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THE BUSINESS REVIEW Jpzpl r m, FEDERAL RESERVE BANK OF PHILADELPHIA JULY, 1948 THE BUSINESS PULSE AT MID-YEAR BUSINESS has been suffering from a chills-and-fever inflation. this more apparent than during the first half of the year. At no time was In January, business was active. Prices hit a new peak; the fever was raging. Chill set in suddenly in February; the sharp break in prices of farm commodities raised serious doubts about the immediate future. But optimism, particularly in the stock market, began to return in March. And in April the tax cut and more con crete plans for European aid and rearmament dispelled the last vestiges of February chill. May introduced a new look in the post-war scene—a semblance of economic equilibrium. The National City Bank Letter for that month observed that “. . . de flationary and inflationary forces are temporarily in fair balance.” Mr. Emil Schram expressed the view before the Joint Committee on the Economic Report that “we have emerged from the period of shortages and unless the Congress permits the budget to become unbalanced again, I firmly believe we have already entered the post war period of stabilization.” The following mid-year review and preview attempts to find out how close we have really come to achieving over-all economic balance and what are the chances for maintaining it during the rest of this year. In an uncontrolled economy, supply and demand are always brought into approximate equality — at some price. During a period of inflation, equality is achieved largely by rising prices. To achieve a desirable balance, however, we must have equality between supply and demand at stable prices. This can come about by making supply “catch up” with demand, or by restricting demand to meet the avail able supply of physical goods and services, or by doing both. Economic balance has not been achieved and is not likely to be achieved during the rest of the year. We are liable to have more fever before the year is over—and the more we have the more vulnerable our economy becomes. EC ENT BUSINESS TRENDS UNITED INDEX STATES I N D EX SEASONALLY ADJUSTED SEASONALLY ADJUSTED 1948 WE ARE TURNING DEPARTMENT STORE SALES ARE HIGHER 1943 MORE NON DURABLES THAN OUT THAN EVER. LAST YEAR. 1947 , OUTPUT OF DURABLES DECLINED WHEN THE COAL STRIKE DEPLETED FUEL SUPPLIES, WHOLESALE PRICES ARE RETURNING TO THE JANUARY POST WAR PEAK. 94 7- 1935-39 =100 MILLIONS 1500 NEW CONSTRUCTION EXPENDITURES ARE PUSHING TOWARD A NEW PEAK. 1300 1200 CONSUMER PRICES HAVE ATTAINED THE HIGHEST LEVELS ON RECORD. 1947 800 U^jZrL 150 —U_1IIIII J Page 72 FMAMJJA I I SOND RECENT FINANCIAL TRENDS UNITED STATES BILLIONS BILLIONS S BONOS OWNED BY: S A TREASURY SURPLUS... CASH 84 1 -S’--*., 82 30 BILLS C/,AND NOTES OWNED BY5 V- 28 ..OTHERS ALSO INFLATIONARY WERE THE SALE OF BONDS BY BANKS AND OTHERS/ AND THE PURCHASE OF THESE BONDS BY THE SYSTEM IN SUPPORTING THE MARKET. 26 ...MADE POSSIBLE THE RETIREMENT OF S3.8 BILLION IN SYSTEM HOLDINGS OF SHORT TERM GOVERNMENTS. FEDERAL RESERVE -FEDERAL RESERVE BANKS AN ADDITIONAL S.9 BILLION WERE SOLD TO BANKS AND OTHER INVESTORS. RESULT'- RESERVES RESERVES... CWEEKLY REPORTING BANKS) WEEKLY REPORTING ... AND DEPOSITS DECLINED... THIS REDUCTION IN SHORT-TERMS WAS DEFLATIONARY. BUT.. ...A RETURN FLOW OF CURRENCY, AND... (WEEKLY REPORTING BANKS') MONEY IN CIRCULATION COMMERCIAL LOANS (INCLUDING CONSUMER) AN INFLOW OF GOLD WERE INFLATIONARY. ...BUT COMMERCIAL LOANS WERE THE ‘ONLY TYPE OF LOANS REDUCED. REAL ESTATE LOANS SOLD STOCK JAN. FEB. MAR. APR. 1948 MAY JUNE JAN. ■ I .... I APR. I MAY■ .■ MAR. FEB 1948 Page 73 Review of the First Half—1948 Demand Falling Off? Demand, as reflected in current expenditures for goods and services, is still rising. People are credit, of course, will also add to consumer spend ing power. Business expenditures for plant and equipment and new construction generally were substantially above last year’s level. Despite talk of growing difficulties in financing capital expenditures, the alleged lack of funds apparently had little deter ring effect on over-all expansion. Business still financed a great proportion of its needs out of depreciation reserves and withheld earnings. Borrowing from banks was less than it had been, but an improved situation in the capital market Repeating last year’s performance, department favored the issuance of a large volume of new store trade had a chill during the early part of securities. Some manufacturing concerns have this year. For the first few months, sales were completed or are nearing completion of their disappointing, but in the second quarter they rose plant expansion programs; but other firms, espe sharply to establish new peaks. The greatest cially commercial enterprises, the communica gains in retail trade occurred in such lines as tions industries, and the gas and electric utilities, housefumishings, building materials, and hard are moving ahead with new building. ware. Federal, state, and local governments are Higher prices, of course, account for a sub spending more money than they did last year. stantial part of the rising dollar volume of The impact of the rearmament and foreign aid business. At department stores, consumer reac programs has brought about increased expendi tion to ever rising prices is reflected by the shift tures by the Federal Government despite efforts from cash to credit buying as well as the pro to economize. In addition, state and local govern portionately greater gain in sales in economy ments are spending large amounts of money on basements in contrast to main store business. highways, schools, hospitals, and other projects Although many families are being “squeezed” postponed during the war. between the higher prices and their limited in Foreign demand is the only area in which ex come, consumers generally are spending more penditures are diminishing. Merchandise exports liberally than ever before. during the first quarter of this year were $1.5 billion greater than imports, which is in contrast Consumers’ expenditures are governed by per with an export surplus of $2 billion in the first sonal income, the amount taken away in taxes, quarter of last year. and the amount people decide to save. At least two of these factors encouraged greater spending The combined expenditures of individuals, busi during the first half of the year. Although a ness, and government pushed through to a new lower agricultural income in the first quarter high during the first half of this year. During the caused some hesitation in the upward trend, total first quarter, gross national expenditure, which is personal income for the period was substantially the same as gross national product, reached an higher than in the preceding months. In May, rate of $244 billion—about 10 the effect of tax reductions began to be felt. Re annual than expenditures during the firstper cent higher quarter duced taxes will provide additional consumer of last year. Preliminary estimates indicate that purchasing power at a rate of about $5 billion a expenditures during the second quarter of this year. The rate of personal saving may have in year were running just as high, and probably creased slightly during the first quarter, but at higher, than the rate prevailing during the first most this higher rate, if sustained, would increase three months. total saving and reduce consumer spending by about $2 billion a year. Even at the higher rate, Although “soft” spots have developed here and saying remains below the pre-war “normal” re there,, it is quite apparent that total demand has lationship to income. Increased use of consumer been increasing—not diminishing. spending as never before for consumer goods, businessmen are spending heavily for new con struction and governments are making huge ex penditures for defense, internal improvement, and public works. Foreign buying is the only major source of spending in domestic markets that is not being maintained at last year’s levels. Page 74 How Much Money to Spend? Behind demand lies the money supply. And basically it is the excessive supply of money in relation to goods and services which is at the root of our inflation. Efforts to stem the public’s demand by restrain ing the growth in the volume of spending power had proved only moderately successful during 1947. The money supply had risen by $6 billion and was being used more rapidly. At the begin ning of 1948, individuals and businesses had $170 billion worth of deposits and currency which they could spend. Recognizing the fact that the expanding money supply since the war has been closely related to the growth in bank loans, the American Bankers Association inaugurated an intensive campaign to urge bankers to exercise extreme caution in granting credit. Individual bankers thus were made aware of the fact that unless the expansion of loans brought forth a corresponding increase in the production of goods and services, the re sult would probably be higher prices. But a program of voluntary restraint could not do the whole job. The individual banker is seldom in a position to appraise the effect of his loans on the entire economy. Moreover, competition usually forces him to take care of his customers or else lose business to the bank across the street. The major responsibility for restraining the ex pansion of credit and the money supply, there fore, rested with the Reserve authorities and the Treasury. Their basic approach was to put pres sure on bank reserves, for the banking system cannot expand deposits unless it has the requisite volume of reserves behind them. They used four main weapons: The strongest was the unprecedentedly large cash surplus of the Treasury. When the Treasury received tax payments and the funds were de posited in the Federal Reserve Banks it reduced member bank reserves. And when it used the funds to retire Governments held by the Federal Reserve Banks it extinguished those reserve funds permanently. The Treasury surplus was greatest in the first quarter, and that was the period of most rapid retirement of Federal Re serve-held securities. In the second quarter, tax receipts, as usual, were much smaller than first quarter receipts and the lower taxes were already beginning to reduce Treasury revenues. Sales of savings bonds during the Security Loan drive were not nearly enough to make up for the de clining operating surplus. And even though begin ning in March the Treasury could accumulate withheld taxes in War Loan accounts and thus achieve better timing of its withdrawals, a large part of the deflationary impact of the Treasury surplus has been exhausted. Second, the Federal Reserve sold short-term Governments to banks and other investors. These issues had become more attractive as an invest ment since their rates had risen beginning in mid1947. The fact that commercial loans were de clining may also have caused some banks to look to short-term Governments as a temporary in vestment. At any rate, the sale of these issues by the Reserve Banks exerted an anti-inflationary influence because they tended to reduce bank re serves. Around mid-May, however, the Treasury surprised the market by announcing that June and July financing would be carried out at the existing rate of 1% per cent, not 1*4 per cent as the market expected. Short-terms no longer seemed so attractive and prices of bonds were immediately bid up. Third, the rise in short-term rates which had taken place in the second half of 1947 was fol lowed, in January of this year, by an increase in the discount rate from 1 per cent to 2 % per cent. This had the psychological effect of serving notice that the System was concerned about the exces sive credit expansion, and it probably injected some caution and uncertainty into the market. Yet, few banks were borrowing, so that the effect of a higher discount rate could, at best, be only indirect. Fourth, reserve requirements were increased for member banks in central reserve