U.S. Balance of Payments, 1961-1963

October 1963 A NEW RISE in imports of materials ac- PAYMENTS BALANCE large in first half of 1963 companied the fresh advance in industrial with rise in capital outflow production this spring and summer, with Billions of dollars very little lag. Exports also rose. The com- Annual rates mercial trade balance was not much changed, but strong foreign demand for EXPORTS OF GOODS U.S. capital and credit adversely affected the U.S. balance of payments in the first half of the year. Since domestic economic activity began to expand from its recession low in early 1961, total imports of goods have risen from OTHER NET PAYMENTS'*" an annual rate of about $13.5 billion to a rate approaching $17.5 billion this summer. Much of this rise occurred in the initial recovery in 1961. As economic expansion OVER-ALL BALANCE* continued in 1962, inventory investment eased, domestic industrial output of mate- 1959 1961 1963 rials stabilized, and imports rose more * Over-all balance is before receipts from special Gpvt. slowly than before. Toward the end of last transactions, and other net payments exclude the receipts from these transactions. year and early this year imports fell off a NOTE.—Dept. of Commerce balance of payments data, seasonally adjusted. little. But the recent advance brought them by June-August to an average rate about rose from just over $19.5 billion (exclud- 8 per cent above their level in the summer ing military sales) to about $21.5 billion, of 1962. annual rates. Private investment income U.S. exports this year have responded to from abroad increased relatively even more, rising foreign demands. In the past 6 months from a rate under $3.5 billion to a rate of expansion of economic activity in foreign $4 billion in the first half of 1963. industrial countries has accelerated, and ad- The trade balance in the first half of this vances in demand and output have been year was about as favorable as last year as more general than at any time since 1960. the chart shows. But the over-all payments But higher U.S. exports this year have also deficit—before counting special Govern- reflected increased financing of exports to ment transactions—was at a rate much nonindustrial areas by Government loans higher than the $3.6 billion registered for and grants. the year 1962. Foreign demand for U.S. Altogether, from the first half of 1961 capital and credit was very heavy, and it to June-August of this year, U.S. exports increased in the second quarter. This de- 1349 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis October 1963 1350 FEDERAL RESERVE BULLETIN • OCTOBER 1963 mand came from Canada, Europe, and circumstances—such as a steel strike—may Japan. alter temporarily the demand for imports. In July and August both the capital outflow on new foreign security issues and the outflow of bank credit were reduced, and for the third quarter the over-all payments balance was markedly smaller than in the first half of the year. The over-all balance in the first 9 months of 1963 was covered in minor part by a rise in the dollar holdings in the United States of foreign commercial banks, but there were large increases in the holdings of foreign monetary authorities—both of short- term assets in the United States and of non- marketable medium-term U.S. Government securities. U.S. gold reserves declined by $420 million, compared with $890 million in the full year of 1962. TRENDS AND CYCLES IN IMPORTS Noxii.—Dept. of Commerce data on imports by end-use cate- gories, seasonally adjusted by Federal Reserve, at annual rates; materials are industrial supplies and materials, excluding Of all the components of the U.S. balance petroleum and products. Production indexes, seasonally adjusted. Latest figures shown: second quarter. of payments, payments for imports are the most directly related to variations in the tempo of economic activity in the United Materials. The influence of the domestic States. A large decline in imports during the cycle on imports is invariably greatest on recession from the first half of 1960 pro- imports of industrial supplies. These im- duced a temporary improvement in the ports, other than petroleum, now make up trade balance at that time, and the sharp about 40 per cent of the import total, and recovery in imports in the summer of 1961 they have gone through wide swings in the caused a new worsening of the balance. cycle. Unlike imports of most industrial However, neither the long-run trends of supplies, petroleum and fuel oil, which con- imports nor their fluctuations in the eco- stitute about 11 per cent of total imports, nomic cycle depend solely on movements have been rising fairly steadily at a rate of of domestic output and income. Gradual about 7 per cent a year under the quota sys- shifts occur in the competitive positions of tem started in 1959. foreign and domestic producers, sometimes The trend over the past 10 years of im- appearing as shifts in relative costs and ports of industrial supplies excluding petro- prices and sometimes simply as changes in leum, measured in either value or volume, the availability of supplies or improvement has been even flatter than that of domestic of product design. All these factors play a production of materials, which had a growth role in determining the rate at which imports rate of about 3 per cent in physical volume. increase. Also, during briefer periods special But the swings in the cycle have been par- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis October 1963 BALANCE OF PAYMENTS, 1961-63 1351 ticularly sharp for imports. In the period of Imports of nonfood consumer goods now rapid recovery and advance from the first make up 17 per cent of total imports, com- half of 1961 to the first half of 1962, im- pared with only 7 per cent 10 years ago. ports of industrial supplies, excluding pe- Their 250 per cent rise in the decade con- troleum, increased in volume by 28 per cent trasts with slow growth in U.S. imports of and in value by 25 per cent. foods and beverages. Import value in the Immediately after this initial rapid in- latter group has fluctuated considerably crease, imports of materials fell off a little with changes in prices for commodities such in the second half of last year, in contrast to the latter part of 1959, when demand for steel imports was swollen by the U.S. steel strike and average prices of imported materials were rising rather than falling. The leveling off in imports of materials last year, and the leveling off of domestic industrial production of materials, reflected the cautious inventory policies of U.S. in- dustry in recent years. Domestic output of materials was relatively low in the second half of last year, if compared with the output of final products. Business purchases of materials, imported and domestically produced, seem in general to have risen in 1961-62 enough to check declines in stocks and to cover rising consumption, but they do not appear to have led to large new ac- cumulations of stocks in 1962. This year, starting in February, domestic NOTE.—Imports, same source as preceding chart. GNP ex- penditures, Dept. of Commerce seasonally adjusted data. I atcst production of steel and other materials again figures shown: second quarter. rose sharply to a peak in July and then fell off a little in the next 2 months. The course as coffee and sugar and with changes in of imports of industrial supplies excluding meat and livestock market conditions, but petroleum was obscured during the early food now accounts on the average for only months of the year by delays in arrivals 20 per cent of the total value of imports, a due to the January port strike, but by June- smaller proportion than in earlier years. August these imports were 7 per cent above Among nonfood consumer imports, those their year-earlier level. of automobiles and parts have remained Consumer goods. Upward trends in im- well below their record 1959 volume in the ports over the past 10 years have been past 3 years, but during 1961 and 1962 sharpest for nonfood consumer goods and they gradually increased. Regardless of for capital equipment. Since mid-1962, whether autos are included or excluded, however, neither group has shown so large total imports of nonfood consumer goods an increase as in previous periods of rising appear to have increased very little from domestic incomes. mid-1962 to the spring of 1963. In previous Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis October 1963 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis October 1963 BALANCE OF PAYMENTS, 1961-63 1353 declines in exports to Japan and Britain exceptionally large in the preceding half partially offsetting increases in sales to Can- year, fell off considerably. In 1962, outflows ada. This year advances have been general. of U.S. short-term capital were sharply In June-August, total exports to these areas lower, while an uptrend began to develop were more than 10 per cent higher on a in the net outflow of U.S. and foreign long- seasonally adjusted basis than they were in term capital. From an annual rate of $5 the second half of last year. billion in the second half of 1960 and $4 U.S.

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