e v ie v r

FE D E R A L RESERVE BANK
OF ST. LOUIS • P. O. BOX 442 • ST. LOUIS 66, MO.

Page

CURREN T DEVELOPMENTS

Money Supply Expands 2

Business Activity Improves 5

LIQUID ASSETS IN THE REC O V ERY 7

VO L. 4 3 • No. 6 • J U N E ’61

Digitized for FRASER

Federal Reserve Bank of St. Louis
 CURRENT DEVELOPMENTS

Business activity rebounded sharply from

Introduction
February through May. Output of the nation’s
T h e MONEY SUPPLY of the nation in­ mines, factories, and utilities increased along a
broad front, recovering more than one-third of
creased markedly in recent months, and time
the decline from the May 1960 peak in busi­
and savings deposits expanded even more rapid­
ness activity. Personal income turned up in
ly. Total loans and investments of commercial
March and registered further gains in April.
banks also increased significantly. Member Reflecting improvements in income, April re­
bank reserves, which expanded sharply from tail sales were higher than in February, and in­
mid-1960 to November 1960, declined slightly dications are that sales rose again from April to
in the last six months. In May, interest rates on May. The number of workers on nonfarm pay­
marketable securities remained at about the rolls increased more than seasonally in April
level maintained since late last summer. and probably changed little in May.

Money Supply Expands

Money Supply Time and savings deposits have been expanding
more sharply than demand deposits. As a result, total
E MONEY SUPPLY of the nation expanded commercial bank deposits and currency in circula­
quite rapidly in recent months, after adjustment for tion expanded at an annual rate of 5.8 per cent in the
seasonal influences. From the last half of November
1960 to the first half of May 1961 the money supply, M o n e y Supply
defined to include demand deposits and currency out­ B illion s of D o lla rs M onthly A v * r a g * i of Daily Figures Se a son a lly Adjusted B illio n s of D o lla rs

side banks, rose at an annual rate of 3.3 per cent. In

the earlier months of the past recession ( June-Novem-
ber 1960) money rose at a less rapid annual rate, 0.9
per cent. Taking the entire period of the current
monetary expansion from the last half of June 1960
through the first half of May 1961, the money supply
increased at an annual rate of 2.1 per cent. This rate
of growth is in sharp contrast with the contraction of
2.3 per cent from mid-1959 to mid-1960 and is above
the 2.0 per cent average rate of growth over the years
from 1951 through 1960.

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Federal Reserve Bank of St. Louis
 Turnover of M o n e y commodity dealers, contractors, and the textile indus­
3-Month M o vin g A v e ra ge Se a so n a lly Adjusted
tries increased, or declined less than seasonally. Loans
Annual Rate Annual Rate
to manufacturers of metal and metal products and to
the wholesale and retail trade declined. Real estate
and consumer loans showed only modest net changes
in this period.
The loan position of the banking system, as meas­
ured by the ratio of loans to deposits, tightened from
January to April of this year. From mid-1960 through
January 1961, the loan-to-deposit ratio declined from
a high of 56 per cent to a low of 53 per cent. This
reflected an increase in bank holdings of securities
relative to bank loans and deposits. Because of the
stronger demand for bank loans the loan-to-deposit
ratio increased to 54 per cent by April.

Ratio of Loans to Deposits

ten and a half months ending with early May 1961. Per Cent Atl Mem ber Banks per Cent
From the last half of November 1960 to the first half
of May this year the annual rate of growth in this
broader measure of money was 8.1 per cent. By com­
parison, in the 10 years, 1951 through 1960, the aver­
age rate of growth was 3.4 per cent.
The turnover of demand deposits at reporting cen­
ters outside the seven large financial centers has risen
in recent months after declining in the last half of
1960. The annual rate of turnover reached a high in
May 1960 of 26.3 times per year (three-month moving
average) fell to 25.5 times per year in January of this
year, and is estimated to have been 26.1 times per
year in April.

Bank Credit
The expansion in the money supply from late Bank Credit
November last year to early May resulted in part All Commercial Banks
from a decline in U. S. Government deposits, which Billions of Dollars s««o»°"r Adiu.t.d Bi||!ons of DoMar$

are not counted as money, but more largely from an

increase in bank loans and investments. Total com­
mercial bank loans and investments rose rapidly from
the end of November 1960 through April and probably
expanded further in May. Loans, seasonally adjusted,
increased by about $540 million in April, up $3.1
billion over November of last year. Investments,
which were up $1.2 billion in April, were $1.9 billion
higher than in November.