cities. Effective February 27, requirements against demand de posits were increased from 20 to 22 per cent, and on June 11 were further raised to 24 per cent. On each occasion the higher requirements involved approximately $500 million of reserves. These four steps, taken alone, put considerable pressure on bank reserves and tended to curtail further credit expansion. Unfortunately, how ever, three other developments tended to counter act these efforts to restrict credit expansion: First, the System increased its holdings of Gov ernment bonds by $3.3 billion in the process of supporting the market. Banks were selling partly because of the need to get reserves and to make loans. Nonbank institutional investors were sell ing bonds—and had been ever since the fall of 1947—to make loans to individuals and busi nesses and to buy private securities. Some bond Page 75 now somewhat below recent peaks, it is still being maintained well above the volume of the first six months of last year. But there are important differences to be noted in the various lines of nondurables. Some cotton goods, like grey cloth, Second, $1.1 billion of currency returned to the print cloth, and sheetings, are more plentiful and banks, increasing reserves and enabling the banks their prices have declined recently; but worsted to expand credit further. cloth for men’s suitings is still scarce and the prices are firm. Paperboard products are easier Third, $800 million of gold coming into the to obtain; however, newsprint paper is still scarce. country expanded member bank reserves and Wheat and flour are more plentiful but there is deposits. no abundance of meat and dairy products. Pro duction of footwear is declining, but not in all What was the net result of all these develop cases for lack of demand; some shoe factories are unable to run full time for lack of sufficient ments? leather. Automobile tire stocks are piling up. Member bank reserves declined $491 million. largely because the automobile industry has Tax collections reduced the deposits owned by never got into high gear since the end of the war. individuals and business. Loan expansion was not The biggest job of production still lies in the nearly so rapid as in the comparable period a year earlier. And there was considerable talk of tighter area of durables. Pushing ahead as rapidly as terms, particularly in the mortgage market. their raw material and labor resources permitted, manufacturers of durable goods turned out a These were the favorable results. But on the huge volume of products during the first quarter, other side of the picture— but production declined sharply when the coal strike diminished their fuel supply. For lack of Reserves were always readily available to banks coal the output of steel was curtailed, and for lack willing to sell their Governments. The rise in of steel the output of automobiles declined. Work privately held deposits probably was halted only stoppages also hindered output in some lines. temporarily. Moreover, the turnover, or the rapid Most of the producers of durable goods are ity with which money was used, continued to heavily dependent upon the steel industry, which rise. Although loans rose less rapidly, they did at no time since the end of the war has been able expand further, and a large part of the decline in to meet the demand for this basic industrial mate commercial loans was either seasonal or attribut rial. At mid-year, one of the leading automobile able to special factors such as unusually heavy manufacturers was operating at only 60 per cent security flotations. Real-estate and consumer of capacity because of lack of steel. Of course, loans continued upward. Finally, a part of the even if the industry had all the steel it could use, anti-inflationary weapons available to the mone it might still fail to attain capacity operation for tary authorities had been expended or were being want of sufficient lead or copper or other raw almost fully utilized. materials. selling was speculative in nature, being stimulated by tbe drop in support price on December 24. The System bought aggressively to maintain the new support level. Inventories at manufacturing plants are in better balance than last year, making for a Industrial production ever since the end of the smoother flow of production. Latest reports show war has been like a steeplechase—one obstacle book values aggregating $29.5 billion, about 15 after another. Whenever we really seem to get percent higher than the year before. Higher going we run into another difficulty, such as inventory values were reported in every major shortage of a strategic material or a labor-man group of manufacturing among producers of both agement dispute in some basic industry. After durables and nondurables. Although manufac numerous ups and downs, industrial production turers generally have more money tied up in in May was back to 192 percent of the pre-war inventories than they did a year ago, it is doubt average. January to May averaged 2 per cent ful whether physical inventories have increased above the first five months of last year, but there very much. were substantial differences in the rates of out New construction activity is running well ahead put among the various industries. of last year. Activity is expanding in practically The impression that markets are filling up is every category—commercial, educational, resi probably based more on the recent trends in out dential, and public works. Factory construction put of nondurable goods, rather than durables. is about the only major class in which activity While the output of nondurables, as a whole, is is not being maintained at levels prevailing a Trends on the Supply Side Page 76 * year ago. Over 350,000 houses were started dur Over the war period, prices of farm products ing the first five months of this year, which is an had risen faster and farther than others and by increase of almost one-third over the number of the end of 1947 speculative activity had