab le form s of tran sp o rtation and communication. F in ally, the system affords a convenient, economical, and safe method w hereby banks can c le ar or settle balances am ong them selves. In the absence of such an arrangem ent it m ay be necessary to ship large amounts of currency between different cities and regions. The C entral Bank and Collections T he cen tral bank has facilities which g re atly sim plify the collection process when the banking system is composed of m any banks spread over a large area. The central bank usually has a wide netw ork of branches or other representatives reaching all parts of the country. It also has contacts w ith most or all banks for other reasons. F in ally, it holds the reserves of most banks and thus is in a position to settle balances by the m ere process of debiting and creditin g accounts.

PII p. Some of the 3.7 billion checks which were collected through the Federal Reserve Banks in 1961 T h ese facilities are of co m paratively little im por tance in a co un try w ith a v e ry sm all num ber of banks, each of w hich has a nationw ide system of branches (e.g., C a n a d a ), esp ecially if it is sm all in a re a (e.g., E n g la n d ). In the U n ited States, how ever, condi tions are quite different. H ere there are thousands of independent unit banks spread over a larg e are a w ith no nationw ide branch ban kin g system s. F u rth er, the use of checks has been h ig h ly developed, g iv in g rise to a trem endous volum e of checks. It w ould be im possible for our present b an kin g system to operate w ith an yth in g app ro ach in g its present speed and efficiency w ithout one basic clearin g and collection system, an arran g em en t w hich could h ard ly be operated by an y o rganizatio n other than the F ed eral R eserv e System. The F ederal R eserve C ollection S ystem L im ite d space p revents an y d etailed description of the elab orate collection and clearin g system w hich has been developed in this coun try. L o cally, banks exchange checks d raw n ag ain st each other either d irectly or at a local clearin g house. F ed eral R eserv e B anks often function as clearin g m em bers of local c learin g houses, and other m em bers m ay settle balances by d raw in g on th eir accounts at the R eserve B ank. W h en a bank receives a check draw n on an outof-town bank, the usu al procedure is to send it to the F ed eral R eserve B an k or branch. If the d raw ee bank is in the sam e F ed eral R eserve d istrict, the R e serve B an k can m ake paym ent by a d ju stin g the ac counts of the two banks. If the check is d raw n on a bank in another F ed eral R eserv e d istrict, the local R eserv e B an k sends it to the R eserve B an k of that d istrict, w hich tran sm its it to the draw ee bank. Each R eserv e B an k m akes the proper ad ju stm en t on the accounts of the bank affected. T h is process gives rise to balances ow in g from one R eserve B an k to another. Such balances are settled w ithout the ship m ent of cu rren cy by ad ju stm en ts on the books of the In terd istrict Settlem en t F u n d a clearin g house for F ed eral R eserv e B an ks operated by the B o ard of G overnors. T h e assets of the F un d consist of gold certificates deposited by the 12 R eserv e B an ks. P a y m ents am ong the B an ks m erely change the equity of the different B an ks in the F und. T h is feature is esp ecially im portant in av o id in g larg e in terregio n al flows of cu rren cy w hich once w as a m ajo r feature of the clearin g system in this country. T he accom panying ch art shows that over the past ten y e a rs the num ber of checks (in clu d in g noncash item s) collected an n u ally th ro ugh F ed eral R eserve B an ks in creased by ap p ro xim ately 59%, from 2.3 b il lion to 3.7 billion. T h e do llar am ounts represented by these checks rose about 4 8 %, from a little over $800 billion to $1.2 trillio n, in d icatin g a sm all decline in the av erage size of checks collected. The W ire T ran sfer System In a d d itio n to c o l lectin g checks and settlin g balances betw een banks, the F ed eral R eserve S ystem operates a system for m ak in g telegrap h ic tran sfers of funds from one p art of the country to another. T ran sfers are m ade for m em ber banks in m ultiples of $1,000 w ithout c h a rg e ; tran sfers in odd am ounts and for the account of others are m ade at a sm all ch arge. T h is service is a g reat convenience to the financial w orld, and its use has been in creasin g rap id ly. B etw een 1952 and 3