Bank loans to businesses increased on a seasonally

adjusted basis at banks in leading cities throughout
the nation during the six months ending in May. Busi­
ness loans to processors of food, liquor and tobacco,

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Federal Reserve Bank of St. Louis
 Bank Reserves slightly. A shift in demand deposit balances from
The increase in the money supply from June 1960 central reserve and reserve city banks, where reserve
to May 1961 reflected a similar increase in total re­ requirements are relatively high, to country banks
serves of member banks. Increases in member bank with lower reserve requirements also accounts for a
reserves permit banks to expand their loans and in­ lack of correlation between changes in bank reserves
vestments, which in turn increases bank deposits and the money supply. A shift in deposits from mem­
(money). Total member bank reserves (adjusted for ber banks to nonmember banks might have a similar
both seasonal influences and changes in legal required effect.
reserve percentages) increased over $800 million, or
at an annual rate of 10.8 per cent, in the five months Interest Rates
from June to November 1960 but declined slightly During May, interest rates on marketable securities
thereafter. As noted above, the money supply (and continued to fluctuate within roughly .the same range
the money supply plus time deposits) rose from June as they had since late last summer. Yields on long­
1960 to May 1961, with the most rapid growth occur­ term and intermediate-term Government bonds de­
ring in the last six months. clined during the first week in May but rose in the
latter part of the month. Interest rates on corporate
bonds changed little on balance while yields on state
Effective Reserves*
A ll M em b e r B anks
and local issues moved up moderately. Rates on three-
Billions of D o lla rs B illions of D o lla rs month Treasury bills fluctuated modestly about the
2.25 per cent level in the first half of May but rose
somewhat in the last half. The spread between long-
and short-term Government securities narrowed slight­
ly from April to May.
From about August 1960 to April of this year the
structure of interest rates changed relatively little on
balance. Yields on long-term Government bonds fluc-

Yields on U.S. Governm ent Securities

Per Cent W eekly A ve rages of Daily Figures Per Cent
I I | 1 1 — i— r | i i

The relationship between changes in the money Long-Term Bonds

supply (either narrowly or broadly defined) and 1
changes in member bank reserves is not always im­ v \

mediate and precise. The rather large increase in

3-5 Y ear Bonds / “ v " V
reserves which took place from June through Novem­ \
■ 1K A
1
ber 1960 brought about a sharp increase in excess \> \

reserves. Treasury deposits, which are not counted as \

money but do require maintenance of reserves, also a / V

f
increased markedly in this period. In more recent 3-M onth Treasury Bills
months, banks have been employing excess reserves
to expand credit and deposits, and the Treasury has
- i- la t e s t data plotted: W eek ; E nd ing June 2, 1961 estimc
reduced its balances, thus adding to the money supply. i l l I I . . . L
---- 1----1-----1----1
----1------- , i , , t
1960 1961

The recent sharp expansion in time deposits offers

a partial explanation for the growth in total bank de­ tuated rather narrowly about the 3.85 per cent level
posits during a period of declining reserves. Since while Treasury bill rates remained within the 2.25-
banks are required to hold a smaller proportion of re­ 2.50 per cent range most of the time.1
serves behind time deposits, total deposits could rise
even though reserves remained constant or declined 1 See “Liquid Assets in the Recovery,” in this issue.

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Federal Reserve Bank of St. Louis
 Business Activity Improves
Production
Industrial Production

