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BUSINESS
REVIEW
FEDERAL




RESERVE

BANK

OF

PHILADELPHIA

STATE AND LOCAL FINANCE
Costs of local and state government
have been steadily upward.
Third District states differ somewhat
but conform to the general trend.
Rising costs reflect expanding services
and higher prices.
If we want economy, we must
consider demands for new services
along with how we intend to pay for them.
More services mean more taxes,
intensifying major problems such as
overlapping taxes and other inequities.

INVESTING IN MUNICIPALS
Obligations of state and local government
are more and more catching the attention
of banks and other investors.
Supply of these issues is growing
and high taxes give them appeal.
A factor to be taken into account, however,
is the risk involved.

THE MONTH'S STATISTICS
Employment and payrolls are still down,
but nondurables give evidence of strength.
The decline in bank loans may be ending.

THE BUSINESS REVIEW

STATE AND LOCAL FINANCE
The sharp rise in Federal expenditures and the Fed­
eral debt has focused public attention primarily on the
cost of our national Government. It is true that the cost
of the Federal Government has become the major part
of total governmental costs. But the financial activities of
state and local units are still of considerable importance.
They bear an important part of the cost of our schools,
highways, and other public services. The sources of their
revenue have a significant influence on the distribution
of the tax burden. The multitude of administrative units
result in overlapping functions, duplicate taxation, and
tax inequities. These and other problems involved in
financing our local and state governments should be of
interest to every citizen.
The primary reason for the high level of Federal Gov­
ernment expenditures is the high cost of war. Another,
but much less important, reason for the upward trend
in the cost of running our Government is an expansion
in services rendered. Government is taking an increasing
responsibility for the welfare of the American people—
for better working conditions, improved health and
educational opportunities, and for social security. Re­
gardless of what we may choose to call this trend
—the “New Deal,” the “Fair Deal,” or the “Welfare
State”—it is clear the people are demanding more and
more from their Government. This is not just a recent
trend, but one extending over many years. Early in the
history of the United States a program of internal im­
provement was initiated to stimulate economic develop­
ment, and large grants were made to help support edu­
cation. Later, efforts were made first by the states and
then by the Federal Government to curb monopolies.
Some health services have long been an activity of gov­
ernment, initially of local and state governments and
more recently of the Federal Government.
The demand for more services is inconsistent with our
demand for less government spending. In general, we can
not expect our local, state, and Federal governments to
provide us with an increasing number of services and at
the same time reduce our tax burden. We must consider
the benefits of services rendered and the cost of render­
ing them together.

86
Page


TRENDS IN STATE AND
LOCAL EXPENDITURES1
The long-term trend in the cost of government reveals:
(1) a gradual shifting of responsibility from local to
state and then to the Federal Government, and (2) a
consistent increase in the expenditures of each. In 1916
the services of government cost the American people
about $3.3 billion. Two-thirds of this, or $2.1 billion, was
spent by local units, about $500 million by the states,
and $700 million by the Federal Government. Local ex­
penditures continued to exceed those of the states, exclud­
ing state contributions to trust funds, until 1947. Except
during World War 1 and the early post-war years, the
cost of local government exceeded that of the Federal
Government until 1934. The cost of the depression in the
early ’thirties and particularly the cost of World War
II pushed Federal expenditures far above state and local
expenditures combined. In 1948, it is estimated Federal
expenditures were 68 per cent; state, 15 per cent; and
local, 17 per cent of the total cost of our government.
(Excluding state contributions to trust funds)

PERCENT DISTRIBUTION OF FEDERAL,
STATE, LOCAL EXPENDITURES—1916-1948
PER CENT

PER CENT
STATE

LOCAL

FEDERAL

1920

'25

'30

'35

'40

'45

'48**

•state expenditures exclude contributions to trust funds.
**1948 FIGURES ESTIMATED
SOURCE: TREASURY DEPARTMENT, DEPARTMENT OF COMMERCE

State and local expenditures are classified by the Bur­
eau of the Census under five major headings: operations,
capital outlays, aid paid to other governments, interest,
and contributions to trust funds and to enterprises. Oper1 Except where otherwise noted, data refer to fiscal years July 1 to June 30.

THE BUSINESS REVIEW
ating costs include pay rolls, purchases of supplies, main­
tenance and other running expenses, the major purposes
being for highways, schools, health, public welfare, and
general control. Capital outlays represent expenditures
for improvements such as construction of highways and
buildings and facilities for schools and other public insti­
tutions. Contributions to trust funds consist largely of
unemployment compensation tax receipts which are
placed in a fund to be used for benefit payments to the
unemployed.
Local Expenditures
Local units of government—counties, cities, townships,
and other minor subdivisions—were spending less than
$1 billion annually at the turn of the century. In 1948,
however, it is estimated they were spending a total of
$10 billion. The cost of local government experienced
its sharpest rise during the post-World War I boom of
1919 and 1920. From then until 1946 it remained within
a range of $4% billion to $6% billion.
Most of the services rendered by local government have
become concentrated in a relatively few areas. Educa­
tion is most important from the standpoint of cost, ac­
counting for more than one-third of the total. Public wel­
fare, including public assistance to the needy and insti­
tutional care, public safety, and highways account for
most of the remainder. Public welfare costs have become
more important and highway construction less important
as an increasing portion of this expense has been taken
over by the states and the Federal Government.
There has been some tendency toward specialization
in government services among governmental units. Many
local units such as townships and school districts are now
little more than administrative organizations for financ­
ing schools, education accounting for over four-fifths of
their total expenditures. In the early part of the century,
however, local units spent relatively large sums for high­
ways and general operations. Schools and public safety
are the major costs of our cities, taking about one-half
of their total expenditures. Counties which formerly used
most of their funds for schools, highways, and general
operations now put over two-fifths into public welfare,
hospitals, prisons and other institutions for correction.
Education and general operations are taking a consider­
ably smaller percentage of county expenditures than for­
merly.



State Expenditures
State expenditures showed a much larger increase than
those of local units during the period 1916 to 1948, re­
flecting the tendency for the states to assume a larger
share of the burden. In 1916, the states spent about $500
million but by 1948 they were spending $10.4 billion. The
cost of state services more than doubled during the decade
of the ’twenties and rose by about two-thirds during the
’thirties. During the war period there was little change,
but from 1945 to 1948 the upward trend was resumed.
An expansion of social welfare services has been
a major reason for the rise in state expenditures. Pub­
lic welfare—public assistance to the needy and institutional
care—which accounted for only 7 per cent in 1915, rose
to 18 per cent in 1948.
The cost of state government has climbed rapidly in
the post-war period and is still increasing. In the fiscal
year 1948, states spent $10.2 billion (exclusive of pro­
visions for debt retirement which totaled less than $200
million) as compared to less than $6 billion in 1945, $5
billion in 1939, and an average of less than $2 billion dur­
ing the ’twenties. The rise since the end of the war is
mainly because of mounting costs of operation, a rapid
increase in construction activity, and an increase in aid
to local governments.
State operating costs have jumped from $2.3 billion in
fiscal 1945 to $4.4 billion in 1948—an increase of nearly
100 per cent. Because of record enrollments, schools have
been an important reason for the recent rise in costs of
operation. Higher wages and an increase in the number of
employees have resulted in larger costs for personal serv­
ices. For example, from 1942 to 1947 the number of state
employees, exclusive of schools, rose 20 per cent—from
over 500,000 to over 600,000—and the total pay roll
went up 81 per cent. Rising prices swelled the cost of
materials and supplies, and veterans’ bonuses and larger
payments to the aged and needy also contributed to
higher operating costs.
The end of the war and the easing of labor and ma­
terial shortages made possible the resumption of delayed
capital improvement programs. In 1945, states spent less
than $300 million for capital improvements but by 1948
the total exceeded $1.4 billion and is still rising. The
major part of this increase is accounted for by highway
construction, which constitutes around two-thirds of state
capital outlays. Other factors raising capital outlays are
the costs of expanding educational facilities to help take