developed starts in the comparable period last year. The in anticipation of foreign needs and further price most serious shortages of building materials have increases. Reports of favorable crops in the been overcome, so that completion time has been United States and abroad during January pricked reduced substantially. High costs of both labor the bubble, and dishoarding of grain stocks sent and materials did not prevent growing activity in prices tumbling. Non-farm prices did not follow. Building materials, fuels, and metals especially this field. remained very firm. By the end of June, prices of farm products had regained over half their loss and the average of all wholesale prices had Has Production Caught Up With Demand? reached a new post-war peak. If the statement that production has caught up or is catching up with demand means anything at all, it must mean that prices are leveling off. As during 1947, prices which some producers lowered at the beginning of the year were raised later on. Even prices of goods like shoes, which appeared to be plentiful, remained high. Such The fact that one can now step up to a counter competition as did appear did not result in gen and buy many items for immediate delivery which erally lower prices. In June, wholesale prices were not available a year ago has led a few ob as well as prices of consumers’ goods, were at servers to say that production is already well an all-time high. caught up. Men’s clothing is more plentiful. Some types of radios are waiting for buyers. Demand did not stand still while the flow of pro With goods in sight, the business environment duction increased. Higher incomes and the ease of has become somewhat more competitive. Many obtaining credit on the part of both consumers others say that although production has not yet and business made buyers able and, in the eco caught up with demand, it is rapidly catching up. There is some evidence to support this view. With nomic sense, willing to pay higher prices. Pur the possible exception of automobiles, the backlog chasing power continued several jumps ahead of of anticipated demand for most consumers’ dur supply. able goods has been substantially reduced. Sea Another kind of price—the price of labor—also sonal clearance sales are again a common occur rence. Many manufacturers indicate that they indicated a lack of balance during the first half have completed post-war plant and equipment of 1948. Wage rates increased steadily but slowly until June. For a time it appeared that industry expansion. might resist third-round wage demands. But But this way of looking at the problem dis rather than risk costly work stoppages, especially regards price movements. In free markets, unless since wage boosts could be recaptured in higher prices are deliberately administered by the seller, prices, key firms gave in one by one and a clear price brings supply and demand into balance. trend was established. This part of the process Over a period of time, falling prices mean that of inflation continued. there is a tendency for supply continually to ex The new surge in wage rates will be smaller ceed demand. A tendency for demand to exceed supply, on the other hand, is reflected in rising than that of the previous rounds in 1946 and prices. Unless prices are considered, therefore, 1947. But in a few important instances, the tie one cannot tell just what it is that production is between wage rates and the cost of living has been recognized explicitly in labor contracts and supposed to be catching up to! some further increases in wage rates may result from higher living costs alone. By and large, In the early spring, the price situation was by current no means clear. Prices of commodities other there is no reason to believe that the different round of wage increases will have a than farm products and foods stopped climbing, kind of effect on demand or costs than its two similar to the situation in the second quarter of predecessors. 1947; and the sharp break in agricultural markets during February sent the average of all whole As with monetary developments, even the ap sale prices down with dramatic suddenness. It pearance of balance in the first half of 1948 soon became evident, however, that the farm price break was in the nature of an adjustment proved to be temporary. Production had not long overdue, rather than the beginning of a caught up with demand and it was questionable whether much progress, if any, had been made. general price decline. Page 77 What’s the Matter with Inflation? Inflation of the chills-and-fever variety—a com paratively slow process—has become pleasant to many people. Nearly everybody who wants a job has one. Trade is active, dividends are high, and wages are rising. Perhaps, it has been said, a “controlled” inflation is merely a painless stimulant. To an increasing extent, however, the business community, and especially bankers, have grave misgivings about the character of our “pros perity.” They feel that inflation cannot long remain “controlled,” and that the higher we go with the wage-price spiral the harder and the farther we shall fall. The last is, admittedly, a “hunch.” Rising prices do not, in and of themselves, generate eco nomic collapse. Surely it is not inevitable that a depression must follow the present boom. Yet, the feeling is not without basis. The process of inflation creates distortions in economic relation ships — stresses and strains — which render the system more vulnerable to shock and increase the danger of a serious decline. Strains arise, first of all, out of disproportionate changes in incomes. On the average, consumers’ incomes have not lagged far behind prices, but many families are below average and are now feeling the pinch. A recent survey released by the Board of Governors states that although the financial status of most consumers is still strong, it showed the first signs of weakening in 1947. Fewer families had cash reserves and there was a substantial increase in total