I h E FEDERAL RESERVE BOARD’S INDEX of

Industrial Production, a measure of changes in the
physical volume of output, rose 3 per cent from Feb­
ruary to April. This increase is in contrast to a 7 per
cent decline from May of last year to February this
year. On the basis of continuing improvements in
several important sectors, total output probably ex­
panded again in May. Steel output through the third
week in May averaged 14 per cent higher than April's
average weekly output. During the same period, aver­
age weekly mill output in the St. Louis area was 9
per cent above the April average. May production
schedules in the automobile industry were adjusted
upward from April's rate. The rate of production in
May was 21 per cent above April.
been modest, the cumulative effect over the Decem-
Employment and Unemployment
ber-to-April period was a significant 3 per cent. On
The number of workers on nonfarm payrolls rose the average, production workers received about $3.00
more than seasonally in April, the first significant im­ more in their weekly paychecks in April than in De­
provement since nonfarm payroll employment began cember of last year (after seasonal adjustment). Aver­
to weaken in August of last year. The improvement age overtime hours in manufacturing inched up in
in employment was widespread, with substantial gains April over March. The number of regular full-time
in construction and in primary and fabricated metals. workers, who for “economic” reasons were working
Employment in the automobile industry changed little only part time, remained about unchanged.2
from mid-March to mid-April, but probably picked
The proportion of unemployed in the civilian labor
up in the last half of April and in May as production
force, at 6.9 per cent in May, remained near the De-
schedules were advanced over earlier rates.
cember-March level. It is not unusual for unemploy­
ment to respond slowly to improvements in economic
National Unemployment
as a Per Cent of Civilian Labor Force
activity. As Table I indicates, experience so far in
Per Cent S e a s o n a lly Adjusted

Table 1

Behavior of the Unemployment Rate

During Early Months of Recovery
Rate in Change from Trough
Periods Trough Month 2 Months 3 Months

1961 6.8 -0 - + 0 .1

1958 7.3 -0 - + 0 .2

1954 6.0 — 0.1 — 0.6

this recovery is comparable to the previous two recov­

Contrary to seasonal patterns, the factory workweek eries. In the 1958 recovery, one of the most rapid
was slightly longer in April than in March, the fourth
consecutive monthly increase in this series. Although 2 Persons working part time for ‘'economic” reasons include
those who worked part time because of slack work, material
each increase in the workweek, taken separately, has shortages or repairs, new job started, or job terminated.

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Federal Reserve Bank of St. Louis
 on record, there was a rise in the unemployment rate Against a backdrop of expanding sales, total bus­
during the initial three months. iness inventories declined sharply during the first
Even though the overall unemployment rate did quarter, especially those of retailers and of durable
not show the effects of recovery, the April and May goods manufacturers. In April manufacturers’ inven­
surveys revealed significant changes in the composi­ tories expanded by $100 million, as increases in stocks
tion of the unemployed. The short-term unemploy­ of nondurable goods producers more than offset de­
ment rate dropped from the average of the first quar­ clines in durable goods manufacturers’ stocks.
ter; at the same time, long-term unemployment con­ Government Spending
tinued to rise.3 These shifts usually accompany the Government fiscal operations, as measured by the
recovery phase of a business cycle. cash deficit of the United States Treasury, have been
expansionary in recent months. Cash outlays of the
Personal Income
Personal income rose in April, reflecting the broad Net Cash Receipts (+) and Payments (-)
expansion in output and employment. The 0.1 per U.S. G overn m ent
cent increase over the previous month was more sig­ Billions of D o lla rs B illio n s of D o llars
nificant than it would at first appear because March k S e a s o n a l l y jA d ju ste d sA n n u a l Raltes
figures were inflated by the advance payment of Na­
tional Service Life Insurance dividends. In the two
months from February to April, personal income more
than regained its four-month decline from October of
last year.

