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ANNUAL I
195

FED ER A L.

RESERVE

BANK

NEW

YORK

March 12, 1959
To the Member Banks in the
Second Federal Reserve District:
I am pleased to send you our forty-fourth
Annual R e p o r t , reviewing the economic and financial
developments of 1958. As you know, the year saw
the end of the business recession and brought a
vigorous upturn that set the economy on the road
to new record levels of o u t p u t . At the close of the
year, however, the lagging recovery of employment
remained a matter of serious concern while the
risk of renewed inflation could hardly be ignored.
More generally, the economy was squarely confronted
with the necessity, in a more competitive world
economy, of measuring up to a higher standard of
performance in terms of productive efficiency,
growth, and price stability.

ALFRED HAYES
President

Federal Reserve Bank
of New York

FO R TY-FO UR TH
ANNUA L R E P O R T
For the Year
Ended
December 31,1958

Second Federal Reserve District

Contents:
Page

Page
Credit Policy in Recession and
Recovery ....................................................

5
Limiting the Decline ............................ 6
Problems and Policy at the Lower
Turning Point .......................................... 9
Maintaining the Momentum of
Balanced Recovery................................. 12

The Recession Arrested and
Reversed.......................................................16

A Sharp but Short Decline....................16
A Vigorous Upturn in Output............. ..17
Unemployment Remains Large as
Productivity Advances .......................... ..18
A Small Rise in Prices...............................19

The Image of National Trends in
the Second District..................................21

A Slack Year in Manufacturing............21
Strength in Nonmanufacturing............23

Federal Reserve Operations and the
Credit and Capital Markets..................

Credit Ease During the First Half. . .
Market Disturbances and the Shift
Away from Credit Ease........................
Expansion in Bank Credit....................
Money Supply and Liquidity...............
Sharp Swing in Borrowing Costs and
Market Conditions .................................
Continued Strong Demand in the
Capital Market .......................................

Balance of Payments of the
United States ............................................

Turnabout in Gold Flows....................
Sustained Imports and Decline
in Exports ................................................
Increased Importance of
Foreign Securities...................................
Activity in the New York
Foreign Exchange M arket....................

Foreign Economic and Financial
Developments............................................

24
24
27
29
31
33
35
39
39
40
41
42

43
Decline and Partial Recovery of
Economic Activity ................................. 43
The Financial Framework.................... 45
Crosscurrents in International
Payments and Reserve Trends............. 47

Volume and Trend of the Bank’s
Operations .................................................50

Domestic Operations ..............................50
Foreign and International Operations.. 52
Financial Statements.............................. 53
Statement of Condition ........................ 53
Earnings and Expenses ........................ 56
Changes in Membership ........................ 58
...
Changes in Directors............................
Changes in Officers ...............................
Member of Federal Advisory
Council— 1959 .....................................

59
59
60

List of Directors and Officers ...........

Changes in Directors and Officers

CHARTS

Chart 1: Factors in Recession and
Revival .......................................................
Chart 2: Changes in Consumer Prices
and Major Components ........................
Chart 3: Nonfarm Employment in the
Second District and the United States.
Chart 4: Member Bank Free Reserves
and Borrowings .....................................
Chart 5: Selected Interest Rates...........
Chart 6: Loans and Investments of All
Commercial Banks .................................
Chart 7: Money Supply, Income
Velocity, and Loan-Deposit R atio....
Chart 8: Stock Market Credit...............
Chart 9: Yields on Securities...............
Chart 10: Changes in Outstanding
Volume of Capital and Credit
Instruments by Type of Instrument..
Chart 11: Changes in Holdings of
Capital and Credit Instruments
by Type of Investor ...............................
Chart 12: United States Transactions
with Foreign Countries ........................
Chart 13: Industrial Production Abroad
Chart 14: Gold and Dollar Holdings
of Foreign Countries ............................

16
20
22
25
28
30
32
35
35
36
38
39
44
48

Forty-fourth Annual Report
Federal Reserve Bank of New York

Credit Policy in Recession and Recovery
During the past year, the American economy has been confronted by an unusu
ally wide range of problems— those of limiting the force of a recession set off
by the culmination of a capital boom, of making a clear turn at the bottom
instead of merely leveling out, and then of generating strong recovery. Under
lying all of these, and brought more sharply into focus by the end of the year,
when activity had recovered to pre-recession levels, were the problems of assur
ing continued growth, to provide higher living standards and increasing employ
ment opportunities for all segments of a rising population. Monetary and credit
policy had a part to play, not the dominant but an essential part, as the economy
sought ways to resolve these succeeding sets of problems within a framework
of reasonable price stability.
As the year began, the recession seemed to be accelerating. Business capital
formation had been pulled back sharply after the record expansion of the three
preceding years. Demand for consumer durables, notably automobiles, appeared
to be falling faster than at any time since World War II. And inventories were
being liquidated at the most rapid rate on record. These and other depressing
forces, coming in conjunction, generated fears, both at home and abroad, that
the pattern of economic developments which followed World War I was being
inexorably repeated, that a collapse was impending here which could spread
throughout the world. The slowing pace of many of the European economies,
and some others, seemed to lend credence to such fears.

Rarely indeed has an economy moved so swiftly to confound dire expecta
tions. By the spring the decline had ended. By midsummer there was general
awareness everywhere that American recovery was strongly under way. By the
end of 1958, recovery was assured and our economy was on the threshold of
new zones of growth and expansion. Abroad, the air had so cleared that, instead
of looking inward for artificial methods to support declining markets, the principal
European countries were able at the end of the year to widen the convertibility
of their currencies, looking outward to conditions of increasing freedom for the
expansion of world trade.

l im it in g
t h e
d e c l i n e . What accounts for the decisive change in the eco
nomic conditions and atmosphere of the United States, during the course of a
single year? Part of the statistical answer is in negative terms: capital expendi
tures stopped declining; so too, consumer spending for durables; and the rate
of inventory liquidation slowed down. The upward thrust, again as measured
by the statistics of gross national product, came from resumed increases in other
consumer spending in the first quarter; expanding residential construction after
the second; and an uninterrupted expansion of expenditures by Federal, State,
and local governments throughout the year. Most of these in turn were both
cause and effect of the rise in personal disposable income, and in corporate
profits, that began in the second quarter. But the cold statistics do not answer
the broader question: what prevented the launching of a cumulative downward
spiral once retrenchment had begun on so many sides at the same time and a
nervous psychology was beginning to spread among businessmen and consumers?
The nub of the answer seems to have been that the majority of businessmen
and consumers kept their nerve. Perhaps partly because they had already seen
two postwar recessions, both of which had run their course within a year, they
were content to mark time for a while instead of rushing prematurely into drastic
retrenchment. The result was that each producer or consumer, in so doing,
helped to assure a continued high level of activity for the others. In such an
environment, conditions were favorable for fulfilment of the analysis presented
by several key Government officials soon after the recession began: that this
was a necessary respite for correction among sectors of the economy which had
been expanding so rapidly that they had slipped out of alignment with each
other; that the magnitude of any clearly needed corrections was relatively small;
and that the orderly processes of a market economy should be able to complete

the job by the middle of the year. That calm reassurance, before the force of a
downward spiral of expectations could take hold, was matched by a series of
actions, not precipitate and extreme, but measured and moderate. Some of these,
in the area of Government spending, taxation, and borrowing, and also including
what are popularly called the “built-in stabilizers” , undoubtedly braked the
decline and will be mentioned again in later portions of this Report. Federal
Reserve actions, too, certainly helped, as use was made during the decline of
every one of the tools available for central bank action in this country. What the
Federal Reserve System did on the way down, at the bottom, and during the
recovery will be the principal subject of the next few pages. The economic
background which the System kept under continuous study, including the dis
turbingly large unemployment that persisted through the recovery phase, will
be discussed further, after this introductory review of what was actually done.
The earliest efforts of the Federal Reserve to limit the decline were made
long before any downturn had occurred. By holding a tight rein on the
elastic credit provided through the creation of money, the System averted
whatever tendency there might otherwise have been to superimpose speculative
excesses, financed through bank credit, upon the boom in plant and inventory
spending that had continued into the summer of 1957. With no speculative
bubble to be pricked, no dangerous overhang of weak credits on thin margins
of equity to collapse at the first sign of general weakness, some of the potentially
most explosive causes of a cumulative downward disintegration had been re
moved. Moreover, there was a sizable queue of users of funds, with many States
and municipalities prominent among them, who had stepped aside as borrowers
crowded each other out of the capital market during the boom, and who were
eager to return as money became more readily available. To the extent that
Federal Reserve action in denying additional bank credit had a part in effecting
these postponements during the boom phase, it was also helping to strengthen
the comparable demand that reappeared after the peak of business capital expan
sion had passed. In short, the limitation of credit expansion during the boom
was subsequently an important help in limiting the duration of the decline.
The System’s first overt act in the new year was the reduction of margin
requirements from 70 per cent to 50 per cent on January 16. Within a
week, on January 22, came the year’s first move in what later proved to be a
series of three waves of reductions in discount rates, the last occurring in late
April and early May when all Reserve Banks reached a level of 1% per cent,
completing reductions which had begun from a level of 3V2 per cent in Novem