Page 87

THE BUSINESS REVIEW
care of a larger number of students. Long-range needs
indicate there is still a substantial backlog of public con­
struction.
State aid to local government has also played an im­
portant part in the sharp rise in state expenditures. Such
aid rose from slightly less than $2 billion in 1945 to over
$3 billion in 1948. Schools received the largest part of
this aid, about $1.5 billion in 1948, and public welfare
and streets and highways account for most of the remain­
der.
FINANCING EXPENDITURES
Spending by government is not restricted as much by
current income as is usually the case with individuals.
There is a much greater tendency to make spending de­
cisions independently of available revenue because gov­
ernments can more easily get additional funds. Once the
amount of expenditures has been fixed, governments,
just as individuals, must meet their expenditures either
out of income or by borrowing.
The war resulted in an improved financial position for
state and local governments. Most capital improvements
were deferred and revenues were large because of the
high volume of business. The result was a net surplus and
a decrease in indebtedness during the war years. Since
the war, however, expenditures have increased faster than
income and this squeeze has resulted in attempts to find
new sources of revenue and in increased borrowing.
Sources of Revenue
Taxes have consistently supplied about 84 per cent of
total state and local revenue, although this source is

LOCAL REVENUE—SELECTED YEARS
BILLIONS
CHARGES AND MISCELLANEOUS

V/ZX

STATE REVENUE—SELECTED YEARS
BILLIONS
t'"-

AID RECEIVED FROM OTHER GOVERNMENTS
TAXES

of diminishing importance for local units as aid re­
ceived from the states and Federal Government increases.
Charges and miscellaneous revenue, mostly fees, special
assessments and charges for other current services, are
accounting for a declining proportion of the total. On the
other hand, aid received from the Federal Government in­
creased from less than 1 per cent of the total in 1913 to
12 per cent in 1948.
The major sources of tax revenue vary considerably as
between state and local units. Taxes are still the major
source of funds for local governments. In 1913, taxes pro­
vided 79 per cent of local revenue, but by 1948 the per­
centage was down to 59. Practically all of local tax income
has been and continues to be derived from property. Aid
from the states and Federal Government amounted to 32
per cent of the total in 1948 as compared to only 6 per
cent in 1913. This indicates a tendency to shift some costs
from small local units of government to the states and
the national Government.
Some important shifts in sources of state revenue have
also occurred. The percentage obtained from taxes has
remained about the same but within the tax structure there
have been some significant changes. The most marked
shift is from property taxes to excise taxes on selected
commodities. In 1913, property taxes provided 41 per
cent of state revenue but by 1948 they supplied only 2.8
per cent. The states have practically withdrawn from the
field of property taxation leaving it to local units. The
decline in the property tax has been offset by an increase
in other types of taxes. The major part of state tax reve­
nue is now derived from personal and corporate income;
selected excises such as those on gasoline, liquor, and to­
bacco; unemployment compensation taxes on pay rolls;
and general sales taxes.

' 1 CHARGES AND MISCELLANEOUS

V//A

AID RECEIVED FROM OTHER GOVERNMENTS

fi

-----------—.------------------------------ ------------------------■{■

8

m
isxsawwwh

VAW.

1913
SOURCE:

1932

1942

1946

BUREAU OF CENSUS, DEPARTMENT OF COMMERCE.


Page 88


1913
SOURCE:

1927

1938

BUREAU OF CENSUS, DEPARTMENT OF COMMERCE

1948

THE BUSINESS REVIEW
Rising revenues from a high post-war level of business
have enabled many states to meet the rise in expenditures
out of current income and war-accumulated reserves.
Rising costs, however, have forced some to search for
new sources of revenue. Not since the depression has
there been such a rash of new tax legislation as in the
last two years. One of the favorite hunting grounds has
been taxes on consumption, mainly because of their rela­
tively large and stable yield and the ease of their collec­
tion. Several states enacted general sales taxes, even more
have imposed new tobacco taxes, and Pennsylvania en­
tered a rather new field with a tax on bottled soft drinks.
In addition, a number of states have increased the rates
on alcoholic beverages, cigarettes, motor fuels, and a few
increased their income tax rates. Some states have gone
back to tolls; at least eight states enacted toll highway
legislation in 1947, and more have such legislation under
consideration. Moreover, state turnpike commissions and
state roads commissions have been set up to administer
and help finance toll bridges and highways. Despite the
increase in taxes and other sources of revenue, many state
and local units have had to resort to borrowing.

of the total in 1945 as compared to 46 per cent in 1930.
The resumption of capital improvements after the end
of the war brought a sharp rise in state and local bond
issues. From a total of less than $500 million in 1945, the
volume of new issues rose to $2.2 billion in 1947 and
to $2.6 billion in 1948. Highway construction and veter­
ans’ bonuses have been mainly responsible for this sharp
rise in state and local borrowing.
Burden of State and Local Governments
The tremendous dollar increase in the cost of govern­
ment during the first half of this century exaggerates the
real burden of supporting government services. Ability
to pay has not stood still; income has risen substanti­
ally. Per capita cost of state and local governments
has increased from $18 in 1913 to $84 in 1947. A better
indication of the burden of state and local expenditures
is afforded by a comparison with income. In 1948 such
expenditures took about 9.5 per cent of national income
as compared to 10.5 per cent in 1929.
THIRD DISTRICT STATES

State and Local Debt
It is a common thing for governments to supplement
their revenue by borrowing, especially for emergencies
and public improvements. State and local debt increased
nearly every year from 1916 to 1940, decreased from
1941 to 1946, and then resumed the upward trend.
By far the largest part of this debt is owed by local
units of government. In 1916, of the net public debt out­
standing (gross debt less provisions for debt retirement),
local governments owed 71 per cent, the states 7 per cent,
and the Federal Government, 22 per cent. World War I
brought a sharp rise in the Federal debt and consequently
a drop in the proportion of the total owed by state and
local governments. In 1919, for example, state and local
debt was only 17 per cent of the total but this percentage
rose rapidly in the ’twenties as the Federal debt was re­
duced, and state and local debt more than doubled. High­
way construction to accommodate the rapid increase in
the number of cars was the major factor pushing state
and local debt constantly upward. The severe depression
in the ’thirties did little more than arrest the upward
trend. Deficit financing in the thirties and particularly in
World War II expanded the Federal debt, and as a result
state and local governments accounted for only 5 per cent



The preceding analysis indicates the expenditure
and revenue trends for all state and local units of govern­
ment combined. These data, however, do not reflect the
actual experience of any state. There is considerable varia­
tion from region to region and state to state.
Expenditures
Total expenditures of all states, including contributions
to trust funds and provisions for debt retirement, rose
from over $5 billion in 1939 to $10.4 billion in 1948, an
increase of about 100 per cent. During the same period,
total expenditures in Pennsylvania rose 30 per cent; New
Jersey, 131 per cent; and Delaware, 82 per cent.
Pennsylvania. The major reason for the below-average increase in Pennsylvania was the relatively small rise
in the cost of current operations. Contributions to trust
funds actually decreased because of a revision in the law
in 1944. Operating costs rose from $248 million in 1939
to $277 million in 1948, an increase of about 12 per cent
in contrast to a 144 per cent rise for all states. Capital
outlays were also only slightly higher in Pennsylvania,
while for all states they were nearly double the 1939
rate. Public assistance and institutional care, which is

Page 89

THE BUSINESS REVIEW
a major part of operating costs, actually declined in
contrast to an increase of nearly 80 per cent for all
states. Highway expenditures both for maintenance and
new construction also rose less in Pennsylvania than
for all states.