Consumer Spending
Buoyed by expanding incomes and employment,
and an improved liquidity position, consumers have
L a te st d a ta p lo tte d : 2 n d Qtr. e stim a te d
stepped up their purchases in recent months. In Janu­
1955 1956 1957 1958 1959 1 9 60 1961
ary, total retail sales, seasonally adjusted, were about
S o u r c e : U n ite d Sta te s T re a su ry D e p a rtm e n t
4 per cent below their May 1960 level. By April, they
were approximately 1 per cent above their January
low, but had slowed from the brisk pace set in March. Federal Government will probably exceed cash re­
Automobile sales, which led the rapid March expan­ ceipts by $7.6 billion (seasonally adjusted annual rate)
during the first half of 1961. This compares* with an
sion, maintained about the same level in April. In the
first three weeks of May, retail automobile sales ran average $7.2 billion annual rate of deficit during the
well above April's pace. Weekly reporting depart­ corresponding periods of the two previous business
ment store sales also increased in May. cycles. However, when the deficit is related to the
total output of goods and services (Gross National
Product), it amounted to about 1.5 per cent in early
Business Spending 1961 as against an average of 1.9 per cent in the simi­
Business spending on plant and equipment declined lar periods of 1954 and 1958.
2 per cent from the second quarter to the fourth quar­
Table II
ter of last year and, according to preliminary estimates,
declined further in the initial quarter of this year. Comparison of Deficits during
However, several promising developments have em­ Three Economic Troughs and Recoveries
In Annual Rates
erged since February. Machine tool orders were 4
(Dollar Amounts in Billions)
per cent larger in April than in February, a sharp rise Two Quarters
in March being partially offset by a contraction in First Quarter Per Cent of
Periods Trough Quarter* of Recovery Amount G.N.P.
April. Machinery output was 3 per cent higher in
April than the average of the previous quarter. The 1961 $ 9.2 $ 6.0* * $7.6** 1.5
increase recovered more than one-third of the decline 1958 4.4 12.0 8.2 2.1
in machinery production from May 1960. 1954 12.0 0.4 6.2 1.7
* The trough quarters of the 1954 and 1958 cycles were the third
quarter of 1954, and the second quarter of 1958. These are the
3 For reporting purposes the Bureau of Labor Statistics defines turning points of National Bureau of Economic Research “Reference
the "snort-term” as less than five weeks and the ‘long-term” Cycles.” For purposes of this article the first quarter of 1961 was
selected as the trough quarter of the recent recession.
as more than 15 weeks. * * Estimated.

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Federal Reserve Bank of St. Louis
 Liquid Assets in the Recovery

I N THE APRIL ISSUE of this Review, an analysis recent recession, a nine-month decline, was shorter
was made of changes in the publics holdings of than the 1953-54 downturn but of about the same
money and other liquid assets during the three most duration as the 1957-58 recession.
recent cyclical declines in economic activity. Since
Advances in economic activity which apparently
the article was published, it has become increasingly
began in February or March of this year continued in
apparent that the recession which began in the early
April and May with virtually all sectors of the econ­
summer of 1960 has come to an end. Indications are
omy showing signs of renewed vigor.2 The Federal
that the low point or trough of the recession may have
Reserve Boards index of industrial production in
been reached around February of this year.
April was 105 per cent of the 1957 average, up 3 per
The purpose of this article is to explore changes in cent from the February low. Preliminary data suggest
the public’s holdings of liquid assets during previous that the upturn continued in May.
recoveries to provide a background for evaluating
changes in liquid assets in the present recovery.1
Changes in these liquid assets, which occurred prior to Bank Reserves
the August 1954, April 1958, and February 1961 lower
turning points, will also be compared, since these Monetary and debt management policies, which
changes affected subsequent developments. This anal­ affect the public’s holdings of currency, bank deposits,
ysis may place the recent past in better perspective and short-term Government securities, are flexible and
and cast some light on future developments. may vary with the stages of the business cycle.
Furthermore, since many factors change, such as the
The 1960-61 recession, according to most measures intensity of business fluctuations, economic stabiliza­
of activity, was mild compared with the 1953-54 and
tion policies will of necessity and by design vary
1957-58 contractions. Industrial production decreased
between comparable phases of business cycles.
7 per cent as against an average of nearly 12 per cent
in the earlier declines (see Chart I). Moreover, the The Federal Reserve System conducts monetary
policy primarily by effecting changes in member bank
C h a rt I reserves. An increase in the total volume of reserves
Industrial Production permits commercial banks to expand credit and the
Troughs=100 Troughs=100 money supply; a decrease has the opposite effect.
120 Viewed in this manner, the System followed a more
A u g . '5 7 s* « ono"i' Adijusted
* v | Fe b . ‘5 9 *
\ Aug . *54 116 expansionary policy, both in magnitude and timing,
112
during the recent recession than in either of the two
jeJuly '5 3 \ 58
M a y '6 0 previous business declines.
108
s r 55 From May 1960 to February 1961 total effective
104
reserves of member banks expanded at an annual
6;
100 rate of 6 per cent3 (see Chart II). Virtually all of this
96 increase occurred in the five months from June to
_ l---1---1---1---1---1---L 1 t t 1 1 -- 1---1---1---1---L ±_ t 1 1 November 1960. An initial result of this rather large
92
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 increase in reserves was to build up excess reserves
M o n th s from Tro ugh
of the banking system and thereby provide a basis for

1 F or analysis purposes, May 1960 and February 1961 will be 2 See "Current Developments” in this issue.
arbitrarily used as the peak and trough of the most recent cycle. 3 Effective reserves are total reserves of member banks adjusted
Other turning points used in this article are the reference for seasonal influences and for changes in legal required reserve
dates selected by the National Bureau of Economic Research. percentages.

