Regional President Speech

DIRECTOR-MANAGEMENT CONFERENCE of the New Jersey Bankers Associaiton held on April 4, 1962 at Cherry Hill Inn, Cherry Hill, New Jersey. CURRENT ECONOMIC AND FINANCIAL DEVELOPMENTS DOMESTIC. A. Where we stand. 1. G.N.P. - $548 billion. (a) Highest rate ever. (b) 9-10# above a year ago. 2. Personal income. (a) February $433 billion — record. (b) Up in year. Since consumer prices are up only 1#, most of gain is real. 3. Industrial production. (a) In February rose to 115# (1957)* Equals all-time high. B. Yet no one is happy — why? (Especially bankers) 1. 10# increase from recession low. (a) Increases by quarters* Quarter 2......... plus $15 billion Quarter 3•••••••• " 10 " Quarter 4....... " 16 " Quarter 1 ('62).. " 6 " 2. Industrial production* Quarter 2..........+ 5 »6# Quarter 3..........+3*7" Quarter 4..........+ 1.7" Quarter 1 (*62).. +0.7" 3. Mainly subbomness of unemployment. (a) high................. 7-0)6 in May 1961 February 1962 still.... 5-656 of civilian labor force. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2- (b) Civilian labor force 71*8 million. Has not grown in year. (1) Decline in older men. S.S. changes. (2) Part-time students. (3) Lack of vigorous demand. 4. In short — Rate of expansion has slowed down. (a) Early in the recovery. (b) While there is still unused capacity. (1) Manpower. (2) Plant + Equipment (83#). C. Where has weakness come from? 1. Where it has not come — (a) Government purchases. (1) State + Local — (A) Now 54.5 billion. (B) Increases @3-^ billion — up 4.2. (2) Federal — (A) Now 61.1 billion — up 5*5 (b) Consumers. (1) Services. (A) Now 147.3 — up 10. (B) Increases 8-9 billion. (2) Non-durables. (A) Now 160.2 — up 6.5. (B) Increases 4-5 billion. (c) Business. (1) Inventories. (A) From - 4.0 to + 7.2 — Not yet! (2) Durable equipment. (A) From 24.2 to 28.5 but only + 0.5 last quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -3- 2. Weak spots. (a) Consumer durables. (1) Now............ 44.5 (2) Above year ago (39*4) but - $1 billion last quarter. (b) Residential construction. (1) Above year ago. (2) But down $2 billion in last quarter. (c) Net exports — G + S. (1) Now $3*3 billion. (2) Down from year ago (5-3) and last quarter (4.0). D. Domestic prospects. 1. No one ever knows. 2. Over-all, only 1# below optimistic forecasts. 3- Settlement of steel contract. 4. Optimism on autos. 5. Jfy own view upward forces still predominate. 6. But no boom. 7* Unemployment will remain a problem. DOW-JONES MORNING SUMMARY (4/4/62) HOUSING t- Home building this year will probably not go as high as the 10 per cent gain over 1961 which some economists were predicting late last year. But despite recent gloomy federal statis­ tics, there are still solid reasons for expecting the number of houses and apartment units built this year to exceed the 1,276,000 units of 1961. That is the consensus that emerged from Dow-Jones interviews with builders, bankers and housing economists around the country. CONSUMER CREDIT:- Instalment buying picked up in February sparked by rising demand for motor cars. Consumers added 236,000,000 dollars to their instalment debt during the month after seasonal ad­ justments, the Federal Reserve Board reported. The February increased followed a 215,000,000 dollar rise in January and an increase of $264 million in December. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -4- II. FOREIGN. A. Post-war reconstruction. 1. Bretton-Woods, 1944. 2. Marshall Plan. B. Success has brought new problems, both BASIC and TECHNICAL. 1. A competitive world. (a) We have a large surplus on trade account — both on goods and on services. e.g. $3 billion last year, excluding exports financed by Government grants and capital. (Low imports because of recession.) (b) Surplus not large enough to pay for — (1) Foreign Defense Expenditures. (2) Foreign Aid Programs. (3) Private Investment. (c) Our over-all deficit averaged $3»7 billion from 1958-1960 and was $2.5 billion in 1961. (d) Restoration of equilibrium. (1) Will not come overnight. 1962 will probably again show a deficit — and some further gold losses. (2) Governmental activities. (A) Defense. Foreign purchase of U.S. equipment. (Dillon estimates $■§■ billion more.) More U.S. equipment supplies for our armed forces overseas. (B) Economic assistance. More ”in kind” less in dollars. (C) Persuade allies to shoulder larger burden. Our deficit is their surplus. (D) Bargain for lower tariffs. (E) Incentives for domestic investment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -5- (3) Private activities. (A) Remain competitive. Keep costs down. (B) Seize export opportunities. (C) Export-Import Bank. Credit insurance. Commercial + political risks. 2. Convertible currencies. (a) Gold exchange standard. Dollar is pivot. Foreign dollar holdings - $22i billion. (b) Massive movement of funds. (1) Interest differentials. (2) Speculative. e.g. German + Dutch revaluation of 5#« $100*s millions. London to Zurich. Frankfurt. (c) Financial defenses. (1) $6 billion — 10 nation. Standby credit of I.M.F. (2) Cooperation among central banks. (Basle statement in 1961.) (3) Treasury Stabilization Fund. (4) Federal Reserve foreign currencies. (5) Financial defenses give time to work out fundamental adjustment. They do not solve basic problem. III. FEDERAL RESERVE OPERATIONS. A. Basic principle! ^an against the breezes of inflation or recession. B. Which way is the wind blowing? 1. Domstic recession and unemployment. Relatively easy credit. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -6- 2. Balance of payments. Deficit and short-term money flows — Relatively tight credit. C. Resolution of conflict. The tradition to adapt. 1. Supply reserves for expansion without undue downward pressure on short rates. (a) Supply reserves by dealing in longer Governments. (b) Treasury supplies more bills to market. IV. CONCLUSION. A. The dollar gap of a few years ago removed with considerable help from U.S. — and appropriate domestic policies abroad. B. The dollar surplus can be removed by appropriate domestic policies on our part — coupled with warranted help in our mutual obligations. Moderately optimistic — not just to be fashionable, BUT after examining the evidence! Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1962, April 3). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19620404_karl_r_bopp

@misc{wtfs_regional_speeche_19620404_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1962},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19620404_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}