PERCENT DISTRIBUTION OF EXPENDITURES
ALL STATES, PA., N. J., AND DEL

PEA CENT

PCfl CENT

1939
f?”5> CONTRIBUTIONS TO TRUST FUNDS ANO DEBT SERVICE.

YSZA CAPITAL OUTLAY
POM AID TO LOCAL GOVERNMENT
■■ OPERATION
SOURCE- BUREAU OF CENSUS, DEPARTMENT OF COMMERCE

Pennsylvania is just getting under way, however, a
program of improvements which will result in a substan­
tial increase in capital outlays. The General State Author­
ity, recently revived, has the power to issue up to $175
million of bonds for public improvements, including
mental hospitals and other public construction. A High­
way and Bridge Authority has the power to issue $40
million in bonds, which together with the one-cent-a-gallon increase in the gasoline tax is to provide funds for a
large road-building program. Another Authority was
formed to finance a public school building construction
program, and the Turnpike Commission was authorized
to float another $50 million of bonds to finance an ex­
tension of this well-known highway.
The pattern of expenditures in Pennsylvania is simi­
lar to that of all states combined. Out of total expen­
ditures of $575 million in 1948, nearly one-half went for
operations. Aid to local governments was the next largest
item, accounting for $122 million. This represented 21
per cent of the total and was somewhat below the 30 per
cent average for all states. Contributions to trust funds,
largely unemployment compensation taxes, totaled $68


Page 90


million, or 12 per cent, as compared to 10 per cent for
all states.
A functional break-down shows that public welfare,
schools, and highways, account for over four-fifths of
state expenditures. In 1948, Pennsylvania spent $120
million for its schools, $132 million on highways, and
$105 million for welfare, exclusive of aid to local
governments for this purpose. These items accounted
for 71 per cent of total expenditures, exclusive of
contributions to trust funds and interest payments.
New Jersey. The relatively large increase in total ex­
penditures in New Jersey—from $111 million in 1939 to
$291 million in 1948—reflects primarily a sharp rise in
contributions to trust funds, largely unemployment com­
pensation taxes. Expenditures exclusive of contributions
to trust funds and interest payments showed about the
same percent increase as for all states. There have been
substantial increases in capital outlays since the end of
the war, and projects planned and under way indicate a
further rise in expenditures for capital improvements.
The general pattern of expenditures in New Jersey re­
veals important differences from that for all states. Costs
of operation in 1948 were 25 per cent of the total, as com­
pared to 42 per cent for all states. The proportion of
spending going for operations has dropped considerably
since 1939, primarily because of the sharp rise in con­
tributions to trust funds. In 1948 these contributions
represented 34 per cent of total expenditures in New Jer­
sey, in contrast to 11 per cent for all states. New Jersey
was allotting a smaller percentage in aid to local govern­
ments and a slightly larger percentage for capital improve­
ments in 1948 than for states as a whole.
By function, New Jersey conforms more closely to the
national pattern of state expenditures. Public welfare and
schools cost the people somewhat less and highways more
than the average for all states.
Delaware. The cost of state government in Delaware
has risen somewhat less than that for all states. Operating
costs, however, rose sharply from $5 million in 1939 to
$13 million in 1948, and capital outlays increased from
$2.8 million to $4.6 million. On the basis of purpose of
expenditure, schools, public assistance, and highways
accounted for a major part of the increase in operating
costs.
Delaware pays out a larger percentage of its funds for
operations than states as a whole—in 1948, 54 per cent
as compared to 42 per cent. Costs of operations are taking
a larger percent than in 1939, while aid to local govern-

THE BUSINESS REVIEW
ments dropped from 35 per cent of total expenditures in
1939 to 22 per cent in 1948. This indicates that the state
has been assuming a larger share and local governments a
smaller share of the costs of public services. Delaware
ranks high in its support of education, schools taking 40
per cent of the expenditures in 1948 as compared to 26
per cent for all states.
Sources of Revenue
The rise in the cost of providing government services
has put state legislatures under pressure to find additional
sources of income. Major sources of revenue have natur­
ally varied among the states, one reason being a rather
wide variation in the nature of their economic activities.

PERCENT DISTRIBUTION OF TAX REVENUE
ALL STATES, PA., N.J., AND DEL
PER CENT

PER CENT

ALU 5TATCS

PA.

N.J.

OEL.

ALL STATES

PA

1939 OTHER
UNEMPLOYMENT COMPENSATION
B66C LICENSE AND PRIVILEGE
■■ SALES
SOURCE- BUREAU Of CENSUS, DEPARTMENT Of COMMERCE

Pennsylvania. State revenue in Pennsylvania reached
an all-time peak of $578 million in 1948. This represented
a rise of 48 per cent over 1939 as compared to an in­
crease of 30 per cent in total expenditure. Tax income
rose from $301 million in 1939 to $433 million in 1948,
aid received from governments rose from $42 million
to $78 million, and charges and miscellaneous sources
from $47 million to $66 million. The major part of this
increase in revenue came in the last two years, tax re­
ceipts jumping $110 million from 1946 to 1948.
During the period 1939-1948, Pennsylvania obtained,
on the average, 79 per cent of its income from taxes, 11
per cent in aid from other governments, and 10 per cent
from charges and miscellaneous sources. Selected sales
taxes and taxes on corporations provide the bulk of Penn­



sylvania’s tax revenue. In 1948, if unemployment compen­
sation taxes are excluded, 50 per cent of the tax receipts
came from sales and gross receipt taxes, 27 per cent from
corporate income and capital stock taxes, 13 per cent from
motor vehicle licenses, and the remainder from miscel­
laneous sources. Taxes on gasoline, cigarettes, and liquor
provide the bulk of the income from sales and gross
receipt taxes. Pennsylvania relies less heavily on sales
and gross receipt taxes and more heavily on corporate
taxes than states as a whole. There is no state income tax
on individuals, but this source provided 7.4 per cent of
the tax revenue of all states in 1948.
The major part of the increase in revenue from 1946
to 1948 came from cigarette, alcoholic beverages, soft
drinks, and the corporate income tax. The cigarette tax
was raised from 2 to 4 cents per 20 cigarettes, the tax on
gasoline was increased 1 cent a gallon, and the rate on
malt beverages was doubled. A somewhat unique type of
tax—1 cent per 12 fluid ounces—was levied on soft
drinks in 1947 and provided over $13 million in 1948.
There was a revision of the corporate income tax which
brought in additional revenue.
ISew Jersey. In New Jersey State revenue rose from
$155 million in 1939 to $267 million in 1948. Practically
all of this increase came from taxation. New Jersey de­
rives an unusually large percentage of its revenue from
taxation. During the period 1939-1948, taxes provided
an average of 86 per cent; aid from other governments,
8 per cent; and charges and miscellaneous sources, 6 per
cent The tax structure is heavily concentrated on a rela­
tively few sources. The property tax, which is rapidly
being relinquished by most states, supplied about onefourth of New Jersey’s total tax receipts in 1948, a sharp
contrast to the 2.8 per cent for states as a whole. Sales
taxes on motor fuel, alcoholic beverages, and public utility
gross receipts provide another 30 per cent; and license
and privilege taxes on motor vehicles and corporations,
15 per cent. There is no tax on either individual or cor­
porate income.
Delaware. During the period 1939 to 1948, Delaware
received 80 per cent of its revenue from taxes, 12 per cent
in aid from other governments, and 8 per cent from
charges and miscellaneous sources. About one-third of the
tax revenue comes from license and privilege taxes, nearly
another third from selected sales taxes, and most of the
remainder from inheritance and individual income taxes.
The major part of sales tax receipts is derived from motor
fuel and alcoholic beverages.