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Federal Reserve Bank of St. Louis
 subsequent bank credit expansion. Accordingly, from April 1958 trough, the money supply expanded at
November through May, banks used these excess re­ an annual rate of 4.8 per cent and then continued to
serves to expand credit and deposits even though total expand at a slower rate. In the first six months of the
reserves were about unchanged. 1954-55 recovery the money supply expanded at an
C h a rt II
annual rate of 5.1 per cent and in the subsequent
months the rate of expansion was more modest. De­
Total Effective Reserves*
Troughs=10Q_________________________________ Troughs=100 spite the contraction of reserves in recent months, the
S e a s o n a lly Adjjusted
money supply increased at a 3.1 per cent annual rate
Feb. '59*j from February to the first half of May. What happens
to the money supply during the remainder of the
present recovery will be determined largely by the
quantity of reserves which the banking system obtains.
I / June '55
f /
V '
Time Deposits
/7 P M a y ’61 p Time and savings deposits expanded sharply in the
Aug. 1960-61 recession (an annual rate of nearly 14 per
. ’54
cent). A similar rate of increase occurred during the
Au#. 5 8 1957-58 recession, and a somewhat slower rate of ex­
■53 _ y
E r M a y '6 0 F#b
Apr. *61
T . i — i— i— i— I— i— l— l1 1 i I i I 1 I 1 1
J ___ i___ i___ r
pansion occurred in the 1953-54 downturn (see Chart
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 IV). The rate of growth in time and savings deposits
M o n th s from Tro ugh
subsided somewhat in the recovery following the
‘ Effective reserve s a re total r e se rv e s o f m e m be r b a n k s adjusted
tor s e a so n a l in flu e n c e s a n d c h a n g e s in le ga l reserve requirem ents. August 1954 trough. On the other hand, these deposits
During the 1953-54 and 1957-58 recessions, bank continued to expand sharply for several months after
reserves expanded at slower annual rates, 3 per cent the April 1958 low. The growth in time and savings
and 5 per cent, respectively. The growth in reserves deposits during the first two and one-half months
during the 1953-54 recession did not begin until five of the present recovery approximated the rate of ex­
months of recession had elapsed. In the 1957-58 pansion following the April 1958 trough.
recession reserves did not begin to climb significantly
until three months after the economy began to turn Over the past decade time and savings deposits
down.
have increased most rapidly during periods of eco­
Following the August 1954 and April 1958 troughs nomic contraction. Interest rates on high-grade mar­
of business activity, bank reserves continued to ex­ ketable securities are generally low during periods of
pand sharply for several months before leveling off. recession. The decline in these rates enhances the
In contrast, from February to May 1961 total bank desirability of holding time and savings deposits which
reserves declined. However, by utilizing excess re­
earn a relatively steady rate of return. For example,
serves which were previously built up to abnormally
in the nine months ending with February 1961 most
high levels, banks were able to support an increasing
short-term money market rates were below the 3 per
volume of deposits.
cent maximum rate allowable on time and savings
deposits. The rate on three-month Treasury bills
M oney Supply
averaged about 2.4 per cent in this period. During
The money supply, defined as demand deposits and the other recessions under discussion, the spread
currency outside banks, expanded at an annual rate of between short-term money market rates and the max­
1.2 per cent in the recession from May 1960 to Feb­ imum rate banks were permitted to pay on time and
ruary 1961 (see Chart III). By comparison, the savings accounts was large also. In periods of in­
money supply grew at an annual rate of 1.5 per cent creased economic activity, when the demands for
during the 1953-54 recession and was about un­
credit push up interest rates on marketable securities,
changed on balance in the 1957-58 downturn.
the relative attractiveness of holding time deposits
In the first eight months of recovery following the diminishes.