4 1961 the annual num ber of transfers approxim ately doubled and the am ounts involved rose from less than $800 billion to $2.7 trillion. On an average business day more than $5 billion of transfers and paym ents are m ade through the In terdistrict Settlem ent Fund. O ver the years the F ederal R eserve System, in cooperation w ith the com mercial banks, has greatly increased the efficiency and reduced the cost of collecting checks and tran sferrin g funds. B y in creasing the scope of the check collection system it has lowered unit costs and reduced the balances which had to be settled. T hrough its w ire transfer system it m akes possible alm ost instantaneous transfers of funds to any part of the country in any am ount, free or at a v e ry sm all cost. T he In terdistrict S ettlem ent F un d m akes it possible to settle regional b alances through bookkeeping transfers and m inim izes the movements of currency am ong F ederal R eserve d istricts. W ith in districts, F ederal R eserve Banks pay the cost of shipping currency and coin to and from m em ber banks. In all of these w ays the S y s tem facilitates the free movement of money w ithin and am ong regions, and helps m aintain m oney at a uniform valu e throughout the country. T he collection process requires the efforts of ap proxim ately one-third of the employees of the 12 R eserve B anks the largest fraction engaged in any System function. If to this is added those employees engaged in the closely related w ork of han dlin g cu r rency and coin, the figure is raised to over two-fifths. Par and Nonpar Banks T h e R ese rv e S y ste m co l lects only those checks draw n on par b an k s; that is, those banks w hich rem it the full am ount of checks draw n on them and presented by m ail. B anks which deduct an exchange fee or charge are known as nonpar banks. A ll member banks m ust rem it at par, and most nonmember banks do so volu ntarily and thus checks draw n on them are perm itted to clear through R eserve Banks. Checks on nonpar banks m ust be collected outside the F ed eral R eserve S y s tem through correspondent banks. F or years the F ederal R eserve System has encouraged all banks to clear at par. The policy is slow ly succeeding, as evidenced by a drop in the num ber of nonpar banks from 2,629, or 18% of all banks, in 1939, to 1,636, or 12%, at the end of 1961. In 34 states all banks are on the par list. N onpar banks are heavily concentrated in the upper m idw estern and southeastern states. In general, they are sm all banks and checks on them account for only a very sm all proportion of all checks w ritten. N evertheless, exchange charges on these checks still am ount to several m illions of dollars every year. Federal R eserve Float W h en a c e n tral b an k operates a clearin g system, float m ay affect its ad m inistration of m onetary policy. W hen a R eserve B ank receives a check for collection, for exam ple, it gives the sending bank either im m ediate or deferred credit, depending g en erally on the assum ed tim e required to present the check to the draw ee bank. In this country, deferred credit is granted according to a tim e schedule, w ith a m axim um of two business days. On the average, it takes a little longer to collect the checks than the tim e schedule allow s and thus the sending bank receives credit before the draw ee bank is charged. T hus, the sending bank, in effect, receives a loan or advance for a day or two on some fraction of the checks it sends to a R eserve B ank for collection. T he am ount of this advance credit is known as F ed eral R eserve float. It is credit e x tended by the R eserve B ank and is added to member bank reserves, which affects the capacity of the banking system to expand earn in g assets. The am ount of F ederal R eserve float usually varies between $1 billion and $2 billion and is affected by such things as the num ber and am ount of checks w ritten, the interregional movements of goods and services, and, especially, the speed and efficiency of the transportation system. It rises regularly with seasonal increases in business and m ay shoot up sharply when a strike or a severe storm interrupts transportation. In the latter case the central bank m ay find that bank reserves are increased overnight