Page 91

THE BUSINESS REVIEW
Borrowing
The war period with its restrictions on construction
and its stimulus to state revenues enabled most states to
reduce their indebtedness. Pennsylvania’s net long-term
debt (gross long-term debt less provision for debt retire­
ment) reached a peak of $181 million in 1941 and then
declined gradually to $87 million in 1947. The debt
turned upward again in 1948 and the prospects are for a
further rise because of the new construction programs
planned and under way. New Jersey also effected a sub­
stantial reduction in its net long-term debt during the war
period from $84 million in 1940 to $46 million in 1946.
Capital improvements, however, brought an increase, and
in 1948 it had reached $81 million. Delaware reduced its
net long-term debt from $5.2 million in 1942 to $4.2 mil­
lion in 1946. In 1948 there was a $3 million increase.
SOME PROBLEMS IN STATE AND
LOCAL FINANCE
Government is an institution created by the people to
enable them to provide certain services collectively which
they either can not render or can not render as well,
individually. It is simply another tool which has been
developed to help us get the things we want. If govern­
ment—local, state, and national—is to make the contribu­
tion to our progress and welfare which it is capable of
making, its role must be carefully charted without fear
and without prejudice. What the government does is
important to everyone of us. As citizens, we get the bene­
fits of services rendered; as taxpayers, we foot the bill;
and as voters, we make the decisions—whether we real­
ize it or not. It behooves each and every one of us to
consider some of the problems confronting us—problems
which are being intensified by our demands for an ever
increasing number of services. This is much too broad
a subject to be handled adequately here, but the nature of
some of the basic difficulties can be indicated.
Legal Limitations
Rising costs and an expansion in services provided
have put considerable pressure on governments to get
additional revenue. State statutes and local charters, how­
ever, place numerous limitations upon the taxing power
of local units. Tax limitations placed on real estate are
the most keenly felt by local units because the property

Page 92


tax is their major source of revenue. One result of these
restrictions is that local units have frequently been forced
to borrow, thus increasing their long-term debt. In some
cases, however, restrictions imposed by the state have
limited this source of funds. These restrictions were de­
signed to protect the people against excessive tax and debt
burdens. But sometimes they make for too much inflex­
ibility, and local authorities are unable to obtain funds
for services the people would like to have. Grants-in-aid
from the Federal and state governments are sometimes
helpful in relieving these situations.
Better Coordination
With more than 150,000 governmental units in the
United States, there is a great deal of overlapping in taxa­
tion. In the earlier days, this was not a serious problem
because separate fields of taxation were fairly well
marked out. State and local units relied almost exclusively
on property taxes, while the Federal Government de­
pended mainly on customs’ duties. But as the cost of
government rose, more revenue was required and the
search for new sources resulted in more crossing of each
other’s paths. The income tax, which is the backbone of
the modern Federal tax structure, is being resorted to
increasingly by states and more recently by local units.
Taxes on selected commodities such as motor fuels, liquor
and tobacco, are being used more and more by local,
state, and Federal governments.
An inevitable result of this tax system which has devel­
oped under the administration of a multitude of govern­
mental units is conflicting objectives and duplicate taxa­
tion. At the same time that some units of government are
trying to mold their tax structures according to ability
to pay, other units are building tax structures which fall
more heavily on those with lower incomes. Instances of
taxes levied on identical items by local, state, and Federal
governments are multiplying as rising expenditures force
an expansion of the tax base. Moreover, with so many
taxing units, uniform rates are impossible and the amount
of taxes paid varies substantially among localities.
The solution of these difficulties calls for better co­
ordination and the allocation of services to that unit—
local, state, or Federal—which can administer them most
efficiently. These problems will not be solved overnight.
The ideal tax system has never been constructed and
probably never will be. Several suggestions for improve­
ment have been made. One is the segregation and allo­

THE BUSINESS REVIEW
cation of revenue sources to Federal, state, and local
governments. Whether complete segregation of sources
would be feasible or possible seems very doubtful. Cer­
tainly, considerable improvement could be gained through
greater cooperation among taxing authorities in reducing
the amount of duplication and in ironing out conflicts.
Another suggestion is for greater centralization of the
tax-levying function with a certain proportion of the
revenue being remitted to state and local authorities.
Grants-in-aid to state and local governments are a step in
this direction. They are also a means of helping provide
a more uniform level of public services among govern­
mental units and, at the same time, leaving much of the
administrative responsibility in the hands of state and
local authorities. These and similar proposals have both
advantages and disadvantages which space does not per­
mit us to analyze here. Some progress toward greater
cooperation is being made and it is apparent that more
progress along this line is needed.

as in the taxation of luxuries. The need for more revenue,
however, has led officials to gradually drift away from the
careful application of such principles. Today there seems
to be a definite tendency to select taxes which afford a
good yield, are cheap and easy to collect, and call forth
the least “squawk” from taxpayers. Cigarettes afford a
good illustration of a type of discrimination which often
results. In 1921, one state imposed a tax on cigarettes
largely on the ground of getting revenue but at the same
time to discourage the use of a “harmful” commodity. A
recent survey shows that 39 states now tax cigarettes, but
only a few tax cigars, smoking tobacco, chewing tobacco,
or snuff. In other words, if one prefers to smoke tobacco
wrapped in paper instead of in a genuine briar, he must
pay rather heavily for the privilege. This is only one of
many illustrations of how our tax system discriminates
against certain uses of a commodity and against certain
types of economic activity.
Smoothing Out Business Fluctuations

Inequity in Taxation
Considerable variation in the tax burden exists, both
geographically and among types of economic activity.
There are various reasons for inequities but two of the
major ones are the multiplicity of taxing units and the
fact that tax structures have grown piecemeal, largely in
response to urgent needs for more revenue.
The multiplicity of taxing units results in great varia­
tion in both tax rates and types of taxes employed. A
resident of one city may pay a local and a state tax on
his income while his neighbor across the line may not.
In one locality the rate may be 2 per cent on taxable in­
come while in another it may be twice that much. An
important reason for this type of variation is that poorer
communities must have either more taxes or higher rates
to support the same level of government services. Much
of this disparity in types and rates of taxation is due to
the great decentralization of tax administration.
There is a considerable amount of tax discrimination
among types of economic activity. A hasty examination
of the sources of state and local taxes is sufficient to con­
vince one of the great variation which exists. The rapid
growth of special taxes in the last few years has greatly
aggravated this problem. Special taxes have usually been
justified on the basis of special benefits, regulating the
consumption of commodities deemed “harmful,” and as a
means of placing the burden on those able to pay, such