consumer indebted ness. Disparities in price advances make it difficult for various segments of the economy to do busi ness with each other. Profits of industries whose selling prices are relatively inflexible, like those of the utilities, are “squeezed.” In jmany cases break-even points advance, reducing margins of safety and exerting some degree of compulsion to continue expanding output with too little re gard for longer-term considerations. Page 78 The process of inflation tends to shift buying power to producers. Expenditures for new plant and equipment take goods away from consumers who then spend their incomes on the smaller amount that is left. There is no doubt that after a long depression and a major war, our economy requires huge amounts of investment. But the rapidly rising prices of an inflationary boom are liable temporarily to distort the demand pattern and so increase the danger of misdirected capital investment which may later become “idle produc tive capacity.” Moreover, inflation intensifies the durable goods cycle, thus contributing to the development of unsettling peaks and troughs of production. Although inventories are not excessive with respect to sales and receivables are not too high by comparison with past standards (which may not be adequate), the need for financing business operations at higher and higher prices is rapidly reducing business’s “liquidity cushion.” For all United States corporations, the ratio of cash and Government securities to current liabilities at the end of 1947 was no higher than in 1939. This ratio now appears to be satisfactory, but the trend is in the wrong direction. As the structure of debt grows—and this includes credit of all kinds—our economy becomes more vulnerable, less able to resist cumulative liquidation if busi ness adversity, say, a decline in the rate of in vestment, should develop. Such stresses and strains are not precisely measurable, although their general nature is known. It seems likely that they have been in creasing in intensity in recent months. Thus far, however, the “squeeze” on certain consumer groups has been offset by high incomes and ex penditures elsewhere. The growth of the debt structure has fed inflation, not slowed it. The distortions in evidence during the first part of 1948 were not sufficient to decrease total de mand and cause a business downturn, but they bear close watching. The real danger is in allowing ourselves to slip into the comfortable belief that we have entered another “new era” in which the only direction we can go is up. Preview of the Second Half —1948 As long as prices are rising rapidly it can not tendency for demand to exceed supply will per be said that we have attained economic balance. sist and force prices still higher. Prices generally are still rising, including the prices of some of the things that are alleged to be The fact that the general price level may be ris in abundance. ing does not preclude the possibility of downward readjustments in individual lines. Such re As we enter the second half of 1948 we are con adjustments have already occurred—the most fronted with great obstacles in achieving eco recent and severe in agricultural products. Al nomic balance; in fact, we seem to be headed for though recent events point toward still higher another turn of the inflation spiral. prices for some foods in the immediate future, the steady improvement of agricultural conditions A high level of business activity is feeding a abroad and large crops at home may bring about huge stream of spending power into the hands of a reversal of the situation later on. Industrial individuals, reinforced by consumer credit and prices appear to be very firm but they are not by a $5 billion tax cut. We are already committed immune to price dips, particularly in lines in which to heavy rearmament expenditures and continued scarcity premiums have been high. aid to friendly nations. We still have a long way to go to meet our housing requirements, indus In general, however, for the remainder of this tries have not completed their plant expansion year it appears that production and business and modernization programs, public utilities are activity will stay at peak levels and that there behind schedule in expanding their facilities, and will be continued upward pressure on prices. numerous public works programs are just getting under way. It is important to observe the order of magni tude of increases in expenditure over last year. Consumer expenditures are currently running about 10 per cent higher than last year and there is every indication that consumers will continue to increase their expenditures during the remain der of this year. Construction expenditures so far this year are in the neighborhood of 40 per cent above last year’s. Businessmen estimate thenexpenditures for plant and equipment will be 15 per cent higher. Government expenditures are also larger despite recent efforts to economize. Banking and Credit One of the most important factors preventing the achievement of balance in the second half of the year is the likelihood of further expansion of credit and the money supply. If business activity continues to rise and prices and costs pursue their spiraling upward trend, businesses will need bank loans for fixed and working capital. Because of the improvement in the securities markets, businesses may meet a growing proportion of their needs by floating Prospective increases in production do not ap new issues. Nevertheless, banks will be a major pear to equal the prospective increases in demand. source of funds either directly through loans Practically the entire available labor force is al or indirectly through purchases of corporate ready employed, and virtually all of our produc bonds. tive resources are already in use. Additional in Banks also are likely to buy an increasing creases in the flow of goods and services during the remainder of the year will be gradual. If by amount of securities which states and