ber 1957. In mid-February the Board of Governors announced the first round
of reductions in reserve requirements, effective at the end of the month. Further
reductions were announced in mid-March and mid-April. In total nearly IV2
billion of reserve balances were released to the member banks by these moves,
through the one method available to the System for directly and promptly affect
ing every member bank. Alongside all of these other moves, Federal Reserve
open market operations, after making an unusually small seasonal reduction in
System holdings of Government securities in January, kept the System portfolio
steady or rising until the summer.
In a very full sense, this was a program of credit ease. It was intended
to remove, methodically, amply, but not rashly, all of the previous pressures for
restraint that had been necessary in times of “ overstretch” when inflation was
the dominating problem. The new aim, carried forward from the closing months
of 1957, was to encourage every bank to seek out opportunities to lend, or to
invest, and thereby bring about the massive expansion in bank credit and the
money supply which could, in the new conditions, serve as a partial offset to
the forces of contraction then under way. It had been inherent in the nature of
restraint that the liquidity of banks and businesses and individuals should, in
relative terms, be shrinking; that the velocity of money, however measured,
should rise. Conversely, it was an essential part of the easing process that liquidity
positions should be improved, while velocity declined. This meant not only that
money could safely be created at a much faster pace than in the three preceding
years, without precipitating inflationary price reactions, but also that the increases
should be much larger in order to fill the pent-up demands for liquidity as a
first step toward promoting renewed business expansion.
There could and should, then, be large contraseasonal increases in bank
reserves, and in bank portfolios and deposits, while the business decline con
tinued. Yet it was always necessary to consider as well the problems that might
be implanted further in the future if so much liquidity were created that banks,
and the credit system, were eventually to emerge into a recovery phase with a
fat cushion of liquid assets between them and the effects of any restrictive meas
ures that might then be appropriate. Consequently, reserves were not released
all at once early in the recession. But from the early stage of the decline there
was clear assurance that additional reserves would be provided, out in front of
any demands placed upon the banks. This assurance was confirmed step by step
through the integrated program of open market operations and fractional reduc
tions in reserve requirements.
8

By midyear, bank credit had risen almost 8 per cent since System policy
had begun easing in October 1957. The economy had indeed become “com
fortably liquid” . The “prime” rate on bank loans to business had dropped,
in two steps, from a AV2 per cent peak at the beginning of the year to 3V2 per cent
by the end of April. Treasury bills were trading at rates of interest well below
1 per cent; commercial paper at IV2 per cent; acceptances at IV4 per cent; and
most Treasury securities in the three- to five-year range were trading at yields
close to 2 per cent. All had plummeted from the 3V2 to 4 per cent range in less
than nine months, prompting some question as to whether market expectations
of ease had not outrun the realities. The increased liquidity had also spread
to the longer term market where declines of about V2 of 1 per cent had occurred
over the same period in interest rates on Government bonds and corporate issues
of all grades. The underlying force which these changes in interest rates repre
sented had helped, throughout the first half of the year, to energize market bor
rowing through debt issues, not merely for refunding but also for new money
purposes. The estimated volume of new money borrowing by corporations and
State and local governments was considerably larger than during comparable
periods in the previous recessions since World War II.
Looking back, after the turn, a question may be raised as to whether the
easing of bank reserves and credit availability was overdone. No clear-cut
answer seems possible, either way. Perhaps it is inherent in the nature of
monetary and credit policy that action taken to meet possible contingencies
appears excessive when they do not actually occur. In any case, it was probably
fortunate, though somewhat fortuitous, that much of the potential liquidity
created by Federal Reserve action had found its way, by midyear, into the
intermediate and long-term bonds issued by the Treasury as it carried through
a program of debt lengthening that was of record volume for a peacetime period.
Thus, the economy emerged from the downswing with less abundant liquidity
than might have been suggested by looking at Federal Reserve operations alone.

PROBLEMS AND POLICY AT THE LOWER TURNING POINT.
The economy
began turning from recession toward recovery in April and May. Although the
Federal Reserve was prepared to begin shifting moderately away from ease in
June, bank reserves were in fact kept genuinely easy through July, mainly
because of the unsettlement that developed in the money and capital markets as

recovery came into view. The first significant moves away from ease occurred
in August, with the change becoming more pronounced in September. The inter
val from May through July was of particular interest, however, not only because
it was the incubation period of the recovery but also because a series of un
usual problems arose in connection with a sequence of large Treasury financing
operations.
Characteristically, the tasks of economic intelligence are most baffling at the
cyclical turning points; but in a way this period was an exception. A mixture
of uncertainty and hope in early June had gradually been transformed by early
July into a widespread conviction that the economy had turned upward, and there
was a revival in some quarters of the inflationary psychology that had been so
disturbing during the boom. The consequences of this sweeping shift of expecta
tions for the sensitive money and capital markets were unique and extreme; bond
prices tumbled and interest rates shot upward, particularly following a brief “ war
scare” created by the landing of American troops in Lebanon in mid-July. The
markets remained jittery, however, long after the Middle East had left the head
lines.
The Treasury announced near the end of May that it would offer $1 billion
of long-term bonds for cash subscription on June 3, and that its books would be
open for refunding about %9V2 billion of its maturing securities on June 4-6.
The exchange gave subscribers the option of selecting between a bond of nearly
seven years’ maturity and a certificate of nearly one year. Although the issues
of bonds, for cash and for exchange, came at the end of an impressive sequence
of Treasury offerings in the long-term and intermediate range, their initial recep
tion was good. They were attractively priced in relation to the going market.
But when the exchange subscriptions were made, purchasers were still thinking
in terms of a declining economy and, more specifically, in terms of declining
interest rates. Many purchases of bonds were made by temporary holders—
in substantial part on thinly margined credit— with the intention of selling the
bonds at a profit. The size of the exchange into the bond, $7.4 billion, was sur
prisingly large and, when announced, confirmed market suspicions that a large
speculative interest had developed in the refunding. Even before the new securi
ties were physically delivered to subscribers in the middle of June, a serious
deterioration began in the Government securities market. Purchasers suddenly
began to realize that a turn had occurred in the direction of economic activity
and that interest rates were more likely to rise than to decline further. Many
saw again the prospect of inflation.
10

The intensity of investor reactions, rather paradoxically, was magnified by
the growing sensitivity that many investors had been developing over the several
preceding years to expectations concerning Federal Reserve policy. Deducing
that a turn in economic conditions meant a turn in Federal Reserve policy, they
attempted to discount as soon as possible the full effect of any shift in policy—
almost without regard to whether such a shift might, in fact, occur only gradually,
and perhaps irregularly, over many months ahead as the recovery gained momen
tum. As more and more investors moved to the same side of the market, with
the same intention, the result eventually was outright disorder.
That extreme was not reached all at once, however, perhaps partly because
a semblance of two-way trading was maintained in the market in late June and
early July, as the United States Treasury purchased nearly $600 million of the
newly issued seven-year bond upon which an unusually large part of the actual
market selling had been concentrated. Most of its purchases were made with a
view to retiring a part of the top-heavy supply of this bond; the rest, in order
to acquire added holdings at attractive yields for the portfolios of some of the
Treasury-administered Government trust funds and investment accounts. The
publication of these purchases on July 9 was briefly effective in giving some
assurance to the market that it was not being left entirely on its own as another
large Treasury refinancing operation approached (which was to be followed
shortly by more cash borrowing).
A new round of deterioration was set off, however, by the announcement
on July 15 that American troops were landing in Lebanon. Market expectations
then foresaw the possibility of increasing Government expenditures and deficits,
superimposed on the already strong economic recovery. New waves of selling
followed as uneasy investors attempted to dispose of their bond holdings before
prices and interest yields fully reflected prospective economic developments or
the expectation of further inflation. By Friday, July 18, with the books scheduled
to be open for the Treasury’s $16 billion refunding offer from Monday through
Wednesday of the next week, the market had reached a condition of outright
disorder. The Federal Open Market Committee thereupon announced its inten
tion in the existing circumstances to purchase Government securities other than
those of short maturity. Because much of the market’s unsettlement at this time
tended to concentrate on the securities involved in the Treasury’s current refinanc
ing operation, the Federal Reserve found itself making the greater part of its
purchases in those issues. Even so, attrition was large, roughly $2% billion. The
cash borrowing on July 29 had to be enlarged to a total of $3V2 billion. Because

of the unsettled market conditions, the Treasury could borrow only in the short
term market, issuing tax anticipation certificates to mature the following March.
Although Treasury financing operations seemed to occupy the center of the
stage in the May-July period, it appears in retrospect that they served merely as
the focal point on which attention centered as the financial markets attempted
to adjust to a reversal in the direction of economic activity and to a reviving fear
of inflation— fed by the release of revised budget estimates indicating a very large
excess of Government expenditures over receipts that would have to be financed
during the current fiscal year, together with prospective increases in private
borrowing demands. The condition of substantial excess reserves and of generally
low member bank borrowing remained virtually unchanged through this period.
The System’s purchases of more than $1V4 billion that occurred during the brief
interval of “ disorderly market operations” were unobtrusively offset by prompt
sales and redemptions of bills, so that no marked deviation occurred from the
magnitudes of reserves that had been maintained over the preceding months of
genuine ease. Money market rates of interest remained low. The new factor,
at least new in intensity, was the force exerted upon the credit markets by shifts
in the expectations of both speculators and investors, when all of them seemed
to reach the same conclusion at about the same time, and when all had become
highly sensitive to changes in the direction of economic activity and to the
implications of such changes for interest rates.