by sev eral h un dred m illion dollars, m akin g it nec e ssa ry to move q u ick ly to p revent an overabundance of reserves. C onversely, it m ay have to act as qu ick ly in the opposite direction to p revent a crip p lin g strin g en cy of reserves when transp o rtatio n difficulties are rem oved. GOVERNM ENT CHECKS, M ON EY ORDERS, AND BOND COUPON S COLLECTED BY FEDERAL RESERVE BANKS Millions of Pieces 750 1958 1961 ^ Billion 135 THE FISCAL A G EN C Y FUNCTION L ik e business corporations and in d iv id u als, gov ernm ents need b an kin g services. M odern g o v ern m ents en gage in a trem endous volum e of financial transactio n s. T hese req u ire m any v aried banking services, often far exceeding those needed by p rivate econom ic un its. U su a lly o n ly cen tral banks, w ith th eir g re a t size, co un tryw id e facilities, num erous contacts w ith the financial wrorld, ex p ert techniques, larg e research staffs, and accum ulated experience, can ad eq u ately provide such services. W h ile m ost of these services are routine, some are clo sely related to m o n etary policy. T h e relatio n sh ip becomes closer as the volum e of governm ent transactio n s increases and as fiscal and m o netary policy are m ore closely in tegrated. F u rth e r, the relationship betw een gov ernm ent funds and bank reserves is v e ry close, m ak in g it n ecessary for the cen tral bank to keep v e ry clo sely in touch w ith both in order to m an age m one ta ry policy. In addition to p ro vid in g routine b an kin g services, the cen tral bank u su a lly acts as agen t for the n atio nal governm ent in m an y fields and is u su a lly the gov ern m ent s top ad v iser on financial affairs and policies. D eposit S ervices T h e m o st o b vio u s an d th e m o st usu al service perform ed under the fiscal agen cy func tion is the receiv in g, holding, and p ayin g out of gov ernm ent funds. T h is m eans that the cen tral bank accepts deposits, receives and collects checks p ayab le to the governm ent, holds and tran sfers funds, and ch arges governm ent checks and bond coupons ag ain st the tre a su ry account. T h e w ire tran sfer service of the F ed eral R eserv e S ystem described above g re atly facilitates the m ovem ent of T re a su ry funds to the points w h ere th ey a re needed. In the U n ited S tates, as the accom panying chart shows, the num ber of item s paid by the F ed eral R e serve B an ks for the G overnm ent, in clud ing G overn m ent checks, postal m oney ord ers, and bond coupons, in creased from 697 m illion in 1958 to 706 m illion in 1961. T h eir valu e rose from $109 billion to $125 billion. D ata for e a rlie r y e a rs are not av ailab le on a com parable basis. T re a su ry T ax and Loan A ccounts W h ile R e serve B an ks hold v irtu a lly all the G overnm ent s checkin g account and do m ost of the w o rk in tra n s 600 1959 ferrin g funds and other sim ilar services, th ey by no m eans hold all U n ited S tates G overnm ent deposits. In fact, th ey u su a lly hold a sm all m in o rity of such deposits. T h e reason is quite sim ple. T h e U nited S tates G overnm ent frequen tly has v e ry larg e receipts concentrated in a few d ays such as on ta x p aym en t dates or on p aym en t dates for a larg e issue of bonds sold for cash. If all such am ounts w ere p aid d irectly into the F ed eral R eserv e B an ks, th ey w ould d ras tically reduce m em ber bank reserve accounts and create an acute sh ortage of reserves. C onversely, as those balances w ere paid out th ro ugh G overnm ent disbursem ents, th ey w ould soon build up an em b arrassin g surp lus of bank reserves. To avoid such a trem endous ebb and flow of bank reserves, the T re a su ry tries to keep an av erage of about $500 m illion in its accounts at R eserv e B an ks and holds the rem ain d er of its balances in T re a su ry T a x and Loan A ccounts at com m ercial banks. A larg e m a jo rity of a ll com m ercial banks over 11,000 of them hold such accounts, secured by the pledge of proper co llateral. F rom these T T and L ac counts funds are tran sferred to the R eserv e B an ks p erio d ically in relativ ely sm all am ounts so as to avoid larg e changes in bank reserves. T h e sm all red u c tions in bank reserves caused by these c a lls are la rg e ly offset by the re g u la r G overnm ent disb urse m ents from R eserv e B an ks. O ccasionally, if the T re a su ry accounts at the R eserv e B an ks become la rg e r than desired, funds are tran sferred back to the T T and L accounts. One of the routine duties of the R eserv e B an ks as (Continued on page 8) 5