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Federal Reserve Bank of St. Louis
 Money Supply Plus Time Deposits rate of 5.2 per cent during the 1960-61 recession (see
Chart V). This compares with annual rates of growth
Total commercial bank deposits and currency, a
of 3.2 per cent and 3.9 per cent during the 1953-54
broader concept of money, expanded at an annual
and 1957-58 recessions, respectively. The more rapid
growth in total deposits during the recent recession
reflects the larger increase in member bank reserves.
Chart! Ill, IV, V
During the first five months of the 1958-59 recovery,
M oney Supply
T ro u g h < = 1 0 0 T ro u g h s = 1 0 0 the money supply defined above increased at an
Seasonally Adjusted average annual rate of 7.1 per cent and then con­
104 Feb. *59Ih 1 0 4 tinued to expand at a reduced rate. This broader
definition of money expanded at an annual rate of
4.6 per cent in the six months following the August
102 102 1954 trough before the rate of increase subsided
significantly. From February to the first half of May
^May ’61* of this year, total deposits plus currency rose at an
Aug. 57
100 100 annual rate of about 7.2 per cent. From Chart V it
MayV60 can be observed that the expansion in money supply
plus time deposits thus far in the current recovery has
9 8 *July *53 98 been slightly greater than that which occurred during
the comparable period of the 1954-55 expansion but
I I 1 I I I I t I » I L » »» » » » i i >
somewhat less than in corresponding months of the
Time Deposits
10 8 10 8 1958-59 recovery.

Short-term Government Securities

10 4 -
Government securities within one year to maturity
are important liquidity instruments and, like time
100
deposits, are sometimes referred to as a "near money.”
Changes in the quantity of these debt instruments
are largely at the discretion of the Treasury,4 whereas
changes in the volume of commercial bank deposits
are influenced to a great extent by the Federal Re­
serve System. The Treasury has various objectives
in managing the public debt other than the public’s
liquidity.
M oney Supply plus Time Deposits The quantity of short-term Government securities
Seasonally Adj usted Feb. '59^ in the hands of the nonbank public declined during
10 4 104 the 1960-61 recession. However, during the two prev­
ious periods of economic contraction the decreases
in these liquid instruments were even greater, on
102 102 balance. From May 1960 to February 1961 the
May ’
51 p / 55
quantity of short-term Governments declined at an
annual rate of 9.3 per cent. In the 1953-54 and 1957-58
100 100 recessions they contracted at annual rates of 15.6 per
cent and 13.2 per cent, respectively.

98 M y 98 From February to April 1961 short-term Govern­

‘t i y ?
ments expanded at an estimated annual rate of 12
^ Aug . '54 per cent. In the first five months following the August
96 . '58 96 1954 trough, the quantity of these liquid assets rose
May '60 ^ . '61
1 1 1 1 1 1 i - t 1 1---1---1-- ■ i l l J— J— 1— 1 1 i —
-1 2 .1 0 -8 -6 -4 -2 0 2 4 6 8 10 4 The Federal Reserve System also influences the quantity of
Months from Trough these debt instruments in the hands of the nonbank public
* b a s e d on 15 d ay s through its open market operations.