municipali increased efficiency and the use of new plant, ties issue to finance expansion programs. They industrial production is increased by about 5 per will continue to extend credit, either directly or cent, we will have done well. Last year, total indirectly, to consumers. Consumer spending physical output rose an estimated 7 per cent above promises to remain large, and credit will be used the year before. It is unlikely that we can ex more and more as the financial position of con sumers weakens. ceed that record by very much. Admittedly, this is a much simplified approach to the problem. Although it is not possible to make a precise calculation, it appears that the present Banks are likely to expand their real-estate loans further if construction activity continues as strong as it has been, although more conservative Page 79 policies by lenders and recent housing legislation may tend to work in the opposite direction. So the demand for loans is likely to increase. The Treasury and Reserve authorities will not have the strong weapons for offsetting credit expansion which they were able to use in the first half of the year. The Treasury will be with out the substantial cash surplus which it enjoyed in the first quarter and, in fact, there are some indications that the Treasury surplus may turn into a deficit during fiscal year 1949. If so, the Treasury very likely will be unable to exercise a significant dampening influence on bank reserves and deposits. Prescription for Fever There is no single, certain, painless cure for inflation. The traditional remedy has been to allow the fever to burn itself out. But this has always been hard on the patient. It would seem much more desirable to bring inflation to a halt be fore the crisis is reached. This calls for a co operative effort on all fronts: Federal Reserve policies aimed to restrict the growth of the money supply. Continuation of voluntary efforts of bankers to restrain unnecessary lending. A substantial reduction of Governments held by the Federal Reserve Banks, therefore, cannot come about through cash redemptions. Sales of short-terms to the market, such as those ac complished in the first half, would have a depres sing effect on bank reserves and the money sup ply, but the ability of the System to sell shortterms depends on the willingness of investors to buy. A consistent anti-inflationary policy of the Government in such fields as budget policy, loans, guarantees, subsidies. The statutory power to raise reserve require ments has been almost exhausted. The only re maining authority is to raise requirements of member banks in central reserve cities from 24 per cent to 26 per cent. Increasing productivity of labor. It will be very difficult to establish balance on the monetary front during the second half of the year. Yet the Reserve authorities must continue to use such powers as they have to pursue an anti-inflationery policy consistent with their responsibility for maintaining orderly conditions in the Govern ment security market. Page 80 Caution on the part of management and con stant awareness of the growing weaknesses inherent in inflation. Greater saving and less spending by con sumers. We must be careful, of course, that the cure does not bring on a reaction worse than the disease. Vigorous, yet flexible, anti-inflation poli cies should help our economy to come to a bal ance at a higher level of activity than we have ever before enjoyed in peacetime. BUSINESS STATISTICS Production Philadelphia Federal Reserve District Adjusted tor Seasonal Variation Not Adjusted Production Workers in Pennsylvania Factories Per cent change Indexes: 1923-25 = 100 INDUSTRIAL PRODUCTION MANUFACTURING.............. Durable Goods....................... Consumers’ Goods................ Metal products..................... Textile products.................. Transportation equipment Food products....................... Tobacco and products.... Building materials.............. Chemicals and products. . Leather and products......... Paper and printing............. Individual Lines Pig Iron.................................. Steel....................................... Iron castings......................... Steel castings....................... Electrical apparatus........... Motor vehicles..................... Automobile parts & bodies Locomotives and cars........ Shipbuilding......................... Silk and rayon.................... Woolens and worsteds.. .. Cotton products.................. Carpets and rugs.................. Hosiery.................................. Underwear........................... Cement.................................. Brick....................................... Lumber and products......... Bread & bakery products. Slaughtering, meat pack.. . Sugar refining......... ............. Canning and preserving. . Cigars.................................... Paper and wood pulp......... Printing and publishing. . Shoes....................................... Leather, goat and kid.... Explosives.............................. Paints and varnishes......... Petroleum products........... Coke, by-product................ COAL MINING Anthracite........................... Bituminous........................... CRUDE OIL................................ ELECTRIC PTE—OUTPUT Sales, total............................. Sales, to industries.............. BUILDING CONTRACTS TOTAL AWARDS+............ Residential-)-....................... Nonresidentia]-|-................ Public works & utilities^ May Apr. May 1948 1948 1947 May 1948 from 1948 from May Apr. May 1948 1948 1947 5 Month Year mos. ago ago 1947 112p 113p 121p 106p 142 77p 125p 127p 118 48p 171p 107p 117 in 114 123 105 144r 78 123 121 127 55 166 96 118r 109r lllr 114r 105r 143 72r 122r 130 125 33 163 96 120 0 — 1 — 2 0 — i — 2 +1 + 6 — 7 —14 + 3 +12 — 1 3 b 3 2 - 3 7 r 6 1 b 1 0 b 2 + 8 - 6 + 2 - 4 - 2 - 4 - 6 -1 +45 +10 + 5 + 8 +12 + 12 - 2 - 1 110p 108 lllp 110 106 108r 141 74p 131p 117p 115 50p 174p 98p 118 139r 75 131 114 115 50 168 94 120 141 69r 130r 119 99 113 83 108 217 27 107 61 89r 94 108r 109 90 89 115 97 234r 229 27r 42r 108 126r 55 61 +11 + 5 — 8 — 6 — 7 +1 — 1 + 9 + 1 + 2 — 2 + 4 — 2 — 4 ll —31 + 2 + 3 + 11* — 7 —16 +12 — 7 + 2 — 1 + 13 +11 — 8 — 1 + 5 + 7 + 19 +11 +86 — 4 + i + 2 + v + 6 + 4 - 7 +11 - 5 —36 -15 - 1 +28 + 8 + 9 -14 + 10 + 18 - 7 +247 + 4 + 8 + 5* +21 -18 -12 - 5 + 7 - 4 + 9 +15 + 3 + 7 + 8 -10 +11 + 12 + 5 - 1 + 8 + 11 +18 ro3 119 86 112 200 34 112 59 100r 97 113r 115 94 93 117 101 204r 211 34r 54r 117 132r 59 60 94 92 83p 85 38p 37 106p 109 79 82 131 67p 55 32 ___ 87 76r 44 97r 67 122 97 19 54r 53 31 29 — — 128 137 67 79 201p 179 119 128 100 98 120 121 105p 93 109p 98 99 108 110 110 242p 230 142p 133 79 66 73 66 123p 66 277 288 507 501 508 499 372 349 106 82 227 126 93 125 97 95 96 103 224 158 71 65 117 281 468 458 316 243 144 306 370 166 120 146 374 210 142 227 364 b b + 1 + 5 - 4 - 3 — 1 —31 - 4 - 7 +26 + 4 + 9 -17 +24 +12 - 8 +19 + 3 + 7 -3* + 10 -15 - 7 0 + 8 - 2 + 7 + 17 +29 + 7 + 8 - 3 0 + 3 -17 0 + 9 + 10 + 9 + 15 +46 +58 + 2 +20 +23 +35 +110 +71 + 2 - 1 + 101 • Unadjusted tor seasonal variation. + 3-month moving daily average centered at 3rd month. 91 90 78p 78 37p 38 104p 104 79 82 133 Factory employment Apr. 1948 0 +1 +1 + 3 0 — 1 — 1 0 + __ 2 + 1 — 1 — 2 May 1947 0 — 4 0 + 4 + 5 0 + 3 + 1 _ 0 — 4 + 3 — 1 Factory pay rolls Apr. 1948 + 5 — 2 + 4 +16 0 — 1 0 + 2 +__ 2 + 3 — 2 + 2 Building permits value 33 166 87 121 84 71r 44 94r 67 124 75p 59 30 115 128 82 151p 116 100 122 96p 99p 100 116 242p 148p 77 73 111 288 472 487 379 76 57r 29 104 133 103r 151 118 99 124 93 96 109 116 229 138 65 66 61 297 491 514 352 65 105 292 435 440 323 233 152 321 259 202 132 231 335 159 127 153 262 22 57 27 110 106 100 171 122 93 126 88 86 97 109 224 165 May 'Apr. May Apr. 1947 1948 1947 1948 +16 + 24 +269 — 1 + 9 + 3 + 99 + 7 + 9 + 53 +233 — 1 + 15 — 2 +158 + 7 +15 — 69 — 27 + 5 + 6 + 117 + 151 + 6 +20 + 9 — 59 + 2 + 16 — 72 — 59 + 10 ...... — 82 +m + 10 +15 + 9 — 49 + 2 + 6 — 55 — 65 +11 — 17 + 38 + 6 + 9 + 104 + 139 + 5 May 1947 +41 — 6 + 8 + 8 + 5 + 2 + 6 + 2 + 7 + 5 + 7 + 3 ft ■' Debits Apr. 1948 0 — 6 — 6 + 2 —19 — 7 — 9 — 9 0 — 7 —10 — 2 — 8 Changes in Major Industry Groups Pay rolls Employment 128 154 Per cent change from Apr. May 1948 1947 0 0 0 — 1 Per cent May change 1948 from In dex Apr.) May 19481 1947 286 +1 + 9 326 +2 + 7 104 121 95 86 94 94 —1 +2 —5 —1 —1 +1 + 1 0 0 + 7 + 2 + 6 239 241 208 217 242 211 0 +5 —6 —2 —2 +6 +23 + 12 +24 118 136 117 0 —1 —2 0 263 0 270 — 3 244 +1 —4 —1 +12 + 3 + 4 153 145 87 136 139 144 209 223 +2 —2 —3 +1 +1 —1 —1 —1 309 —15 274 — 7 173 292 — 2 294 1 —12 291 442 — 5 456 +6 +4 —2 219 +1 418 +i + 18 —17 — 7 + 16 + 8 — 2 + 14 1 +10 154 133 —3 —1 Indexes (1939 average = 100) May 1948 In dex All manufacturing............ Durable goods industries. Nondurable goods industries........................... Food......................................... Tobacco.................................. Textiles.................................. Apparel.................................. Lumber.................................. Furniture and lumber rapci.................. .................... Printing and publishing. . . Chemicals.............................. Petroleum and coal products.............................. Rubber.................................... Leather.................................. Stone, clay and glass......... Iron and steel....................... Nonferrous metals.............. Machinery (excl. elect.).. Electrical machinery......... Transportation equip. (excl. auto)....................... Automobiles and equipment......................... Other manufacturing......... +6 + +5 + 2 —20 315 — 8 263 +i +4 —2 +i —2 —2 +1 69 p Preliminary r Revised. Retail sales Weekly Employ Weekly man-hours ment pay rolls worked All manufacturing ......... 1,095,600 $55,073,000 43.738.000 Durable goods industries 623,500 34.227.000 25.119.000 Nondurable goods industries ....................... 472,200 20.845.000 118,619,000 122 Local Business Conditions* Percentage change— April 1948 from month and year ago Allentown......... Altoona.............. Harrisburg. . .. Johnstown......... Lancaster........... Philadelphia. .. Reading............. Scranton........... Trenton.............. Wilkes-Barre. . Williamsport. . . Wilmington. . .. York.................. Summary Estimate—May 1948 May 1947 +34 + 7 + 8 + 8 + 11 + 9 — 2 — 1 +13 + 6 +11 — 8 + 4 +n +n + 3 + —16 —1 Average Earnings and Working Time May 1948 Per cent change from year ago Weekly earnings Hourly earnings Weekly hours Aver Ch’ge Aver Ch’ge Aver age age age All manufacturing.... $50.31 + 9 $1,260 + 9 39.9 Durable goods indus.. 54.97 + 9 1.365 + * 40.3 Nondurable goods industries.................... 44.15 + 10 1.120 +10 39.4 Food.................................. 44.41 + 11 1.057 + 10 42.0 .758 + 2 38.1 Tobacco........................... 28.91 + 3 Textiles........................... 44.97 + 15 1.147 + 13 39.2 .947 + 9 38.4 Apparel........................... 36.36 +10 41.95 + 18 1.020 + 15 41.1 Lumber........................... Furniture and lumber .990 + 4 42.6 products....................... 42.20 + 5 Paper................................ 47.94 +12 1.092 +11 43.9 Printing and pub........... 55.98 + 3 1.472 + 7 38.0 Chemicals....................... 49.48 + 7 1.212 + 8 40.8 Petroleum and coal -10 40.2 products....................... 61.29 + 11 1.525 - 2 36.2 Rubber............................. 47.19 — 2 1.304 .965 33.94 - 7 35.2 Leather........................... 0 -10 41.1 Stone, clay and glass . 49.18 +14 1.195 - 7 40.0 Iron and steel................ 56.77 + 9 1.418 52.50 +11 1.325 + 10 39.6 Nonferrous metals.... Machinery (excl. 53.60 + 9 1.318 + s 40.7 electrical).................. Electrical machinery.. 57.24 + 5 1.444 + 6 39.7 Transportation equip. (excl. auto)................ 58.26 + 8 1.467 + ? 39.7 Automobiles and equip 58.39 + 9 1.424 +15 41.0 Other manufacturing. . 