SHAREOWNERS OF PUBLIC CORPORATIONS PER CENT OF POPULATION OWNING STOCK C H A N G E 1956-1962 South C arolin a N A T IO N A L RANK South C aro lin a 1959 I 1962 ~1 [~Z3 W est Virg inia District District of Colum bia Colum bia North C arolin a North C arolina reownehiji scores Stri kin G ains \j 200 Thousands of Persons United States Millions of Persons Based on sh areow n ers as a per cent of total population United States

8 Collection and F isca l A gen cy Functions o f... Central Banks (Continued from page 5) fiscal agents is to m aintain a check to see that adequate collateral is pledged to secure the m any T T and L accounts in com mercial banks and to take steps to bring it up if it is inadequate. Servicing the Public Debt N atio n al govern m en ts usually have large debts, and the task of servicing and refunding them is a huge one. N ational trea s uries could do this clerical work, but usually it is m ore efficient to let the central bank do it. The authority and the influence of central banks in shaping debt m anagem ent policy varies from country to country, but apparently no bank has full power to m anage the debt. The Bank of C anada and the B ank of E ngland each has somewhat more extensive powers along this line than does the F ederal R eserve System, but each is still subject to the final decision of the governm ent of the day. U su ally, however, the central bank, as the chief financial adviser of the government, is consulted when the term s of any im portant new issue of securities are being determ ined. Once those term s have been set and the issue announced, the central bank usually takes over and does most of the work from that point. T ypically, the central bank dissem inates inform ation, receives subscriptions, notifies subscribers of allo t ments, issues the securities, and receives paym ent into the governm ent account. It is also usual for the bank to m ake denom inational exchanges of securities and to pay m aturing interest coupons. W hen the securities m ature or are called, the bank usually redeem s them in cash or exchanges them for new ones if a refunding is made. The extent of this w ork in the U nited States is indicated by the fact that in issuing, redeem ing, and exchanging securities, the 12 R eserve B anks in 1952 handled 163 m illion pieces with a value of $355 billion. B y 1961 the number of pieces had risen to 192 m illion and th eir valu e to $560 billion. W ire T ransfer of Securities A sp ecial serv ice of the R eserve System is the transfer of Government securities by w ire. W ithout this service, the sale of securities between distant points would involve some delay and risk and considerable expense for the shipment of the securities. But now each R eserve B ank and branch m aintains a stock of unissued securities. If a security dealer in N ew Y ork sells a m illion dollar T reasu ry bill to a buyer in Richmond, the dealer can deliver the bill to the N ew Y o rk R e serve B ank, which retires the bill and w ires the Richmond R eserve B ank to issue a new one of the same denomination to the buyer when he pays for it. Such a transaction could be completed w ithin an hour. T his service affords substantial savings of time and m oney and thus g reatly facilitates the operation of the Government securities m arket and assures the T reasu ry of an effective national m arket for its securities. Loans to G overnm ent A m ajo r b an k in g fu n c tion is the gran tin g of loans to custom ers. A s part of the fiscal agency function, central banks m ake loans to their governm ents. Often governm ents have legitim ate need for short-term advances which only central banks m ay be able to meet. On the other hand, the most common abuse of central banks and the usual source of an y m ajo r inflation is overborrow ing by governm ents from central banks. To control such borrow ing, provisions have at tim es been inserted into central bank charters lim iting direct advances to governm ents. The great weakness of such method of lim itation is that it m ay be changed or elim inated at the w ill of the borrow er. If there is a well-developed m oney m arket and if treasu ry operations are properly organized, govern m ents can u su ally accom plish the n ecessary borrow ing w ithout reso rt to the central bank. It is necessary and proper, however, to have such borrow ing available in case of need. In the U nited States, the 12 R eserve Banks as a group m ay not hold at any one tim e m ore than $5 billion of U nited States securities purchased directly from the T reasu ry. Such securities have been held on only two days since M arch 1954 and then for only sm all am ounts. Central banks m ay and do, through open m arket operations, affect the term s on