Another problem is to so time public expenditures that
they will help smooth out instead of aggravate business
fluctuations, a policy which has frequently been proposed.
In the past, state, local, and Federal expenditures have
increased in good times, thus competing with private
industry for labor and materials and tending to intensify
the boom. On the other hand, when business slows up
and unemployment increases, government authorities have
reduced expenditures, thus tending to aggravate the
depression.
Public authorities could contribute to a more stable
level of business activity and employment if they could
achieve a better time distribution of their expenditures.
A part of government expenditures, especially new con­
struction, should be deferred in good times and executed
when business slows down. Moreover, in periods of active
business, government should take more from the people
via taxes than it pays back through expenditures, the
surplus being used to reduce the debt. On the other hand,
when business slows down, just the reverse is needed.
Public expenditures should be increased even in excess
of revenues if the business situation warrants, so that the
excess of public expenditures will tend to increase income,
production, and employment.
There are many difficulties involved in the application
of this type of financial policy by local, state, and Federal
authorities. Many construction projects are urgently

Page 93

THE BUSINESS REVIEW
needed and can not be postponed, and the time required
to get a project actually under way makes it difficult to
time the flow of expenditures properly. No matter how
sincere the attempt, actual results will fall far short of
what would be an “ideal” timing of public expenditures,
budget deficits, and budget surpluses. However, a better
timing could be achieved if local, state, and Federal
authorities would cooperate in working toward this
common objective.
CONCLUSIONS
Public expenditures reveal two significant long-term
trends. One is the almost continuous increase in the cost
of local, state, and Federal units; the other is the tendency
to shift more and more responsibility to the state and
particularly to the national Government. The rise in the
cost of government is not necessarily something to be
avoided; neither does it always indicate inefficiency and
waste. In general, the welfare of any individual is
determined by what he does himself and what he receives
as a result of collective action, such as through govern­
ment. The more responsibility the individual accepts for
his own welfare, the greater his freedom and the less the
cost of government. But the more responsibility we shift
to government, the less individual freedom we will have
and the more of our income we will have to pay out in
taxes to defray the cost.

Government is being subjected to two-way pressure.
We want the government to supply more and more serv­
ices, but on the other hand we demand economy and re­
duced taxation. Both of these demands are impossible
of fulfillment. One helpful step, however, is to consider
services and costs together. We must make Joe, the
pleader for more social benefits, always conscious of his
counterpart, Joe the taxpayer, who must pay the cost.
The significance of passing on benefits and costs together
is illustrated by recent experience with the veterans’
bonus. Every bonus measure submitted to the people last
November, which included specific tax measures to finance
it, was defeated. The growth in the cost of government
makes efficient administration more and more important.
The piecemeal building of our Federal, state, and local
tax structures in response to growing needs has resulted
in defects and weaknesses which should be eliminated.
It is much easier to raise the rate or add a new tax here
and there as the need arises than to have a thorough-going
revision on the basis of carefully selected principles. But
a good tax structure, efficiently administered, would be a
significant step toward financing our expanding services in
the most equitable and least expensive manner.
Good government has many aspects and it cannot be
appraised in terms of a few simple standards. In the
economic sphere, low costs in relation to the amount of
services rendered and government’s contribution to eco­
nomic stability are important criteria.

INVESTING IN MUNICIPALS*
Banks and other investors may be looking more
and more to municipal bonds as a place to put their funds,
for the supply of these securities has been growing
rapidly and will increase further. The high tax rates
now in effect make municipals more attractive to banks
and other investors in the upper brackets. The likelihood
of rising risks entailed in investing in these securities,
however, calls for careful investment analysis.
SUPPLY OF MUNICIPALS
As dealers in debt, the pattern of bank investments
follows the pattern of outstanding debt. Although state
* The term “municipals” as used here includes obligations of states, local
governments, and minor subdivisions.


Page 94


and local government debt is now much less important
than before the war, primarily because of the huge in­
crease in the Federal Government debt, it has been in­
creasing since the war. The dollar volume of new munici­
pal security issues has been very large, amounting to $7
billion since mid-1945. States have made large payments
for veterans’ bonuses, and together with local govern­
ments have been taking advantage of the availability of
materials to undertake new construction and to revive
projects postponed during the war. While their financial
condition has generally been excellent, inflation and
heavy spending have combined to make large-scale
financing necessary. The supply of municipal bonds com­
ing on to the market is expected to continue at a high

THE BUSINESS REVIEW
level. At the same time, other outlets such as corporate
securities and mortgages may not be as large as last year.

member banks is the more or less typical situation with
municipals constituting about 4 to 5 per cent of total
earning assets.

IMPORTANCE OF MUNICIPALS
OWNERSHIP OF MUNICIPALS
Thus, while the obligations of state and local govern­
ments constitute only 3.6 per cent of the assets of all
insured commercial banks, 1.3 per cent of the assets of
life insurance companies and .3 per cent of the assets of
mutual savings banks, they are likely to become more
important to these institutions. Since the war, municipals
have increased from 2.6 to 3.6 per cent of the assets of
all insured commercial banks, but are still not as im­
portant to them as before the war. Nevertheless, they are
of considerable importance to some. In the United States
as a whole they are a larger proportion of the earning
assets of country banks than of the bigger city banks.
In the Third Federal Reserve District, however, the
reverse is true, municipals constituting a larger proportion
of the earning assets of reserve city banks than of country
banks. While they comprise almost 6 per cent of the earn­
ing assets of the largest member banks in the district,
they are held in negligible amount by the very small
banks, perhaps because there are few “home-town” issues
available to rural institutions. Also, the tax-exemption
feature is of less attraction to these banks because their
small volume of earnings puts them in the lower income
tax brackets. Between the very small and the very large

IMPORTANCE OF MUNICIPALS
TO COMMERCIAL BANKS
December 31, 1948
Percentage
distribution

Per cent of
earning assets

United Staten
Country member banka.............................
Reserve city member banks......................
Central reserve city.....................................
Insured nonmember.....................................

41.5%
25.8
14.0
18.7

6.2%
4.0"
3.3
6.2

All insured banks.....................................

100.0%

4.9%

Third Federal Reserve District
Country member banks.............................
Reserve city member banks......................

60.0%
40.0"

4.9%
5.9

All member banks...................................

100.0%

5.3%

Member banks with deposits of
$ 1 million and less...................................
1 million to $ 2 million........................
2 million to 5 million..........................
5 million to 10 million..........................
10 million to 20 million.......................
20 million to 50 million..........................
50 million to 100 million........
over $100 million..........................................
All member banks, Third District...




.1%
1.2/
10.7
14.2
12.6
15.5
4.4
41.3
100.0%

1:5*

4.3
5.5
5.3
5.7
4.5
5.9

5.3%

As indicated in the chart, commercial banks hold
almost one-third of state and local government debt, being
the largest single type of institutional holder. Ten years
ago they held only one-sixth of the debt, but their share
increased constantly during the war and continued to rise

WHO OWNS THE MUNICIPALS?
PER CENT

100

TumarsAvn
INSURANCE COMPANIES

1937

'38

'39

'40

'42

'43

'44

'45

'46

'47

'48

at an accelerated rate until 1948. In contrast, the pro­
portion held by insurance companies and mutual savings
banks has been declining. Nation-wide, the most rapid
expansion during the past five years has been experienced
by country banks, and the least rapid by banks in central
reserve cities. One reason for this may be that a large
part of the obligations of state and local governments has
been issued by small municipalities, and these issues are
apt to be bought up by the local banks. Moreover, these
banks probably have less competition from other insti­
tutional investors for such issues. The fact that country
banks have a somewhat greater proportion of their assets
in Federal Government securities than do reserve city or
central reserve city banks may make them more willing
to undertake the risks involved in investing in municipals.
A more fundamental explanation of shifts in the holdings
of state and local government debt among various types
of investors, however, has to do with other aspects of
demand.