MAINTAINING THE MOMENTUM OF BALANCED RECOVERY.
Late in
August, the first steps in a shift of general credit policy away from ease were
taken through open market operations, as a slight shrinkage in excess reserves
was not replaced through further open market purchases. That approach was
hardened further during September, as the System made net sales of Govern
ment securities and the banks came under pressure to increase their borrowings
from the Federal Reserve by several hundred million dollars to meet seasonal
growth in reserve needs.
Even earlier, on August 5, developments in the stock market had led the
Board of Governors to restore stock market margin requirements to the 70
per cent level. After reaching a low point in the first quarter, stock prices
began rising very rapidly, and customer credit, though not unusually large,
also increased at a rapid rate. Uneasiness concerning the implications of the

pattern of stock prices, particularly if the rise should come to depend signifi
cantly on expanding credit, led to concern over whether this might be one point
at which the general liquidity, initially created as an offset to recession, could
be seeping through to produce a distortion of an inflationary character. This
use of margin requirement changes as a supplement to general credit policy
was reinforced later in the year when on October 16 requirements were advanced
from 70 to 90 per cent.
Meanwhile, another interesting aspect of the 1958 recession and the recovery
was being mirrored by the differences in experience among various Federal
Reserve Districts. All during the easing phase, the force of the recession cen
tered in the northern and eastern sections of the country, with much of the
west and southwest generally feeling the effects with some lag. The pattern of
discount rate action among the Federal Reserve Banks, quite understandably,
was influenced, among other factors, by that underlying difference in the regional
incidence of the recession. This Bank, for example, had been among the leaders
in each of the three rounds of discount rate reductions that occurred from January
through early May. The sequence was reversed, however, when the general
business situation turned around. Although the first rise in discount rates
occurred on August 15, this Bank lagged about a month behind. To be sure,
the action did not turn on regional factors alone, but these were of some influ
ence in shaping the views of this Bank on national issues.
The New York financial center was also probably affected more pervasively
than any other sector of the economy, during this recovery phase, by the decisive
turnabout in the condition of the money and capital markets that had occurred
during the summer. Within the space of a few weeks Treasury bills had shot up
from the earlier lows to a range above 2X per cent; commercial paper, above
A
3 per cent; all Government securities of three years or more maturity had returned
to market rates above 3V per cent; and all grades of outstanding corporate
2
securities had swiftly returned to market rates very close to the previous peaks.
For a time there was some risk that changes of these proportions might, in
themselves, exert a restrictive influence well beyond anything called for by the
current state of the recovery, or consistent with the current moderate change
in credit policy. It was not until these rapid interest rate changes in the financial
markets centered in New York had begun cresting out that the discount rate of
this Bank was first raised, on September 12, from 13 per cent to 2 per cent.
A
On the same date, commercial banks began raising their “prime” rate to
4 per cent, where it still remained at the end of the year. There was a second

round of increases in discount rates, however, to 2V2 per cent, toward the end
of October and early in November.
During the last four months of the year Federal Reserve policy saw to it that
additional reserves were provided in line with the expanding seasonal require
ments of the recovery period, but these additional reserves were released only
gradually as one member bank after another found itself in need of temporary
borrowing from the Federal Reserve, and the aggregate of such outstanding
borrowing showed a persistent tendency to rise. There was, correspondingly, a
renewed tendency toward declining liquidity and a rise in the velocity (or rate
of use) of existing reserves and of the money supply. The banks were not handi
capped by an over-all shortage, or shrinkage, of reserves, but they felt a renewed
inducement to conserve any liquidity which they had brought with them out of
the period of business contraction.
In terms of the broader objectives of monetary and credit policy, the over
riding aim during the recovery period was to provide an adequate base for credit
expansion, so that no economic activity— neither the reabsorption of unem
ployed capacity and labor nor further growth in output potential— would be
impeded because there was a general lack of bank credit. At the same time,
the control of expansion in bank reserves had to take into account the substantial
residue of liquidity remaining from the ease that had persisted through the
first half of the year, and to have continuing regard for the inflationary potential
inherent in any further rapid expansion of the money supply. The result was a
pronounced slowing of the rate of growth in the money supply from August
through December to an annual rate of about IV2 per cent. For the year as
a whole, giving effect to the much more rapid rate of increase during the declin
ing phase of economic activity early in the year, the over-all rise in the money
supply was roughly 3¥4 per cent, in contrast to increases that had averaged about
IV2 per cent over the four preceding years, and slightly more than 2 per cent
for the preceding eight years. These developments, and the fuller record of
changes in production, employment, prices, and credit, are described further in
later parts of this Report.
With recovery firmly established, attention returned again to several longer
run problems. One of these was highlighted by the outflow during the year of
$2*4 billion of gold from the United States, largely to Western Europe, as the
bulk of current dollar earnings was withdrawn in this form, although foreign
liquid dollar assets rose by about $1 billion. Fundamentally, this limited
progress toward redistribution of the world’s gold supply, which still left the
14

United States with more than one half of the known monetary gold stocks in
the world, was gratifying evidence of the achievements made under the postwar
programs to restore the viability of the economies and the currencies of Western
Europe. The movement did, however, elicit widespread comment, both here and
abroad, concerning the international position of the United States. In blunt
terms, it was said that the United States had “ priced itself” out of world markets.
Comment abroad during the year pointed, too, to our unbalanced budget, the
apparent “ cost push” from wage rises in excess of average productivity gains,
and the soaring stock market, as evidence of a renewal of inflationary psychology
here. And indeed, as prices of a number of industrial products and services
had risen further during the recession, warnings of this kind, brought into sharp
relief by intensified foreign competition, were salutary. Whatever the facts
might show, and there were many possible interpretations of them, this country
was apparently beginning to see, through its balance-of-payments window, some
of the same forces that have always been dominant influences, even disciplines,
upon the domestic economies of other countries.
It was indeed disturbing that the American economy, with its vast new
productivity potential, should have given so much more evidence of upward
than of downward flexibility in prices and costs during the recession. Through
the recovery period, however, the over-all indexes of wholesale and retail prices
were relatively stable, and the influence of price competition in activating
demand may, perhaps, have played some part in the strength and breadth of the
expansion. And at any rate the economy’s performance during the recovery
gave some grounds for hope that it could meet successfully one of the major
tests ahead in 1959— that of finding ways to encourage growth without at the
same time promoting inflationary distortions which would cut into the founda
tions of that growth. Certainly it was in balanced and continuing growth that the
answer lay, not only to the unemployment which still remained, and to the
common desire for still higher standards of living, but also to the compelling
requirements of national security.

The Recession Arrested and Reversed
s h a r p b u t s h o r t d e c l i n e . When the year began, the recession was in
full sway. As mentioned earlier, business spending on plant and equipment was
falling off, and consumer buying of autos and other durables was also declining
sharply (see Chart 1). The liquidation of nonfarm inventories, which had started
in the fourth quarter of 1957, was intensified in response to the contraction in both
sales and orders, and speeded up to an unprecedented annual rate of $9.3 billion

in the first quarter of 1958. Exports contracted further from the artificially
high levels reached in 1957. Industrial output continued to drop appreciably
every month through April, and unemployment climbed above the five million
mark. Some informed observers feared that the decline might begin to feed on
itself and develop into a downward spiral of the prewar variety, while others
looked forward to a protracted period of sideways movement at a low level of
activity. It was indeed fortunate at this stage that the preceding boom had not

CHART 1

F A C T O R S IN RECESSION A N D R E V IV A L
Q u a rte rly a t s e a s o n a lly a d ju ste d a n n u a l rates
B illio n s o f
d o lla r s
255 —

B illions o f
d o lla rs

B illio n s o f d o lla rs

CONSUMER PURCHASES OF
NONDURABLES AND SERVICES .