which governm ents borrow' and can, in effect, m ake indirect loans to them. Such operations constitute the most im portant tool used in the adm inistration of m onetary policy and cannot feasibly be lim ited or restricted to prevent their abuse in governm ent borrowing. In any event, it should be recognized that in tim e of w ar or other m ajor em ergency any central bank w ill often have to provide special facilities for governm ent borrowing, over and beyond w hat m ight be justified by sound m onetary policy. O ther Services In ad d itio n to the above, cen tral banks perform m any other fiscal agency functions for governm ents and governm ental agencies. T hese include such activities as the acquisition and m anage -

Wire transfer speeds the exchange of Government securities, thus reducing the cost of transactions and creating a national market. ment of foreign exchange needed for expenditures abroad, operations in the foreign exchange m arket for stabilization funds or the complete m anagem ent of such funds, the purchase and sale of securities for governm ent tru st funds, and the safekeeping of securities and earm arked gold. In the U nited States, two exam ples of routine F ederal R eserve activities along these lines are the verification and destruction of currency for the T reasu ry D epartm ent and, more recently, the retirem ent and destruction of food stam ps for the D epartm ent of A griculture. In addition, the R eserve B anks devote much effort to facilitating and servicing the Savin gs Bond Program. Som ew hat more specialized is the activity in g u a r anteeing V -loans. D uring W o rld W ar II and on a much reduced scale since then, the R eserve Banks have acted as fiscal agent for several departm ents and agencies of the F ed eral Governm ent in g u aran teeing loans m ade by com m ercial banks and other private financing institutions to industrial firms which have the capacity to produce goods im portant to national defense but which are in a financial condition which does not perm it them to borrow on satisfactory term s. A s an exam ple of another specialized service, the F ed eral R eserve B ank of Richm ond acts as fiscal agent for the H ousing and H ome Finance A gency of the F ederal Government. W hen the A gency m akes a loan, the Richmond B ank receives the bonds given by the borrow er and m aintains a record of them. A s interest coupons or the securities them selves m ature, the B ank collects the funds and deposits them to the A gency s account. W hen loans are made in another F ederal R eserve district, the R eserve Bank of that d istrict acts as subagent of the Richm ond B ank, receiving and holding the bonds, m aking collections, and reporting transactions to the Richm ond B ank. In term s of m anpower, the fiscal agency function is one of the m ajor functions of the R eserve Banks, accounting for the w ork of m ore than 2,000 em ployees, or about 11% of total em ployment. For most of this w ork the Banks are reim bursed by the T reasu ry and other agencies, the total reim bursement in 1961 am ounting to n early $20 m illion. In addition to salaries, reim bursem ent covers rent of space and equipm ent, printing, postage, telephone and telegraph charges, and num erous other items. U nder present conditions, however, reim bursem ent is m erely an accounting transaction of little significance since it adds an approxim ately sim ilar am ount to the p ayment which the B anks m ake to the T reasu ry as interest on F ed eral R eserve notes. 9

10 THE FIFTH DISTRICT F o r m ost people, the year that begins in Septem ber probably has more real significance than calendar, fiscal, or other annual cycles. Most business firms find w ork loads increasin g, and civic-m inded citizens assum e additional responsibilities in connection w ith a host of professional m eetings, com m unity projects, cultural program s, and fund drives that are kicked off in the fall. Some new term activity y e a r, perhaps m ight better reflect the increased tempo that now appears in so m any aspects of social, political, and economic life after Labor D ay has officially m arked the end of sum m er. SEASONAL VARIATION MEASURED Seasonal in dex num bers are computed to m easure the month-tomonth change in business activity that is sim ply a norm al response to seasonal changes in customs and w eather. These indexes clearly show the extent of the norm al fall upturn. In most Fifth D istrict states, for instance, the volume of checks w ritten against commercial bank demand deposits is