Page 95

THE BUSINESS REVIEW
taxable incomes find it advantageous to buy municipals.
On the other hand, for mutual savings banks, life insur­
ance companies, and non-profit institutions, which are not
subject to corporate income taxation, these issues are
much less attractive.
The importance of taxation over a period of years is
shown in the chart. The first panel is drawn from the
viewpoint of a life insurance company, a mutual savings
bank, or an individual not concerned with tax exemption.
The zero line represents the net market yield on munici­
pals without adjustment for tax. The fact that corporates
and Governments are both above the zero line indicates
that, other things being equal, it is advantageous from
the standpoint of yield for such an investor to buy these
securities in preference to municipals. The second panel

DEMAND FOR MUNICIPALS
The two main factors influencing demand are earnings
and risks. Whether or not the yield on municipal securi­
ties is attractive from an earnings standpoint depends,
to a great extent, on the tax status of the investor. As
the table on the next page shows, the higher the indi­
vidual’s or corporation’s taxable income, the more advan­
tageous it usually is to hold municipals rather than tax­
able Governments or corporates. Thus, to an individual
in the $2,000 tax bracket the net yield on municipals is
equivalent to that of a taxable issue yielding only 2.7
per cent; but to someone with an income of $150,000 to
$200,000 the yield is equivalent to 12 per cent on a tax­
able issue. Banks and other investors with fairly large

THREE VIEWS OF MUNICIPAL BOND YIELDS
(The distance from the zero line, which represents the yield of municipals, indicates the spread
between the yield of such issues compared with corporate and Government bonds.)
PER cent .

+2.00

Investor with no tax considera­
tion can obtain %% more yield
by buying high-grade corpo­
rates, and slightly more by buy­
ing long-term Governments
than he obtains on high-grade
municipals.

(MARKET YIELD)

-2.00

-4.00

+2.00

(MARKET YIELD ADJUSTED TOR TA

TAX-EXEMPT

Investor with individual taxable
income of $20,000 can get about
2% better yield on municipals
than corporates or Govern­
ments.

GOVERNMENTS

-4.00

+ 2.00

(MARKET YIELD ADJUSTED FOR TAXI-

Corporation with taxable in­
come of $60,000 can get about
1% better yield.
TAXABLE
'TAX-EXEMPT GOVERNMENTS

-4.00
’20 '25 '30 '35 '40




'45

1947

... .1.......

1948

1949

THE BUSINESS REVIEW
TAXES AND MUNICIPAL BOND YIELDS
An individual or
corporation with a
taxable income of . . .

... is
taxed**
at . . .

. . . and to
provide the
same net
yield ob­
tained on
municipals,
the gross
yield on a
taxable
issue would
have to
be . ..

. . . which s this much
above th
current*
yield of—
long-term
taxable
Govern­
ments

high-grade
taxable
corporates

Individual
Under $2,000..............
$ 6,000 to $ 8,000
14,000 to 16,000
60,000 to 70,000
150,000 to 200,000

16.60%
26.40
41.36
68.64
81.225

2.71%
3.07
3.85
7.21
12.04

+ .45%
+ .81
+1.59
+4.95
+9.78

+ .06%
+ .42
+1.20
+4.56
+9.39

Corporation
Under $5,000..............
$ 5,000 to $20,000
20,000 to 25,000
25,000 to 50,000
Over $50,000...............

21%
23
25
53
38

2.86%
2.94
3.01
4.81
3.65

+ .60%
+ .68
+ .75
+2.55
+1.39

+ .21%
+ .29
+ .36
+2.16
+1.00

* Yields as of week ended July 23, 1949. Long-term taxable Governments,
2.26%; Aaa corporate bonds, 2.65%; High-grade municipals, 2.26%.
** Tax rates shown are combined normal and surtax rates on additional income
within the bracket. An individual, with a taxable income of $15,000, for example,
pays $41.36 tax on the next $100 of taxable income.

is drawn from the point of view of an individual with
taxable income of $20,000. As far as yield is concerned,
it is obviously advantageous for him to buy municipals
in preference either to corporates or Government securi­
ties. The third panel is drawn from the point of view of
a corporation with taxable income of $60,000.* Here
again, municipals are to be preferred to corporates and
Governments. The second and third charts both show
that the increasing severity of taxes over the years has
made municipals more attractive to those concerned about
heavy taxes. This is a basic explanation for the shift of
banks into municipals and of insurance companies and
mutual savings banks out of municipals. It also explains
why two-fifths of state and local obligations outstanding
are held by individuals, most of them no doubt wealthy.
During 1949, prices of corporates and some other
types of securities may rise as their supply declines. This
* The profits before taxes of country member banks in the Third Federal Reserve
District in 1948 averaged about $53,000.




is less likely to take place in municipal bonds where the
supply is expected to remain quite large. For this reason,
yields on municipals are likely to remain attractive com­
pared with alternative investments. On the other hand,
while tax rates are not likely to be lowered, any sub­
stantial declines in taxable income would make muni­
cipals less attractive relative to other investments.
Thus far the discussion of yields has not taken into
consideration differences in the degree of risk among
municipals, corporates, and Governments or among vari­
ous issues of municipals. The low market yield on muni­
cipals, however, is to some extent due to the fairly high
quality of these issues. The index used for the yield charts
is made up of a group of high-grade issues and is most
nearly comparable with the index on long-term Govern­
ments and high-grade corporates. Considerably better
yields are available to investors, but risks are greater.
The yield spreads among issues of different quality
vary depending on the outlook. When investors are
optimistic about the general business outlook the yields
of speculative issues fall more rapidly than those of highgrade issues and the spread narrows. Conversely, when
investors are pessimistic the spread widens. The recent
tendency has been toward somewhat widening yield
spreads as investors recognize increasing risks.
The risks involved in investing in municipals seem
likely to increase if business activity slumps, because state
and local governments will experience increasing finan­
cial difficulty. Fixed costs, declining revenues, and ex­
panding debt are likely to bring many of the same
troubles as in the past. Because some communities have
greater difficulties than others, investing in municipals
requires careful investigation and analysis. The com­
munity’s basic trends, such as population, must be evalu­
ated, and the financial record, management, and prospects
must be appraised. Each issue must be analyzed in the
light of the needs and characteristics of each individual
investor.

THE BUSINESS REVIEW

THE MONTH S STATISTICS
Third District department store sales declined slightly again in June. For the first six months of 1949 they were 4 per
cent below last year’s level. The weekly reports in July indicate a slowly widening gap between 1948 records and current
performance. Still, in view of the continued decline in manufacturing pay rolls—10 per cent below a year ago in June—
retail trade is holding up fairly well. The effect of extensive mid-summer furniture sales was not yet clear at the beginning
of August.
While manufacturing employment in Pennsylvania factories moved downward during June, this was again mainly the
result of lower durable goods output. Total nondurable industry employment showed no change in June. Output was up
in foods, textiles, and several other lines. Thus far, last month’s indications of increasing stability in nondurables remain
firm. The sharp drop in output and employment in the paper industry was due, in some measure, to labor disputes leading
to work stoppages. Construction contract awards in the Third District continue upward, but at a much lower level than last
year and, apparently, at a slower rate than the rest of the nation.
In recent weeks, business loans by Third District banks have shown little change. Coming after a long period of rather
steady decline, this may be an indication that a seasonal upturn in bank lending has finally begun. In July, following a
reduction in reserve requirements, member banks increased their earning assets through the purchase of securities. Latest
reports showed no material change in the money supply.
Wholesale prices continued their decline in June but, according to preliminary reports, leveled off in July. Firming of
nonferrous metals and certain other prices sent “sensitive” commodity price indexes up during the past month. Prices of
consumers’ goods, several steps advanced from the commodities measured by the wholesale price index, again showed no
appreciable change in June. The July results will show a fractional increase, due mainly to advances in food prices.