41.55 + 7 1.098 + 9 37.8 Ch’ge + 1 + 1 + + + + + 0 1 1 2 1 2 + 1 0 — 4 — 1 — — + + + 0 4 7 3 2 1 0 — 1 0 — 5 — 2 Area not restricted to the corporate limits of dtlee given here. Page 81 Distribution and Prices Per cent change 1948 May 1948 from from 5 Month Year mos. ago 1947 ago Wholesale trade unadjusted for seasonal variation Sales Total of all lines.................. Drugs...................................... Dry goods ........................... Electrical supplies ........... Groceries .............................. Hardware .............................. Jewelry ................................ Paper .................................... Inventories Total of all lines ................ Dry goods.............................. Electrical supplies ........... Groceries .............................. Hardware ........................... Paper .................................. — 3 — 2 + 4 —21 — 1 — 5 0 —11 + 6 +14 + 2 ---11 +2| +45 — — 9 0 + V — 4 + 5 + 2 — Philndolpkin ■---- - Per cent change from 1948 Month!1 Year Aug. ago ago 1939 .... Clothing ............. Fuels .................. Housefumishings Other .................. RETAIL TRADE Sales Department stores—District**.... Philadelphia** Women’s apparel—District........... Philadelphia 284 261 262 269 278 238 267 283 259r 244 260 268 + 2 + 10 — 2 — 5 + 8* +10 t 2 + 7 + 7 + 1 + 2 0 + 2 — 1* ... 287 254 251 258 .... 262 229 240 254 ... 261 236 250 257 Inventories Department stores—District......... Philadelphia . Women’s apparel—District........... Philadelphia 254p 228 209 237 264 233 253 291 215 206 202 236 — 4 — 2 —18 —19 — 5* + 18 +11 + 3 0 + 9* 257p 226 209 232 270 235 228 256 _ 217 204 202 232 „„ 141 123 79 187 217 225 90 108 85 129 122 79 148 361 159 90 105 87 148 132 94 187 222 225 97 138 104 +10 0 0 +27 —40 +42 0 + 3 — 2 — 5 — 7 —16 0 — 2 0 — 7 —22 —18 — 8 — 6 —15 —12 + 6 — 6 — 9 —21 —22 143 127 79 166 276 192 86 100 78 122 121 79 118 188 128 76 98 80 150 136 94 166 281 191 93 128 95 202 210 194 — 4 + 4 0 200 210 192 210 +29* +50* +40* +38* +97* +49* — 4 + 12 +10 40 75 235 31 54 241 27 38 210 — May Basic commodities (Aug. 1939 = 100). Wholesale (1926 = 100) ......................... Farm .................... Food ....................... Other .................... Living costs (1935 1939 = 100) United States ... 322 0 + 8 164 189 177 149 + 1 + 1 0 0 +11 + 8 + 11 +13 + 118 +210 + !64 + 86 171 + 1 + + - 9 + 73 +iio FREIGHT-CAR LOADINGS Total ............................................. Merchandise and miscellaneous. . Merchandise—l.c.1............................... +222 MISCELLANEOUS 1 1 1 1 0 0 — 1 0 205 194 118 135 197 147 -12 - 8 - 8 -10 - 9 - 7 May Apr. May 1948 1948 1947 — Source: U. S. Department of Commerce. Prices Indexes: 1935-1939 = 100 Not adjusted Per cent change May 1948 11948 from May Apr. May from 5 1948 1948 1947 Month Year mos. ago 1947 ago +1 + 4 +15 — 8 + 4 +12 — 5 + 5 — 4 — 2 0 0 — 6 + 2 + 1 Adjusted for seasonal variation + + + + + Business liquidations 95 40 96 46 235 246 — _. _ — * Computed from unadjusted data. p Preliminary. r Revised. •* indexes adjusted for seasonal variation have been revised; earlier data may be obtained upon request. Source: U. S. Bureau of labor Statistics. BANKING STATISTICS MEMBER BANK RESERVES AND RELATED FACTORS Reporting member banks (Millions f) June 23 1948 four wks. One year - 72 1,392 +20 276 + 6 + 21 Total investments . .. Total loans & invest.. Reserve with F. R. Bank Cash in vault ................ Balances with other bks. Other assets—net........... Liabilities Demand dep. adjusted. . Time deposits.................. U.S. Gov. Deposits .... Interbank deposits .... Borrowings .................... Capital account .............. Page 82 1,668 +26 2,566 464 43 103 50 2,032 443 52 364 6 27 302 +60 —32 — 1 + 5 — 8 - 51 + 85 - 13 + i + 9 + 1 — 8 -- 3 — 3 - 21 — 5 - 30 +41 - 28 — 1 - 2 + 1 + 2 ..... ............................................................................. Uses of funds: Currency demand ......................................................... Member bank reserve deposits.................................. “Other deposits” at Reserve Bank......................... Other Federal Reserve accounts.............................. Total ............................................................................. Ratio of excess to re quired Member bank reserves (Daily averages; dollar figures in millions) Held Phila. banks 1947 June 1-15 1948 May 1-15 May 16-31 June 1-15 5411 419 393 391 Country banks 1947 June 1-15 1948 May 1-15 May 16-31 June 1-15 13% $375 $333 $ 42 12 42 350 392 11 365 40 405 43 | 12 408 1 365 | Re Ex quir’d cess $406 412 387 388 $ 5 7 6 3 1% 2 2 1 June 9 June 16 — 7 — 5 —19 +11 — 4 + 14 —13 +21 +10 —20 —20 + 3 — 8 —15 —31 +21 +18 —28 —20 +18 + 1 —29 + 8 —28 + 6 —37 June 23 ' +12 1 Government securities . Other securities .............. Total Sources of funds: Reserve Bank credit extended in district............ Commercial transfers (chiefly interdistrict).... Treasury operations .................................................... Total Ch'ges in four weeks June 2 ! .............................. 501 + 5 + 64 17 - 2 15 _ - 4 3 3 79 +__ 34 +26 + 31 + 44 252 ...... 898 +34 +136 Third Federal Reserve District (Millions of dollars) ++ Assets Commercial loans ........... Loans to brokers, etc. . . Other loans to carry secur. Loans on real estate......... Loans to banks ................ Other loans ....................... Changes in weeks ended Changes in — —31 1 +21 | +18 | —28 | —20 Changes in— Federal Reserve June 23 Four Bank of Phila. One 1948 (Dollar figures in weeks year millions) Discounts & advances $ 24.9 $+ 5.8 $+ 15.9 .5 — 1.2 Industrial loans ... 1,500.7 + 29.8 —135.5 U.S. securities......... Total .................... $l,526.l’| $+ 35.6'|$—120.8 Fed. Res. notes . . .. $1,632.0 $+ 14.7 $— 3.8 794.5 — 28.0 — 6.5 Member bank dep.. 78.2 — 90.1 + 33.6 U. S. general acct.. 28.9 + *3 — 2.5 Foreign deposits . . .4 — .5 2.0 + Other deposits ......... 1,012.0 —140.8 + 137.4 Gold cert, reserves. Reserve ratio ........... 39.9% —3.8% +5.1%
@FedFRASER