lowest in the sum m er. P aym ents by check increase m ark edly in Septem ber, and bank debits typ ically continue to rise during the fall and into the early months of the Newr Y ear. Because of harvesttim e payrolls and farm m arketings, bank debits in North C arolina shoot up to a seasonal peak in Septem ber and taper off in the rem ain in g months. The m ore usual p attern, however, features a gradual rise to a seasonal high in December. W ith credit read ily available, bank debits tend to rem ain high in Jan u ary and F eb ruary (although actual buying drops to low er levels) as checks are w ritten to settle debts incurred in N ovember and D ecember. B ank debits in N orth C arolin a and V irginia, however, usually drop rather sharply after the first of the year. In V irgin ia, a state w ith something of a reputation for fiscal conservatism, bank debits are relatively higher than elsewhere in November and December and low er in Jan u ary and February. The figures appear to im ply that pay-as-you-go C hristm ases m ay be more prevalent in this state. SEASONAL RISE IN JOBS AND HOURS Paym ents for the services of labor m ake up an im portant part of total paym ents, and are reflected to a considerable extent in bank debits. The seasonal behavior of such paym ents can be observed in a general w ay in em ploym ent variations, and in greater detail for the m anufacturing sector in the fluctuation of factory m an-hours. Seasonal indexes computed for these series and their m ajor subdivisions in each state and the D istrict of Columbia usually rise tow ard the end of the year. A m ong the broad categories of em ploym ent, contract construction and finance, in su r ance, and real estate (w h ere jobs peak in the sum m er and decline in the fa ll) are the only exceptions. M an-hour statistics indicate that all categories of m anufacturing except p rim ary m etals rise to their greatest activity levels in the fall, but m any pass their seasonal peaks w ell before the end of the year. A repetition of these norm al gains this fall w ill m erely provide evidence that general business conditions are continuing to m aintain their recent good levels. Som ething more than norm al improvement w ill be a sign al of further strengthening, and an y thing less w ill alm ost certain ly indicate decline. PROGRESS BY LEAPS AND LAGS The accom panying charts present m onthly factory m an-hours ad ju sted M illio n s : 8 M A N U F A C T U R IN G M A N -H O U R S FIFTH DISTRICT Seasonally Adjusted

for n orm al seasonal v ariatio n s. In Ju n e (th e latest m onth ch arted ) m an-hours actu ally rose 0.9 %, but this rise cannot be considered favorable because m anhours u su ally rise about 1.2% in Ju n e due to sea sonal factors alone. T h erefore, the Ju n e change shows up in the seaso n ally ad ju sted figures as a de crease of 0.3 %, too sm all to have an alytical sign ifi cance or to bend v isib ly the line on the chart. M ay and J u ly also posted m inute gain s. T h us, in the latest three m onths for w hich d ata are av ailab le D istrict m an u factu rin g has continued to la g alo n g close to the level attain ed in A p ril. T he ch arts show th is period of expansion preceded by the 1958-1960 business cycle. In the latest up sw in g a tw o -stage advance is cle arly apparent. From D ecem ber 1960 to J u ly 1961, a tim e of y e a r when seasonal factors u su a lly cause a decline of about 4 %, m an-hours ac tu a lly advanced by this am ount. T he seaso n ally ad ju sted g ain reflecting a com bination of grow th and cyclical im provem ent w as therefore 8 %. J u ly 1961 m arked the end of the first leap and the b eginn ing of the first la g. B y Ja n u a r y 1962, after a series of m inor ups and dow ns, seaso n ally ad ju sted m an-hours had experienced a net decline of 0.7 %. T he second leap began in F e b ru ary and ended in A p ril after com pleting a seaso n ally ad ju sted advance of n e a rly 5%. N ondurable goods m an-hours, follow ing about the sam e p attern, advanced stead ily d urin g the first half of 1961, trended s lig h tly dow nw ard in the second half, resum ed the advance in F eb ru ary 1962, and leveled out ag ain in A p ril about 12% above the trough. W ith som ew hat different tim in g, durables rose in 1961 from F e b ru ary through O ctober, de clined from N ovem ber through J a n u a ry, rose ag ain from F e b ru ary through A p ril and leveled out again in M a y w ith a total g ain of 13% from the trough. A s reflected in m an-hour statistics, D istrict m an u factu rin