Third Federal
Reserve District

United States

Per cent change

Per cent change

mo.
ago

mos.
1949

year year
ago ago

mos.
1949

mo.
ago

year
ago

year
ago

-12
- 3
-33

- 5
- 5

-27

-28

-25

-27

0

- 2* -H* - 7*
— 3* -10* - 3*

TRADE**

- 1
Department store stocks.......... - 3

- 5
- 7

- 4

- 7
- 3

- 8

-12

- 6

- 8
- 8

- 5

1
3

- 1
+ 6
- 5

Sales

Stocks

Per cent
change
June 1949
from

Per cent
change
June 1949
from

Per cent
change
June 1949
from

Per cent
change
June 1949
from

mo.
ago

year
ago

mo.
ago

mo.
ago

mo.
ago

mo.
ago

year
ago

- 2

-10

- 6

- 7

+ 2

— 5

-11

+ 2

- 4

4- 3

+ 2

- 2

- 8

- 3

- 4

+ 7

— l

- 5

- 7

0

+ 2

— 4

Lancaster........................... - 1

- 9

- 2

-10

- 5

- 4

- 7

- 6

- 8

- 3

-10

- 1

- 7

- 9

- 4

-13

- 8

+ 9

- 4

-10

- 5

- 9

-

+ 7

- 6

— 7

— 6

— 2

— 2

- 7

-12

+n

-11

4- 5

— 4

LOCAL
CONDITIONS

year
ago

Reading.............................. - 1
+1

0

+1
+ 1

- 1

+
-

2

4
2
3
+1

0
+
+

7

3

5
3

PRICES

+

0
0
0

+ 2

- 1

Ot
+ 8
Output of electricity................. + 4

- 2t
- 5
- 5

Ot

- 2
- 3

0

+10

+
-

2
2

- 8

- 2

-12

+ 1

-10

+ 2

+ 4

+ 2

- 7
- 1

- 4
0

0

0

year
ago

year
ago

-12
— 1

- 6

* Pennsylvania. ** Adjusted for seasonal variation, t Philadelphia.


Page 98


Payrolls

Philadelphia...................... - 2

June 1949
from

OUTPUT
Manufacturing production___ - 3* —14* - 8* - 2
+ 4 -30 -13 + 4

OTHER

Check
Payments
Employ­
ment
Per cent
change
June 1949
from

0

6

6

June 1949
from

BANKING
(All member banks)

Department Store

- 3

SUMMARY

EMPLOYMENT AND
INCOME

Factory*

Wilkes-Barre..................... - 6

-10

- 3

-11

- 7

-19

- 7

-18

+ 1

- 5

+ 3

- 2

York.................................... + 4

-17

+ 4

-23

6 + 9 + 4

- 7

- 9

+20
- 3

- 3

- 7

- 5

-18

- 1

-16

* Not restricted to corporate limits of cities but covers areas of one or more counties.

THE BUSINESS REVIEW

MEASURES OF OUTPUT

EMPLOYMENT AND INCOME
Per cent change
June 1949
from
month
ago

year
ago

6 mos.
1949
from
year
ago

MANUFACTURING (Pa.)*..................
Durable goods industries.........................
Nondurable goods industries..................

- 3
- 6
0

—14
—17
-10

- 8

Foods.............................................................
Tobacco.........................................................

+ 7
+ 7
+ 1
0
+ 3
- 4
-14
- 4

- 3
-10

— 4
-12
-19
— 8
— 7
-21
-13
- 2
— 3
— l
-18
-11
—10

- 4
- 7
- 2
-10
- 1
- 2
+ii
- 1

- 2
-11
-26
-25
- 3
—12
- 6
-14
- 5
-16
-15
-19
-27
-14
+ 5
-20
-22

COAI. MINING (3rd F. R. Dist.)t...
Anthracite....................................................
Bituminous..................................................

-27
-26
-36

-28
-26
-41

-25
—27
-10

CRUDE OIL (3rd F. R. Dist.m..........

- 1

-12

-10

CONSTRUCTION—CONTRACT
AWARDS (3rd F. R. Dist.)**............
Residential...................................................
Nonresidential............................................
Public works and utilities........................

- 5

+ 5

+ 4
+21
+ 5
-12

Indexes
(1939 avg. =100)

— 8

Apparel.........................................................
Lumber.........................................................
Furniture and lumber products.............
Paper.............................................................
Printing and publishing...........................
Chemicals.....................................................
Petroleum and coal products.................
Rubber..........................................................
Leather.........................................................
Stone, clay and glass.................................
Iron and steel..............................................
Nonferrous metals.....................................
Machinery (excl. electrical)....................
Electrical machinery...............................
Transportation equipment (excl. auto).
Automobiles and equipment...................
Other manufacturing................................

- 2
+1

Pennsylvania
Manufacturing
Industries*

— 5

—14
—14
- 9
+ 6
-31
-15

-30
-10
-48
-19

—13
—11
—30
+13

* Temporary series—not comparable with former production indexes.
** Source: F. W. Dodge Corporation. Changes computed from 3-month
moving averages, centered on 3rd month,
t U. S. Bureau of Mines, ft American Petroleum Inst. Bradford field.

All manufacturing...
Durable goods
industries.................
Nondurable goods
industries.................
Foods..........................
Tobacco.....................
Textiles......................
Apparel......................
Lumber......................
Furniture and
lumber products...
Paper..........................
Printing and
publishing................
Chemicals..................
Petroleum and coal
products...................
Rubber.......................
Leather......................
Stone, clay and
glass..........................
Iron and steel.........
Nonferrous metals..
Machinery (excl.
electrical)................
Electrical
machinery...............
Transportation
equipment
(excl. auto).............
Automobiles and
equipment........ ..
Other manufacturing

Employment

Average
Weekly
Earnings

Payrolls

Per cent
change
from

Average
Hourly
Earnings

mo.
ago

Per cent
June change
1949
from
(In­
year dex) mo. year
ago
ago ago

114

- 2

-11

259

- 3

-10 *50.93

+ 1 *1.338

+ 6

135

- 4
0
+ 4
0
0
+ 1
— 7

-12

290

- 5

-11

55.60

+ 1

1.465

+ 7

- 9
- 2
-11
-17
- 6
-14

223
256
196
177
224
207

0
+ 7
+ 7
0
0
+ 5

- 8
+ 2
- 9
-20
- 6
- 4

45.01
47.54
29.63
44.38
35.63
47.26

+ 1
+ 4
+ 3
3
0
+12

1.179
1.151
.765
1.198
.926
1.113

+
+
+
+

4
— 6

-23
-10

170
220

- 3
-n

-26
-19

42.39
43.93

4
_
-10

1.016
1.171

0
+ 6

2
6

- 2
-10

284
229

- 3
- 5

+ 5
- 8

60.00
50.63

+ 7
+ 2

1.619
1.299

+10
+ 8

0
+ 1
+ 1

- 2
-15
- 3

319
249
186

- 2
+ 2
+ 5

+1
-11
+ 3

64.13
50.04
37.16

+ 4
+ 5
+ 6

1.642
1.398
1.038

+ 7
+ 6
+ 8

116
125
117

- 3
— 4
1

-14
-10
-17

253
263
251

- 5
- 7
- 2

-13
-10
-13

49.92
56.44
56.69

+ 1
0
+ 7

1.262
1.525
1.437

+ 4
+ 7
+ 8

169

June
1949
(In­
dex)

95
120
87
71
89
82
74
108
134
107
151
124
86

—

-

—

—

June
1949

chg.
from
year
ago

June
1949

%
chg.
from
year
ago

4
7
1
3
3
+ 8

- 8

-20

353

- 9

-20

52.86

+ 7

- 3

-12

416

- 1

-10

59.15

- 1
+ 3

1.415

197

1.532

+ 6

243

- 3
+n
0

+ 6

490

- 2

+12

61.51

+ 6

1.578

+ 7

-19
-18

274
211

+15
0

-13
-20

61.58
40.87

+ 7

1.516
1.150

+ 9
+ 4

122
108

3

* Production workers only.