120

•< --------- S c a le

45 —

CONSUMER PURCHASES

—

110

105

-10

GOVERNMENT PURCHASES
AND BENEFIT PAYMENTS

S ca le

►

\ I N VENTORY CHANGE

V r i

1 1
II

III

1957

i
III

1958

f
II

I
III
1957

I
1958

S o u rc e : U n ite d S ta te s D e p a r tm e n to f C o m m e rc e .

generated speculative excesses or extreme distortions. If, in the face of generally
slackened demand, major corrections had been necessary, a cumulative deteriora
tion might well have occurred.
But, even as output was declining, several strong forces were operating to
roll back the recession tide. Defense orders were being stepped up. The rise in
State and local government spending (mainly on construction and payrolls)
accelerated, at least partly reflecting the improvement in the terms on which
financing could be obtained. The easing of mortgage markets cushioned and
then helped to reverse the drop in the rate of housing construction.
In addition to these increases in demand, a number of other factors also
were important in sustaining the flow of personal income. Increased output and
firmer prices for farm products, and larger Government support payments, were
expanding farm incomes. Corporations largely maintained dividend payments
despite a one-third drop in profits. In some major industries, laid-off workers
received unemployment benefits from funds accumulated through employer con
tributions stipulated in labor contracts. But perhaps most important was the
support to incomes provided by the rapid expansion of government benefit pay
ments under the existing unemployment compensation, social security, and other
welfare programs.
Largely as a result of these sustaining factors, total personal income scarcely
declined at all during the recession, and actually began to rise in March even
though employment was still falling quite rapidly. In turn, the physical volume
of consumer purchases of food and other essentials was maintained throughout
the recession, despite sizable price increases on many foods and a number of
essential services. The decline in sales was concentrated in durables.

v ig o r o u s u p t u r n
in
o u t p u t .
With some two thirds of final demand
largely unaffected by the recession, neither the rapid rate of inventory liquidation
nor the contraction in sales of durable goods could continue indefinitely. Once
the durable goods industries found a bottom in March and April, conditions
became favorable for an upturn.
The huge rate of inventory liquidation in the first quarter apparently disposed
of a large portion of the stocks that businessmen considered superfluous. By
midyear, many firms that had curtailed production to rates far below current
sales, in order to work off inventory that had been accumulated earlier in antici
a

pation of rising sales, cautiously began to expand their output. At the same
time, the easing in the credit markets, coupled with special Federal legislation
to provide an additional $1 billion for low downpayment Government-insured
mortgages, culminated in a spurt in housing construction. Industrial production
turned strongly upward in May, and employment began to rise. In midyear,
moreover, personal income received an additional boost from the lengthening
of the unemployment insurance benefit period (as authorized by special Federal
legislation) and from the raising of military and Federal civil service pay scales
(the latter retroactively to the beginning of the year).
The factors that had arrested and reversed the recession— the slackening of
inventory liquidation, the increase in housing starts, the rise in government
spending, and the strength and subsequent expansion in the dollar volume of
consumer purchases of nondurables and services— continued to supply most of
the impetus for the recovery to the year end. Toward the close of the year,
moreover, consumer demand for durable goods also increased substantially, and
the year-long decline in business capital outlays came to a halt. While the
strength of the capital goods sector remained a major question mark in the
economic outlook, surveys of businessmen’s intentions did point to a modest
increase in plant and equipment expenditures in early 1959.
Even in December, however, industrial production had still not quite returned
to its all-time high, reflecting the incomplete recovery in the durable goods indus
tries. Output of nondurables, on the other hand, was already at a new record
rate, and total construction activity also attained a new peak. In the fourth
quarter of 1958, the nation’s total output of goods and services (GNP) reached
a new high level in dollar terms, and in real terms almost matched the peak that
had previously been reached in mid-1957. Full recovery in terms of per capita
output had not, of course, been achieved.

UNEMPLOYMENT REMAINS LARGE AS PRODUCTIVITY ADVANCES.

Although production increased rapidly over the last eight months of the year,
employment expanded very slowly and unemployment persisted at relatively high
levels. At the end of 1958, private nonfarm employment was still substantially
below its pre-recession peak, while unemployment stood at 6 per cent of the
labor force as compared with a little over 4 per cent during most of 1955, 1956,
and 1957 and about 3 per cent in 1951-53. Slower recovery in employment
than in production is typical of cyclical revivals, but in 1958 the lag was more
18

pronounced. During recovery, employers always tend to restore longer work
weeks before hiring new help, while output per manhour is usually increasing
so that fewer workers than previously are needed to produce any given output.
After the upturn in 1958, however, the advance in output per manhour appeared
to be particularly rapid, as the fruits of the enormous outlays on modern plant
and equipment during 1955-57 were finally being reaped. In addition, the reces
sion gave impetus to the introduction of cost-reducing techniques and greater
cost discipline in general. The resulting economies became particularly significant
as output again began to expand, making possible the more efficient use of the
new equipment.
The reduction in the need for labor, compared with the pre-recession period,
was particularly marked for production and other manual workers. Furthermore,
the rise in the demand for additional clerical and sales help during the upturn
appeared to be smaller than during other post-World War II periods of recovery.
Meanwhile the labor force expanded but, as in 1957, by less than would have
been indicated on the basis of longer range trends. On the average, the total
labor force in 1958 was about half a million persons larger than in 1957, com
pared with an average annual rise of one million during the preceding decade.
Despite the high level of unemployment, wage rates continued to edge
upward, partly as a result of the automatic increases received by large groups
of workers under long-term contracts that included cost-of-living “ escalator” and
productivity clauses or provisions for “ deferred” pay increases. In contrast to
the preceding two years, however, when wage rates rose faster than gains in
productivity could be realized, the 1958 rise in wage rates was probably less than
that in output per manhour, at least in many manufacturing lines. With some
progress toward better balance between costs and productivity, there appeared
to be a better basis for stability in average prices in the period ahead. Attain
ment of such stability will depend, of course, among other things, on avoiding
a return to conditions of general excess demand, and sellers’ markets, in which
the incentives to cost discipline and price competition would be impaired.

a s m a l l r is e in
p r i c e s . The average level of prices, as measured by the
major official indexes, rose moderately in 1958. To an important extent this
reflected a rise in food prices, which advanced more sharply than they normally
do during the first half of the year, but then declined only about seasonally in
the second half (see Chart 2). For the year as a whole, food prices paid by

CHART 2

CHANGES IN CO NSUM ER PRICES AND M AJOR CO M PO N EN TS

consumers averaged some 4 per cent higher in 1958 than in 1957, and at the end
of 1958 were still more than 2 per cent above the level of a year earlier. Meat
prices advanced sharply as farmers held back on cattle marketings in order to
rebuild their herds, and fruit and vegetable prices also rose considerably, es
pecially early in the year when adverse weather reduced the crop. In December
1958, retail prices of meat were 9 per cent, and of fruits and vegetables 5 per
cent, higher than in the same month of the previous year. While wholesale
prices of other key farm products fell, the declines were lessened by the Federal
price support programs, outlays on which are expected to rise 70 per cent in
fiscal 1959 to roughly $5.4 billion.
For goods other than food, prices on balance were little changed between
the beginning and the end of the year. In the earlier part of the year, wholesale
prices of “ sensitive” raw materials (such as nonferrous metals) dropped sharply,
and there was reportedly rather widespread, though unpublicized, price cutting
on machinery and other fabricated products, particularly where larger orders
20

were involved. However, these reductions were in many cases reversed during
the latter part of 1958. At the consumer level, prices of goods other than food
showed little change except for seasonal fluctuations.
In the latter part of the year, when recovery was well along, both wholesale
and retail prices of manufactured goods began to move up slowly. At the retail
level, the largest rise was that in new car prices, which for November-December,
according to the Bureau of Labor Statistics, averaged 5 per cent higher than a
year earlier and about 15 per cent higher than in 1955. On the other hand, the
advance in the cost of consumer services and shelter, which had amounted to
about 4 per cent annually between early 1956 and early 1958, slowed to about
2 per cent per year during the last three quarters of 1958.

Th e Image off National Trends in the Second District
As might be expected in a region accounting for an important and diversified
share of the nation’s total product, economic activity in the Second District during
1958 followed a pattern roughly similar to that of the national economy. There
were differences, however, in the extent and timing of the cyclical movement.
The decline in general business activity in the District may have begun a bit
earlier, but does not seem to have been so sharp as in some other parts of the
country. On the other hand, the decline in the Second District apparently lasted
for several months longer into 1958. As in the rest of the country, the recession
was concentrated in the District’s manufacturing industries; outside of manufac
turing, its impact was relatively mild. When the turnaround in the business
situation came in the District, it was not so marked as in the rest of the country,
and the pace of recovery was slower. Total nonfarm employment, which dropped
about as sharply as in the country as a whole during the recession, recovered more
slowly in the latter part of the year (see Chart 3).