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Federal Reserve Bank of St. Louis
 at i a annual rate of 18 per cent, although they de- , ,
Money Supply Time Deposits and Short-term
clin fd later. By contrast, in the first four months of Governments
the 1958-59 recovery, they decreased at an annual
rate of 25 per cent and subsequently rose. Money supply, time deposits, and short-term Gov­
ernment securities are important liquidity instruments.
Charts VI, VII, VIII
The Federal Reserve System influences the quantity
of bank deposits, and the Treasury and Federal Re­
Government Securities
serve together influence the volume of short-term
H e ld b y N o n b a n k P u b lic
Trou |h s = 1 0 0 T ro u g h s = 1 0 0 Government securities in the hands of the public.
124
J u ly * 5 3 Seasonally Adjusted
124 The sum of these assets represent that portion of the
120 nation’s liquid assets that are in large measure deter­
mined by public policy.
116
Publicly controllable liquid assets expanded at an
112 annual rate of 2.7 per cent during the 1960-61 reces­
10 8
sion (see Chart VII). This compares with almost no
net change during the 1953-54 recession and about
10 4 a 1 per cent annual rate of increase during the
100 1957-58 recession. To the extent that increases in
the public’s holdings of liquid assets stimulate total
96 demand for goods and services, public policy was
92 more expansionary in the past recession than in
either of the preceding downturns.
88
M o iey Supply, Time Deposits & G o v ’t Securities In the ten months following the April 1958 trough
publicly controllable liquid assets rose at an annual
10 4 rate of 5.8 per cent. In the first six months of the
1954-55 recovery these assets expanded at an annual
rate of 3.4 per cent before the rate of growth in these
102 assets began to subside. From February to April 1961
these assets expanded at an annual rate of 8.3 per
cent. This was about the same rate of expansion that
100 occurred in the like number of months following the
August 1954 trough and well above the early expan­
sion following the April 1958 low.
98
Total Liquid Assets
Savings and loan shares, deposits in mutual savings
96 banks, and United States savings bonds are also im­
portant liquid assets of the public. A broader measure
of the public’s holdings of liquid assets is obtained
10 4 by combining these assets with what has been termed
above “publicly controllable liquid assets.” This meas­
ure, which will be referred to as “total liquid assets,”
102 rose at an annual rate of 4.8 per cent during the 1960-
61 recession. By comparison, total liquid assets rose
at an annual rate of only 2.0 per cent in the 1953-54
100 recession and 2.5 per cent in the recession of 1957-58.
Preliminary indications, based primarily on the
98 growth of publicly controllable liquid assets, suggest
that the rapid expansion in the nation’s holdings of
total liquid assets has continued into the present
96 recovery period. In the 1958-59 recovery total liquid
assets leveled off for several months after the trough
and then expanded quite rapidly. Following the

10

Digitized for FRASER

Federal Reserve Bank of St. Louis
 August 1954 trough, total liquid assets rose markedly C h o rti IX, X

for five months and then increased at a slower rate. 3-Month Treasury Bill Rates
Troughs=100 Trough*=100
340 340
Interest Rates Aug. ’57
300
f /A 300
During the 1960-61 recession, both short-term and
260 Feb. 59_ 260
long-term interest rates declined less than in earlier ^July 53 \
recessions (Charts IX and X ). Yields on three-month 220 "S \ 220
Treasury bills declined about 35 per cent compared \ \
180 180
with an average of 75 per cent during the two previ­
/ /AV
ous recessions. Interest rates on long-term Govern­ 140
V 140
ment bonds decreased 11 per cent as against an aver­ May '60\ June '55
100 r j 100
age contraction of 20 per cent in the two earlier down­ ’61 p
60 60
turns. The level of interest rates dropped sharply,
however, from January to May 1960, several months 20 .I i i i.i i i I 1 I I I — 1—1—1—1—1—1—1.L™ 20
prior to the onset of the recession. Long-Term Government Bond Rates
140 1 140
r
Aug . '54
The smaller decline in the general level of interest ’53 Apr. 58 Feb. 59*
rates during the 1960-61 recession does not appear to Aug. '57 f.b■ 61
120 __ 120
have been the result of monetary restraint. As point­
ed out above, bank reserves, bank credit, and the
June *5?
money supply, defined narrowly or broadly, rose at May '60
100 100
rates which compare favorably with expansions that
M ay ’61 p
occurred in the two earlier recessions. Among the
factors which may have tended to resist interest rate 80 i i J -i i i i i i i i i 1 l 1 1 1 1 1 1 1 80
reductions in the 1960-61 downturn were a large out­ -12 -10 -8 -6 -4 -2 0 2 4 6 8 10
Months from Trough
flow of funds from the country and the relative mild­ p -p re lim in ary