TRADE
Third F. R. District
Indexes: 1935-39 Avg. =100
Adjusted for seasonal variation

Per cent change
June
June 1949 from 6 mos.
1949
1949
(Index)
from
month
year
year
ago
ago
ago

SALES
- 5
0
- 3*
- 7
- 9
-15*

Recent Changes in Department Store Sales
in Central Philadelphia

1

- 3
+ 2
- 8*

■
*

232p
201

Third F. R. District

1

STOCKS
Department stores..................
Women’s apparel stores..........

-1
+ 5
- 5*

1

269
255

Sales

Departmental Sales and Stocks of
Independent Department Stores

Stocks (end of month)

% chg. % chg. % chg.
June
6 mos. June
1949
1949
1949
from
from
from
year
year
year
ago
ago
ago

Total — All departments....................

Per
cent
change
from
year
ago

- 5

Main store total....................................
Piece goods and household textiles
Small wares..........................................
Women *8 and misses' accessories. .
Women’s and misses’ apparel.........
Men’s and boys’ wear......................
Housefurnishings................................
Other main store................................

- 4
- 7
- 4
2

- 3

-

0
4* 2
-11

- 5

Ratio to sales
(month’s
supply)
June
1949

1948

-

8

2.5

2.6

- 5
- 4

-

8

2.8

2

-15
-

3.0
3.3

2.9
3.3
3.4
2.7
1.6

-

-

8

- 5
+ 3
- 7
-13
-12

0

2

-12
-

6

2.6
1.6

2.5
3.7
2.5

2.8

Week ended July 23...................................................
Week ended July 30..................................
* Not adjusted for seasonal variation.




p—Preliminary.

-13
- 8
- 6
- 5
-15

1.5
1.5

Basement store total............
Small wares..........................
Women’s and misses’ wear
Men’s and boys’ wear. . . .
Housefurnishings.................

-18
- 4
+ 2
-15

2
- 3

- 7
- 4

1.5

+2
1

0
-16
-15

1.4
2.5

Nonmerchandise total

Week ended July 2......................................
Week ended July 9......................................

- 3

3.8
2.7

1

-

6

-

-

- 5

1.8
1.1

1.1

1.7
2.5

Page 99

CHE BUSINESS REVIEW

BANKING

CONSUMER CREDIT
Receiv­
ables
(end of
month)

s lies

Sale Credit

MONEY SUPPLY AND RELATED ITEMS
United States (Billions $)

% chg. % chg. % chg.
June
61949 June
mos.
1949
1949
from
from
from
yearago year ago yearago

Third F. R. District

Department stores

- 6
- 2
- 2

- 4
0
- 5

Money supply, privately owned........................................
Demand deposits, adjusted...............................................
Time deposits........................................................................
Currency outside banks......................................................
Turnover of demand deposits.............................................

+ 4
+ 9

June
29,
1949

165.6
82.2
58.4
25.0

Changes in —
5
weeks
- .1
— .4
+ .2
0

year
- .1
— .5
+1.0
— .6

18.7* +1.1* -2.1*

Commercial bank earning assets........................................
+ 6
-15
-10

+ 2
-12
-14

+ .2

- .2

U. S. Government securities..............................................
Other securities.....................................................................

+ 8

113.7
41.2
63.0
9.5

+ .3
- .2
+ .i

+1.3
-1.8
+ .3

Member bank reserves held................................................

Furniture stores

18.0

0

+ .6

Required reserves (estimated)..........................................
Excess reserves (estimated)...............................................

17.4

+ .i
— .1

+ .7
0

I

Loans made
Loan Credit
Third F. R. District

Loan
bal­
ances
out­
standing
(end of
month)

% chg. % chg. %chg.
June 6 mos.
June
1949
1949
1949
from
from
from
yearago yearago
yearago

Consumer instalment loans

- 4
- 8
+19
+14

- 1
- 7

+12
+13

+25
+ 2
+ 8
+23

.6

F Changes in reserves during 5 weeks ended June 29
reflected the following:
Effect on
reserves
Decline in Reserve Bank holdings of Governments - .2
Net payments by Treasury........................... .... + .2
Return of currency from circulation...........
b .1
- .1
Other transactions............................................
0

Change in reserves.......................................

* Annual rate for the month and per cent changes from month and year ago
at leading cities outside N. Y. City.

PRICES

OTHER BANKING DATA
June
1949
(Index)

Index: 1935-39 average =100

Per cer t change
fi om
month
ago

192

222
205
179
Consumer prices

Fuel...................................................................................

170
169
199
188
142
191
153

-

year
ago

1
2
1
1

- 7
-14

0
0
0
0
0
1

+
+

- 2

-11
- 3
1
2
5
3
5
3
4

189
191
191
190

Source: U. S. Bureau of Labor Statistics.


Page 100


218

222
222
216

Foods

204
208
208
204

Other

178
179
179
179

4
weeks

year

Commercial, industrial and agricultural...................
Security...............................................................................
Real estate..........................................................................

12.9

2.0
4.1
.3
4.0

- .3
— .6
0
0
0

-1.6
+ 3
+ .2
0
+ .3

Total loans — gross.....................................................

23.3
40.4
72.7

- .9
+1.7
+ .4

- .8
+1.2
— .4

457
34
94

8
281

- 3
— 6
+ i
- 11
+ 3

- 62
+ 3
+ 8
+ 6
+ 20

874
1,713
2,873

- 16
+ 48
- 25

- 25
+ 80
+ 18

17.5
18.5
24.5
27.3
.1

— .5
-1.0
+ .1
— .1
- .1

Third Federal Reserve District (millions $):
Commercial, industrial and agricultural...................
Real estate..........................................................................

Total loans — gross....................................................

All com­ Farm
prod
modi­
UCt8
ties

Chang es in —

Weekly reporting banks — leading cities
United States (billions $):

All other..............................................................................

Weekly Wholesale Prices—U. S.
(Index: 1935-39 average =100)

July
27,
1949

Member bank reserves and related items
United States (billions $):
Member bank reserves held............................................
Reserve Bant holdings of Governments.....................
Money in circulation..................................... •.................
Treasury deposits at Reserve Banks............................

Federal Reserve Bank of Phila. (millions $):
Loans and securities.......................................................... 1,271
Federal Reserve notes....................................................... 1,608
804
Member bank reserve deposits......................................
1,227
49.5%

—
+

64

0

-2.7

+ .9
— .5 •
—1.4

-266
- 20
7
59
— 3
+126
20
.9% +7.7%


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102