In the District, as in the country at
large, the recession centered in durable goods manufacturing. However, the

s l a c k

y e a r

m a n u f a c t u r in g

CHART 3

N O N F A R M E M P L O Y M E N T IN THE SECOND DISTR IC T A N D THE U N ITE D STATES
M o n th ly , a d ju ste d fo r seaso na l v a r ia tio n ; in d e x n um be rs, 1956=100
Per cent

MANUFACTURING
--------------------------- DURABLE G O O D S ---------

TOTAL N DNFARM

102

^ jA s E C O N D DISTRICT
MANUFACTURING
NONDURABLE GOODS

M ' t

.................

1 11 1 1 1 1 1 II 1
N o te: C o m p u te d b y th e F e d e ra l R e s e rv e B a n k of N e w Y o r k fro m d a ta
s u p p lie d b y th e D e p a rtm e n ts o f L a b o r of N e w Y o rk S ta te, N e w Je rs e y ,
C o n n e c tic u t, a n d th e U n ite d States.

reverses suffered by these industries were not quite so sharp in this District.
In contrast, in the soft goods sector the impact of the recession was more severe in
the District than elsewhere. At its 1958 low point, seasonally adjusted employ
ment in factories turning out nondurable goods was some 9 per cent below the
pre-recession peak, compared with a 5 per cent peak-to-trough decline in the
nation generally. This was mainly the result of the much sharper contraction
in the District’s apparel industry, which is still by far its most important single
source of manufacturing employment— even though it has been declining in
relative importance throughout the postwar period. Most of the contraction was
in the ladies’ garment trade, but the manufacture of men’s clothing was also cut
back sharply. There was only a moderate falling-off in business in most other
soft goods lines, with the most severe employment losses outside of apparel manu
facturing taking place in the textile and leather industries.
The impact of the recession on the District’s major industrial centers varied
considerably. In the Buffalo area, where the steel and auto industries play a
22

Per cent
105

dominant role, unemployment reached a peak of over 12 per cent of the total
labor force and in July Buffalo was accordingly placed in the United States Labor
Department’s highest labor surplus category, a classification in which it remained
through the year end. Bridgeport was also classified in this category in July,
when layoffs in the machinery industry reached their peak. And in the UticaRome and the Perth Amboy and Paterson areas unemployment was in the 9 to
11.9 per cent range for several months during the year. While the District’s
other business centers fared somewhat better, only Rochester and StamfordNorwalk among the twelve major labor market areas in the District were not
designated as having a “ substantial labor surplus” (more than 6.0 per cent of
the labor force unemployed) at some time during 1958. New York City weath
ered the recession relatively well, owing to the lesser role of manufacturing and
especially durable goods manufacturing in its economy. The over-all decline in
employment in the city during the recession was only about one-half as sharp
as in the rest of the District.
The decline in the District’s manufacturing output, which had begun about
midway through 1957, came to an end in the second quarter of 1958. How
ever, the ensuing revival was not so strong as elsewhere in the nation—
mainly because of a slower pickup in activity in the District’s durable goods
industries. A better recovery occurred in the soft goods sector, as business
improved in the apparel industry. By the year end factory employment in the
District had increased only about seasonally from the recession low point in
the summer. The sluggish revival in manufacturing was largely responsible for
the fact that by December the total number of persons receiving unemployment
insurance in the District had fallen only about 10 per cent from the year’s high,
compared with a 26 per cent decline in the country as a whole.

in
n o n m a n u f a c t u r in g .
Nonmanufacturing industries were
a source of strength in the District, as in the rest of the country. Nonmanufactur
ing employment declined only about 1 per cent during the recession, mostly
reflecting cutbacks in the transportation and construction industries. Government,
finance, services, and retail trade, however, continued to add to their payrolls last
year. Construction activity reached record proportions during 1958, as sub
stantial increases in public works and utilities construction (both public and
private) and in residential building more than offset a decline in nonresidential
building. Contracts valued at some $1.3 billion, nearly 50 per cent more than

s t r e n g t h

in 1957, were awarded for the construction of public works and utilities; most
of the increase was due to expanded road-building programs and to the letting
of contracts for the Niagara Power project. After declining for the two preced
ing years, home building turned upward sharply in 1958; the 21 per cent increase
in residential construction contract awards in the District was considerably greater
than in the country at large.
Consumer spending seems to have been somewhat better maintained in the
District than elsewhere in the country. District department store sales averaged
nearly 2.5 per cent ahead of the 1957 level, while there was an increase of less
than 1 per cent nationally. The sales pattern within the District was uneven, how
ever, with the increase coming almost entirely in the suburban shopping centers in
the New York-New Jersey metropolitan area. Elsewhere, sales averaged appreci
ably lower than in 1957, especially in the areas in which unemployment was
most serious.

Federal Reserve Operations and the Credit and
Capital Markets
During the first quarter of 1958,
the easing of bank reserve positions that had begun in the fall of 1957 grew
increasingly pronounced as business activity continued to decline. At the begin
ning of the year the member banks emerged with a moderate amount of free
reserves— that is, their excess reserves exceeded their borrowings from the
Federal Reserve Banks— the total rising to about $500 million in March and
remaining there through July and most of August (see Chart 4 ). The banks
obtained reserves during the first quarter from the usual return flow of currency
from circulation (in January), which was offset only in part by a drop in float
and by System open market operations (see table below). In addition, reserve
requirements for all member banks were reduced by a full percentage point on net
demand deposits, a move that released altogther about $1 billion of reserves.
The reductions were made in two stages of V percentage point each, taking
2
effect on February 27 and March 20 for central reserve and reserve city banks
and on March 1 and April 1 for country banks.

c r e d it

e a s e

d u r in g

t h e

f ir s t

h a l f

CHART 4

M E M B ER B A N K FREE R ESERVES A N D B O R R O W IN G S
M o n th ly a verag es o f d a ily fig ures

Free reserves of member banks remained at around the $500 million level
during the second quarter, despite substantial reserve drains from gold outflows
(amounting to more than $1 billion over this period), from an increase in cur
rency in circulation, and the increases in required reserves arising from the
deposit expansion associated with heavy securities acquisitions. To offset these
reserve needs the Federal Reserve System increased its holdings of Government
securities by about $1.3 billion, and in April about $450 million of reserves
was freed by a further reduction in reserve requirements against demand deposits
at central reserve city and reserve city banks, the reductions amounting to
1 percentage point and Vi percentage point, respectively. (Following these
adjustments, and for the balance of the year, reserve requirements against net
demand deposits were 18 per cent for central reserve city banks, 16Vi per cent
for reserve city banks, and 11 per cent for country banks, the reductions during
the year amounting to 2 percentage points, lVi points, and 1 point, respectively.
Reserve requirements on time deposits were unchanged during the year at
5 per cent for all member banks.)

F A C T O R S T E N D I N G T O IN C R E A S E O R D E C R E A S E M E M B E R B A N K R E S E R V E S
D U R IN G 1 9 5 8 (In millions of dollars; (+ ) denotes increase, (—) decrease in excess reserves)
CH AN GE IN M ON THLY AVERAGE

Dec. 1 9 57 M ar. 1 9 5 8 June 1 9 5 8 Sept. 1 9 5 8
to
to
to
to
Mar. 1 9 5 8 June 1 9 5 8 Sept. 1 9 5 8 Dec. 1 9 5 8

Factor

Operating transactions
Treasury operations * ..........................
Federal Reserve float............................
Currency in circulation..........................
Gold and foreign account......................
Other deposits, etc................................
Total

Direct Federal Reserve credit transactions
Government securities:
Direct market purchases or sales___
Held under repurchase agreements...
Member bank borrowings......................
O th e r......................................................

— 21
— 550
+1,343
— 141
— 243
+

387

— 150
— 346
— 572
—
9

+ 90
+ 23
— 450
— 1,074
+
10
— 1,3 99

Dec. 1 9 5 7
to
Dec. 1 9 5 8

+
19
+
74
— 303
— 594
+
6

—
10
+ 506
— 1,029
— 314
— 35

+ 78
+
53
— 439
— 2,123
— 262

—

— 884

—2 ,6 9 4

798

+ 1,233
+ 30
+
4
+
2

+ 353
—
51
+ 334
—
13

+ 1,165
+ 96
+ 81
+
16

+2,601
— 271
— 153
—
4

Total

— 1,0 77

+ 1 ,2 6 9

623

+ 1 ,3 5 8

+ 2 ,1 7 3

Total reserves ............................................
Effect of change in required reserves___
Excess reserves ........................................

— 690
+746
+ 56

+
-

130
123
7

- 175
+ 120
55

+ 474
- 529
55

- 521
+ 460
61

Last month in quarter, average level of
member bank:
Excess reserves......................................
Borrowings from Reserve Banks ........
Free reserves ........................................