ness of the recession. The mildness of the recession sion than in the corresponding periods of the 1953-54
may have resulted in a smaller than usual cyclical de­ and 1957-58 recessions. At. the same time, the 1960-61
cline in total demands for credit. recession was milder than the two previous reces­
During the first three months of the current recov­ sions.
ery (February to May 1961) short-term interest rates
showed little net change (Chart IX ). Similarly, in the Bank reserves increased sharply very early in the
corresponding periods of the two previous recoveries, 1960-61 recession. As a result, the money supply,
yields on these obligations changed only slightly. whether defined narrowly or broadly, expanded at a
However, in the fourth month following the trough rapid rate relative to growth rates in the early stages
of the other recessions. Likewise, the contraction in
in each of the two previous business upturns interest
the quantity of short-term Government securities in
rates on Treasury bills rose markedly, and this rise
the hands of the public was at a lesser rate, on balance,
continued for several months.
than in either of the previous downturns. Interest rates
From February to May 1961 interest rates on long­ did not decline as sharply in the 1960-61 recession as
term Government bonds were also virtually unchanged in previous downturns, probably reflecting in part a
( Chart X ). By contrast, interest rates on these securi­ stronger demand for credit during this recession.
ties rose in the comparable periods of the 1954 and
1958 recoveries. Federal Reserve purchases of long­ During the first three months of the current busi­
term obligations during the February-May period this ness recovery (from February to May), the money
year may have had a depressing influence on this rate. supply of the country expanded less rapidly than in
the two previous recoveries. The growth in the money
supply, defined to include time deposits, approxi­
Summary mated the rates of increase during the early months
To the extent that the publics decisions to spend of the two previous economic upturns. Apparently,
are influenced by its holdings of money and near the volume of short-term Government obligations out­
monies, monetary policy and debt management de­ side banks also rose. Interest rates on marketable
cisions were more expansionary in the 1960-61 reces- securities showed littie net change.

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Federal Reserve Bank of St. Louis
 DISTRICT DATA
Bank Credit BANK DEBITS1
8th District M e m b e r Banks
Three Months Percentage Change from
Billions of D o lla rs Seasonally Adjusted Billions of D o lla rs Ending with Previous Like Three
1
April 1961 Three2 Months a
Reporting Centers (In Millions) Months Year Ago
T o ta l A rk a n s a s
■ --------- El Dorado ..................... $ 98 + 2% -0 -%
Forth Smith ................... 191 + 2 + 6
35 + 3 — 3
Little Rock ..................... 740 -0 - + 3
Pine Bluff ..................... 144 — 5 — 1
Texarkana ..................... 76 — 5 -0 -
Illin ois
129 _ 6 — 6
East St. Louis & Nat'l Stock
Yds............................. 403 — 4 — 4
148 — 2 + 2
In d ia n a
Evansville ..................... 501 — 6 — 2
K e n tu cky
*N o t ad ju sted seasonally Louisville ...................... 2,692 -0 - — 1
L a t e s t d a t a p l o t t e d : A p ril Owensboro ................... 165 — 3 + 2
Paducah ........................ 113 3 + 2
M ississip p i
Total Deposits* Greenville ..................... 98 — 2 — 1
W e e k ly Reporting Banks - Selected District Cities M isso u ri
Cape Girardeau ............. 63 — 4 — 4
Hannibal ...................... 40 — 3 4
Jefferson City ................ 393 — 14 + 7
57 + 1 + 7
St. Louis ...................... 8,376 — 1 + 1
S p rin gfie ld .................... 326 — 4 — 1
Tennessee
96 — 7 + 2
Memphis ...................... 2,894 + 1 + 11
T o ta l...................... $17,778 — 1% + 2%
1 Debits to demand deposit accounts of individuals, partnerships and
corporations and states and political subdivisions.
2 Adjusted for seasonal influences.

Unemployment
as a Per Cent of C ivilia n Labor Force
Per Cent S easo n ally A djusted P®f Cent

8 ------- -------
- St. Louis j
H a s t W e d n e s d a y o f m onth 6 L *
Latest d a t a p l o t t e d : A p r i l
\ *
A / sT —
4
_ -------- ----
Retail Sales Little 1Rock
1957 = 1 0 0 1957 = 100 2
120r
Seasonally A djusted
120 12
-A E v a n s v ille -
U nited States
K 10 \\ /
/ -
110 /1 N >
r-W \
a . 110 l A L o u isv ille
8 \ %

100 6 V . I n
100
8th District
em p h is
4
i i 1i i 1i ] 1 i j 1 1 1111! 1111 I 1 I II 1 1 1 i 11 1 1 1 1 1-1 1 1 1 1 1 i i 1 i i 1 i i 1 i.±i
90 90 6n i l i . i .L i
1959
i 1 i i.
1960 1961
1959 1960 1961
Latest d a t a p l o t t e d : A p r i l p r e l i m i n a r y Latest d a t a plotted: A pril
Source: U.S. D e p a r t m e n t o f C o m m e r c e Source: State em p lo ym e n t d a ta

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Federal Reserve Bank of St. Louis