g is app ro ach in g the fall on a high p lateau w ith as yet no evidence to show when or how it w ill b reak out of its static condition w hether another fo rw ard leap is in store, or a decline sh arp er than an y th at has recen tly occurred. It is p ertinen t to note th at in the past four y e a rs ag g reg ate m an-hours have seldom reversed direction to an y sign ifican t e x tent in tw o consecutive m onths. G AIN S OFFSET DECLINES B y a v e ry sm all m argin, seaso n ally ad ju sted m an-hours in durable goods in d u stries rose to a new high in J u ly. G ains of 4% reversed both the precipitous drop in p rim ary m etals and the g rad u al decline in fabricated m etals. On the other hand, m ach in ery and transp o rtatio n equip m ent, in a stro n g u p sw in g d u rin g the first half, fell 2% and 1%, resp ectively, in the first m onth of the second h alf-year. L um b er and wood products m ore than m ade up the Ju n e decline, co n tin uing the ir reg u lar advance th at began in Ja n u a ry. F u rn itu re in d u stry m an-hours declined in J u ly for the th ird consecutive m onth but w ere still h igh er than at an y tim e p rio r to this y e ar. Stone, clay, and g lass in dustries m ade the b iggest gain of all. A rise of 7% m ore than offset M a y and Ju n e decreases and estab lished for these in d u stries the high est figure in two years. 11

12 NUFACTURING M A N - H O U RS FIFTH DISTRICT Seasonally Adjusted * ^ * \f ^ * M A N U F A C T U R IN G M A N -H O U R S FIFTH DISTRICT Seasonally Adjusted Textili Paper and Printing Tobacco GROWTH SLOW IN SOME NONDURABLES A s the first chart shows, nondurable goods in dustries account for about tw o-thirds of total factory m an-hours. A lthough the grow th and cyclical characteristics of durables and nondurables appear quite sim ilar on the chart, relative changes based on the greater volume of nondurables are, as would be expected, decidedly sm aller. The first graph on this page shows three components of the nondurables group which have m ade relatively little progress in the current expan sion period. D uring the four and a half years charted, the food and tobacco industries experienced erratic short-term fluctuations which hardly reflect the general business cycle pattern at all and show virtu ally no grow th. Paper and printing industries have been more stable and the element of grow th is clearly visible. D uring the recent expansion manhours have risen more slow ly in these industries than in the nondurables group generally. But it should be recalled that the decline during the last recession wras also considerably sm aller here than elsewhere. A ccording to the latest figures, all three of these series advanced in Ju ly. Gains of more than 1% in tobacco m anufacturing and 2% in food processing reversed recent declines. TEXTILES DOWN IN JULY T extiles, apparel, and related products, which currently account for 54% of all D istrict nondurable goods m an-hours, have provided m uch of the momentum behind the recent upsw ing. Gains in these industries since early in 1961 average 16%, an im pressive figure for so large an operation. In dividual m an-hour increases w ere 24% in knitting m ills, 22% in yarn and thread m ills, 17% in apparel factories, and 11% in broad woven fabric plants. A ll except apparel turned down slightly in Jun e. A ll declined definitely in J u ly 1% in w eaving and 2% in spinning, kn itting, and the m anufacture of garm ents and other finished products. Chem ical m anufacturing, the other D istrict industry which has contributed strongly to the general rise in nondurables, gained 13% between December and June. A slight decline in June was followed by a 3% advance in Ju ly. The behavior of Fifth D istrict m an-hours in Ju ly reinforced the general feeling of uncertainty. M any industries that had been advancing declined. O thers that had been trending downward advanced, some by im pressive am ounts. A s fragm ents of evidence ap pear during the fall they should be interpreted, as w as observed earlier, in the light of the 2% to 10% seasonal increases that are norm al for most D istrict industries. Not until the seasonally ad ju sted statistics actually become available, however, w ill the facts be known about D istrict in d u stry s fall fortunes. PHOTO CREDITS Cover Colonial Studios 3. & 9. Colonial Studios 10. E. I. du Pont de Nemours & Company 11. Newport News Shipbuilding and Dry Dock Co., Drexel Furniture Company 12. National Fruit Product Co., Inc., American Cotton Manufacturers Institute, Inc.