633
138
495

626
142
484

571
476
95

516
557
41

Note: Because of rounding, figures do not necessarily add to totals.
★

Includes changes in Treasury currency and cash.

Discount rate reductions during the first half of the year accompanied the
downward movement in short-term rates associated with the easing of credit
conditions (see Chart 5). Meanwhile, the weekly auction rate on 90-day Treas
ury bills moved down sharply, reaching an eleven-year low of 0.64 per cent on
May 26 or slightly below the lowest point reached in 1954. Long-term rates,
however, after the marked decline in late 1957, changed little on balance after
the first few weeks of 1958, as flotations of new issues by the Treasury, corpora
tions, States, and municipalities made heavy demands on the capital markets.

MARKET DISTURBANCES AND THE SHIFT AWAY FROM CREDIT EASE.

As described earlier in this Report, business conditions and market expectations
changed rapidly during the summer. In the course of the Treasury financings
of June and earlier months, a large volume of Government securities had been
acquired by temporary holders expecting that a continuation of the business
recession would lead to further credit-easing moves by the Federal Reserve
System and to rising bond prices. Some of these securities were held on very
thin margins. Toward the end of June and in July, the expectations underlying
this speculative interest underwent a sharp turnabout, as signs multiplied that
business had reached a turning point. This change in expectations was reinforced
by the disturbances in the Middle East, predictions of a large Federal deficit with
consequent heavy Treasury borrowing needs, and widespread discussion of the
dangers of a renewal of inflationary pressures. In the resulting efforts to reduce
Government securities portfolios, speculative holders were joined by institutional
investors, while downward pressures on bond prices were further aggravated by
margin calls by lenders (including nonbank lenders) who had financed securi
ties holdings on thin margins. When the deterioration of market conditions had
reached the stage of outright disorder, the Federal Reserve System made sub
stantial purchases of Government securities— including longer term securities
and the “ rights” in a Treasury refunding, neither of which ordinarily is included
in System transactions. Continuing conditions of credit ease were maintained
through all of July, but in August, when the market turbulence had largely
subsided, monetary policy moved away from ease.
Both long- and short-term interest rates continued to rise sharply during
August. Liquidation of speculative bond holdings remained a drag on the market,
and various actions taken by the Federal Reserve System— the rise in margin
requirements and the first increases in discount rates— were interpreted as con-

CHART 5

SELECTED IN TE R E ST RATES

S o u rc e s : B o a rd o f G o v e rn o r s o f th e F e d e ra l R e s e rv e S y s te m an d
M o o d y's In v e s to rs S e rv ic e .

firming a shift away from credit ease. Toward the end of August free reserves
of member banks were reduced, declining from a range of roughly $400-$700
million in July and most of August to about $100 million in September.
During the third quarter of the year, open market operations offset only
a part of the reserve drains arising from the continued gold outflow (which was,
however, smaller than during the second quarter) and from a seasonal increase
in currency in circulation. As a result, and indicative of the movement toward
less easy reserve positions, an increasing number of banks found it necessary
to borrow from their Reserve Banks for short periods, while appraising changes
in their reserve positions and effecting more lasting adjustments. The average
monthly amount of such borrowing, which had ranged between $109 million
and $142 million during the period March to July, rose to $252 million in August
and to $476 million in September. The average level then continued above
$400 million through the balance of the year. Short-term interest rates, mean
while, rose sharply. The average issuing rate on three-month Treasury bills,
28

which had been below 1 per cent in July, had reached almost 3 per cent by the
end of September.
During the last quarter of 1958 free reserves gradually disappeared as aggre
gate borrowings and excess reserves moved toward a rough balance. Reserve
positions remained generally comfortable, however, with most of the changes con
centrated at reserve city and country banks, and the banks were in a position
to meet seasonal credit demands without strain. Interest rates, after rising to a
peak in September and early October, changed little on balance during the rest
of the year, as the awareness spread that neither seasonal pressures nor Federal
Reserve action was making credit progressively tighter. With longer term rates
appearing “high” to some investors in light of the underlying credit situation,
the market became more receptive to new bond issues.
The second round of discount rate increases in October and November,
which brought the rate to IVi per cent at all Reserve Banks, represented a
technical adjustment to the sharp upward movement in short-term market rates
since midyear. A second increase in margin requirements also was made in
October, bringing them to 90 per cent. Unlike the increases in discount rates
and margin requirements in August, these changes had no observable effect
on the bond market nor did they give rise to expectations of a further change
in credit policy.

e x p a n s io n
in
b a n k
c r e d it .
Total commercial bank credit rose by $14.5
billion during 1958, the largest increase for a calendar year since World War II.
The previous high had been $10.2 billion in 1954, while during the intervening
three years increases had ranged between $4 billion and $5 billion (see Chart 6).
Underlying the record expansion during 1958 was the Federal Reserve System’s
policy of credit ease during the first half of the year, when the largest part of
the expansion occurred. A second factor was the continued heavy credit demand,
by the Treasury as well as by States and municipalities and mortgage borrowers,
which more than offset a decline in business loan demand.
The increase in bank credit during 1958 was concentrated in securities,
particularly United States Government obligations. Bank holdings of these
securities rose by a towering $8.0 billion in 1958, with most of the increase
occurring in the first half of the year. The aggressiveness of the banks in acquiring
Governments during that period reflected the ready availability of bank reserves,
smaller aggregate loan demands, and the desire to repair bank liquidity positions

CHART 6

L O A N S AND INVESTM ENTS OF ALL COMMERCIAL BANKS
Billions of
dollars

180

170

160

150

140

130

N o te : D ata a re as o f th e la s t W e d n e s d a y or th e la s t d a y of th e m o n th .

which had been substantially reduced during previous years of rapid loan expan
sion. Most of the new Treasury issues during the first half were of relatively long
maturity, and the average maturity of commercial bank holdings of Government
securities increased sharply, thus somewhat limiting the banks’ liquidity gains.
During the second half of the year the increase in Government securities
holdings moderated, as reserves became less freely available and loan demands
increased moderately. The tendency toward a lengthening of maturities in bank
portfolios also diminished or was reversed, as banks prepared to meet larger
loan demands and Treasury financing shifted toward shorter maturities.
Other components of total bank credit that expanded appreciably in 1958
included real estate loans and “ other securities” (chiefly obligations of States
and municipalities), each category increasing by about $2.5 billion. These in
creases reflected the sensitivity of State, municipal, and mortgage borrowers to
lower interest rates and more favorable borrowing terms, as well as the tendency
30

of banks, during periods when business loan demands are slack and reserves are
ample, to turn to these outlets for their funds. Farm loans, after three years of
decline, also rose appreciably in 1958, as output of farm produce rose sharply
over the previous year.
Despite the upswing in real estate loans and farm loans, the increase in total
bank loans was only slightly larger than in 1957. Primarily this was because
business, consumer, and securities loans showed on balance little change over
the year. The light demand for business loans reflected the heavy inventory
liquidation by business, particularly during the first half of the year, as well
as the decision on the part of many corporations to retire bank debt with the
proceeds of securities issues. The small contraction of business loans over the
full year contrasted sharply with increases of $1.8 billion in 1957, $5.5 billion
in 1956, and $6.3 billion in 1955. Business loans picked up somewhat in the
fourth quarter of the year but only about in line with normal seasonal require
ments, as businesses in general enjoyed the usual favorable cash flow associated
with the early stages of an economic upturn. The relatively minor change in con
sumer loans was also largely a product of the recession, and particularly of the
drop in purchases of consumer durable goods.

m o n e y s u p p l y a n d
l iq u id it y .
Reflecting the sharp rise in bank earning
assets, time and demand deposits at commercial banks rose by $11.0 billion
during 1958, the largest increase for a calendar year since World War II. The
money supply (defined as demand deposits adjusted plus currency outside banks)
on a seasonally adjusted basis rose by $5.1 billion or by 3.8 per cent during 1958.
Although considerably larger than the average annual increase of 2.4 per cent
during the preceding seven years, this expansion followed two years during
which the money supply was virtually unchanged.
Time deposits at commercial banks rose by a record $6.9 billion during 1958.
During the first half of the year, when most of the increase occurred, time deposits
accounted for a large part of the sharp expansion in the public’s holdings of all
types of fixed-value liquid assets in response to the recession. Apparently this
bulge in time deposits was partly at the expense of marketable securities such
as Treasury bills on which the decline in yields was considerably greater than
on time deposits. The much smaller increase in the second half, although partly
the result of seasonal influences, apparently reflected also the sharp rebound in
interest rates on marketable securities.

As discussed earlier, the marked increase in banks’ securities holdings and
the reduced growth in loans during the first half of the year permitted banks to
rebuild their liquidity positions somewhat from the reduced levels of 1957.
Loan-deposit ratios for all commercial banks declined from a postwar high of
0.52 in the third quarter of 1957 to 0.49 in the second quarter of 1958,
remaining well above the 1953-54 ratios, however (see Chart 7). The recovery
in bank liquidity positions during this period, as suggested earlier, was limited
by the lengthening of the maturity of the banks’ portfolios of Government
securities.

CHART 7

M O N EY S U P P L Y , INCOME V E L O C IT Y , AND LO A N -D EP O SIT R A TIO

1953

1954

1955

1956

1957

1958

N o te : D a ta on m o n e y s u p p ly a re s e a s o n a lly a d ju s te d e n d -o f-q u a rte r fig u re s .
In c o m e v e lo c ity is e q u a l to g ro s s n a tio n a l p ro d u c t (a n n u a l ra te fo r e a c h q u a rte r)
d iv id e d by a ve ra g e m o n e y s u p p ly f o r th a t q u a r te r , b o th s e a s o n a lly a d ju s te d .
L o a n -d e p o s it r a tio is e n d -o f-q u a rte r ra tio o f lo a n s (a d ju s te d )to to ta l d e p o s its less
c a s h ite m s in p ro ce ss of c o lle c tio n . D a ta fo r th e la s t q u a rte r o f 1 9 5 8 a re e s tim a te s .

As bank liabilities to the public increased, some easing also occurred in the
liquidity position of the nonbank public. The income velocity of money—the
ratio of GNP to the money supply—declined from a postwar high of 3.30 in
the third quarter of 1957 to 3.18 in the second quarter of 1958 (see Chart 7),
suggesting that cash balances were being used less intensively. This decline in
income velocity, however, offset only about one fourth of the rise between 1954
and 1957. Judging from these and other measures, the period of actively easy
credit conditions and declining investment outlays—that is, the period favorable
to recovery in liquidity positions—was too brief to allow more than a partial
recovery of the liquidity lost during the preceding years of economic expan
sion. Of course, if the public’s liquidity position is broadened to include liquid
assets other than money, such as time and savings deposits, savings and loan
shares, and Treasury bills and certificates, the recovery between the third quarter
of 1957 and the second quarter of 1958 assumes more impressive proportions
since these assets grew faster than the money supply during this period. However,
these assets provide less liquidity to the nonbank public than demand deposits
or currency since they are not immediately spendable funds. The liquidity of
the banking system, furthermore, would be reduced by the conversion of sub
stantial amounts of such assets to demand deposits or currency. For example,
the conversion of a large volume of time deposits to demand deposits would
place the banks under severe reserve pressure because of the higher reserve
requirements on demand deposits. During the second half of the year the rise
in bank and nonbank liquidity was reversed, and by the end of the year part
of the earlier gains in liquidity apparently had been lost.

The
period between the autumn of 1957 and that of 1958 encompassed by far the
sharpest decline and recovery in interest rates since the early 1930’s. Following
the cut in discount rates at several Federal Reserve Banks effective November 15,
1957, bond yields fell precipitously. From early November to the end of
December 1957, yields on long-term Treasury issues dropped more than 60
basis points while top-grade municipal and corporate bond yields fell more than
40 basis points. By the end of 1957, long-term interest rates on the highest
grade securities had fallen almost as much as during the entire 1953-54 recession.
Following this decisive change, rates turned slightly higher in the first quarter
SH ARP SWING IN BORROWING CO STS AND M A RKET CONDITIONS.

of 1958, as investors were called upon to absorb a continuing heavy volume of
new securities offerings. Late in January, the Treasury announced that a new
32-year Government bond would be included in February’s refunding, and this
was followed in February with an announcement of an 8V -year cash offering.
2
A brief flurry of bidding for high-quality bonds early in the second quarter
brought long-term rates on these securities to the lowest levels of the year in
April and May, setting the stage for the dramatic turnaround in interest rates
beginning in mid-June. As indicated above, the pronounced rebound in interest
rates grew out of a combination of events, including speculation in Treasury
bonds, a quick turnabout in the direction of business activity, increased concern
over inflation, and a rise in international tension. The rapid flow of events
produced a new set of expectations that contrasted sharply with the outlook of
a few weeks earlier, and speculative purchasing of Government bonds was
replaced by speculative liquidation.
Consequently, interest rates on long-term debt instruments rose almost
steadily through July and August and, by September, were approaching their
1957 peak levels. Corporations were paying from AV2 to 43 per cent for money
A
raised on new Aaa-rated bond issues, compared with about 35 per cent in May.
/s
At the end of September, yields on long-term Governments briefly surpassed
year-earlier levels to reach their highest point since the early 1930’s.
During the last quarter, the pressure on the market eased and rates stabilized
as it appeared that monetary policy was not becoming severely restrictive. Infla
tionary fears were reduced by stability of the consumer price index and by the
success of the Treasury in raising new money in October and November from
nonbank investors. At the end of 1958 long-term interest rates, although no
longer rising abruptly, were close to the peaks reached several months earlier
and in 1957.
Stock prices climbed throughout much of 1958, a rise variously interpreted
as a reflection of inflation fears or as a sign of confidence in future economic
growth. As in the recovery from the two previous postwar recessions, stock
prices began moving upward well before the recession hit bottom. The recession
low in stock prices was reached in October 1957, but gains were quite moderate
until April 1958 when prices began to climb steadily. Stock market credit, in
the meantime, rose with extreme rapidity during the first seven months of the
year (see Chart 8). On August 4, therefore, the Board of Governors announced
the restoration of margin requirements to the 70 per cent level from which they
had been cut to 50 per cent in January. The further increase to 90 per cent
34

CHART 8

CHART 9

Y IE LD S ON SECU R ITIES

STOCK M A R K ET CREDIT
Per cent

B illio n s o f
d o lla r s
4.5

5.0

4.5

4 .0

3.5

3.0

2.5
1954

S o u rc e s : D a ta a re fr o m th e N ew Y o rk S to ck
E x c h a n g e a n d th e B o a rd o f G o v e rn o rs o f th e
F e d e ra l R e s e rv e S y s te m .

1955

1 95 6

1957

1958

S o u rc e s : D a ta a re S ta n d a rd a n d P o o r's
d iv id e n d s - p r ic e r a t io f o r c o m m o n s to c k s a n d
M o o d y 's In v e s to rs S e rv ic e a v e ra g e c o r p o r a te
b o n d y ie ld s , A aa th ro u g h B aa q u a lity .

was made on October 16, as stock market borrowing and prices continued to
advance.
The marked rise in stock prices during 1958 reduced average stock yields
by the end of the year to about 314 per cent, the lowest in many years and
more than 1 per cent below the average yield on corporate bonds (see Chart 9).
In spite of high prices, however, the volume of new stock offerings during the
year was well below that of 1957.

The total
acquisition of funds through the capital market was greater in 1958 than in 1957.
Business demands were, in the aggregate, smaller than last year but the Federal
Government, after supplying funds to the market in 1957, became a heavy
borrower in 1958 (see Chart 10). The volume of borrowing by State and local
CONTINUED STRONG DEMAND IN TH E CA PITA L M A RKET.

C H A R T lO

CHANGES IN OUTSTAN DING VOLUM E OF CA PITA L AND CREDIT INSTRUMENTS
B Y T Y P E OF INSTRUMENT
B illio n s of
d o lla r s

CO RPO RATE
SECURITIES
( N O N FIN A N C IA L
CO R PO R A TIO N S)

19 5 6

1957 1958

STATE AN D
LO CA L SECURITIES

1956 1957 1958

M O RTG A G ES

1956 1957 1 9 5 8

B A N K LO A N S
OTHER THAN
REAL ESTATE

1956 1957 1958

FED ER A L
G O V ERN M EN T
AN D A G EN C Y
SECURITIES
PUBLICLY HELD

1956 1 957 1958

N o te : E s tim a te d b y th e F e d e ra l R e s e rv e B a n k o f N ew Y o r k fro m v a rio u s s o u rc e s .

governments and mortgage borrowers also increased, as these groups took advan
tage of the lower interest rates during part of the year and the generally increased
availability of funds.
Corporations were much less pressed for funds in 1958 than in 1957, even
though retained earnings were cut by reduced sales and profits. Depreciation
allowances continued to rise, while cash needs were lessened by reductions in
plant and equipment expenditures and in inventories. Nevertheless, the volume
of corporate securities issued was only moderately below the previous year’s
record level. A significant part of the new money raised through the sale of
long-term securities was apparently applied to paying off bank loans and other
short-term instruments used to finance earlier expansion, as well as to rebuilding
liquidity positions. Corporation holdings of cash and Government securities
rose moderately during 1958, thus reversing the trend of the past several years
when liquidity positions were reduced to finance expansion and growth.
State and local government borrowing in 1958 was at a new high. Building
programs continued to expand, as highway construction gained momentum and
36

needs for new community facilities such as schools and hospitals remained high.
Part of the record volume of borrowing was done by localities which had post
poned seeking funds during the previous year because of high interest rates.
While the pace of such borrowing slackened after the upturn in interest rates,
voters approved a record $2 billion of new bond issues in the November elections.
The greatest change in borrowing patterns from the previous year resulted
from the budget deficit of the Federal Government. During 1958 publicly held
Government debt (including obligations of Federal agencies) rose by $7.2 billion,
whereas during 1956 and 1957 the Government had been a net supplier of funds
to the market. Federal Government debt operations also had an important impact
on the capital market through efforts to lengthen the average maturity of out
standing debt. More than $15 billion of Treasury bonds (including a limited
amount of long-term bonds) was issued in the first half of 1958. While no new
bonds were issued in the second half of the year, market expectations that the
Treasury would again issue long maturities in the near future were generally
regarded as a major factor depressing Government securities prices at various
times during this period.
The net flow of funds into mortgages also increased during 1958. The lower
level of long-term interest rates during the first half of the year and increased
availability of credit stimulated greater investor interest in Federally underwritten
mortgages, while actions taken by the Federal Government to stimulate housing
construction also contributed to the pickup in mortgage activity. The Emergency
Housing Act of 1958 effective in April extended the loan guarantee program
and the direct loan program of the Veterans Administration for two years, raised
the maximum interest rate on VA mortgages by V* per cent to 43 per cent,
A
relaxed discount controls on Federal Housing Administration (FHA) and VA
mortgages, and gave the Federal National Mortgage Association special authority
to purchase at par up to $1 billion of Federally underwritten mortgages on
low-cost housing. In addition, downpayment requirements were liberalized on
VA mortgages by administrative action (downpayment requirements on FHA
mortgages had been reduced late in 1957 by legislation). In large part these
developments underlay the rising volume of housing starts during the AprilDecember period, as explained above.
The banking system absorbed an unusually large share of the net increase
in capital and credit instruments during 1958 (see Chart 11). As noted earlier,
commercial banks’ loans and investments rose by $14.5 billion during the year,
or more than three times as much as in 1957, while Federal Reserve holdings

CHART 1
1

CHANGES IN H O LD IN G S OF CA PITA L AND CREDIT IN STRUM ENTS
B Y T Y P E OF IN V ESTO R

B illio n s of
d o lla r s

COM M ERCIAL
B A N K IN G SYSTEM
IN CLU D IN G
FEDERAL RESERVE

LIFE IN SU R A N C E
C O M P A N IES

OTHER FIN A N C IA L
IN STITU TION S

N O N FIN A N C IA L
C O R P O R A T IO N S

ALL OTHER
IN VESTO RS
------------------

0
-5
1 956 1957 1 958

1956 1957

1958

1956 1957 1958

1956 1 95 7 1958

N o te : H o ld in g s in c lu d e c o rp o ra te , m u n ic ip a l, a n d F e d e ra l s e c u ritie s , m o rtg a g e s , a nd b a n k lo a n s .
"O th e r fin a n c ia l in s titu tio n s " c o m p ris e m u tu a l s a v in g s b a n k s ;fir e , m a rin e ,a n d c a s u a lty in s u ra n c e
c o m p a n ie s ; c o r p o r a te p e n s io n fu n d s a nd s a v in g s a n d lo a n a s s o c ia tio n s . " A ll o th e r in v e s to rs "
c o m p ris e S ta te a n d lo c a l g o v e rn m e n ts , F e d e ra l a g e n c ie s ,fo re ig n in v e s to r s , in d iv id u a ls , a n d o th e rs .
E s tim a te d b y th e F e d e ra l R eserve B a n k o f N ew Y o r k f ro m v a r io u s s o u rc e s .

of securities expanded by $2.3 billion. Life insurance companies and other
financial institutions also provided an expanded volume of funds to the capital
markets during the year. Although total personal saving was little changed from
1957, the volume of individual savings channeled through financial institutions
rose appreciably, providing institutions such as savings and loan associations
and savings banks with record amounts of new funds. In contrast, the direct
acquisition of securities by individuals (and miscellaneous investors) declined
sharply. The increase in individuals’ savings through financial institutions was
accompanied by a reluctance to go further into debt; the volume of consumer
credit outstanding showed almost no change during 1958. Debt on automobiles
declined over the year, but this was offset by a rise in other types of consumer debt.

Balance of Payments of the United States
in g o l d f l o w s .
The rest of the world, through its trans
actions with the United States, gained about $3.3 billion in gold and liquid dollar
assets during 1958, a sharp reversal from the loss recorded in 1957 (see Chart
12). Of this gain as much as $2.3 billion was accounted for by foreign gold
purchases from the United States Treasury. Foreign gold and dollar gains of
varying magnitudes have characterized the United States balance of payments
throughout the 1950’s with the notable exception of 1957, but in no year during
this period has there been so large a gold outflow to foreign countries, both
absolutely and relative to foreign dollar acquisitions.
Much of the upsurge in foreign gold purchases may be explained by the fact
that the main beneficiaries of foreign dollar gains were central banks in Western
Europe, which traditionally hold the bulk of their international reserves in gold.
Western Europe’s extraordinary reserve gains were due to three main causes.
tu rn a b o u t

CHART 12

UNITED STA TES TRA N SACTIO N S W ITH FO REIG N CO UNTRIES
A t a n n u a l ra te s ; n o t s e a s o n a lly a dju sted

N o te : U n ite d S ta te s p a y m e n ts a r e th o s e o n a c c o u n t o f im p o rts , in v e s tm e n t
a b ro a d , a n d g ifts . R e c e ip ts a re th o s e fr o m e x p o rts , lo n g -te rm fo r e ig n in v e s t
m e n t in th e U n ite d S ta te s , a n d " e r ro r s a n d o m is s io n s ". D a ta a re fro m th e U n ite d
S ta te s D e p a rtm e n t o f C o m m e rc e a n d in c lu d e tra n s a c tio n s w ith in te rn a tio n a l
in s titu tio n s .

In the first place, the area’s terms of trade with the primary-producing countries
improved sharply as a result of substantial declines in the prices of several major
commodities. Secondly, as domestic demand in Europe eased, excessive inven
tories of industrial materials and other commodities were worked off, thus
reducing the import needs of the industrial countries of Western Europe (as
described below). Finally, inasmuch as interest rates in the United States during
the first half of 1958 dropped much more rapidly than in Europe, foreign
governments and corporations found it attractive to borrow heavily in our market.
A large share of the resulting outflow of funds found its way to Europe. This
outflow was swelled, moreover, by some repatriation of private capital, notably to
Switzerland. The sharp decline in interest rates, especially of money market
instruments, may also have been partially responsible for the increased preference
for gold relative to dollars, as investments in United States Treasury securities
and acceptances became much less attractive to foreign central banks.
In the second half of 1958 foreign gold and dollar assets increased by roughly
the same amount as in the previous six months, but a much smaller proportion
of the over-all increase was used for purchases of gold from the United States
Treasury. To a certain extent, this reflects the fact that the rate of dollar gains
of several European central banks that habitually convert all or the bulk of their
dollar acquisitions into gold eased off noticeably during the latter part of the year.

United States im
ports of foreign goods were only about 2 per cent lower in value in 1958
than in 1957, and the decline was by no means general. In fact, foreign suppliers
of foodstuffs and finished manufactures were able to increase their sales in the
American market. The most conspicuous example of successful market penetra
tion by foreign manufactures was automobile imports from Western Europe,
which rose 60 per cent over 1957. On the other hand, a decline took place in
the dollar value of imports of most industrial materials—including copper, lead,
zinc, wool, and iron ore but excluding petroleum.
In contrast, United States merchandise exports (excluding military aid) were
over 16 per cent below the record level of 1957 though not much below the
1956 level. In part, this decline was a reaction from the burst of demand that
had been generated by crop failures in Europe and by the Suez crisis late in
1956 and early in 1957. It also reflected, however, the topping-off of the boom
in many of the other industrialized countries during 1958. To a lesser extent,
s u s t a in e d

im p o r t s a n d

d e c lin e

e x p o rts.

it resulted from the deterioration of the payments position of many countries
exporting primary commodities. Because of the decline in exports, the United
States trade balance fell sharply from its record 1957 surplus, but the surplus
still remained above that of most preceding years.
Most of the decline in exports was to Western European countries, Japan,
and Canada, with smaller shipments of materials such as steel scrap, coal,
petroleum, wheat, and cotton. For many of these commodities the United States
has in recent years been a supplementary, and in 1957 an emergency, source of
supply. Exports of finished manufactures also declined from 1957 levels, as
demand from the primary-producing countries of Latin America, Africa, and
Asia fell off.
The average price level of United States exports generally was little changed
from 1957, as lower prices of raw materials and of semimanufactures sold in
world markets were offset by a 2 per cent increase in the price of exported
finished manufactures. The competitive position of United States manufactures
in world markets was affected, moreover, by the easing of domestic pressures in
other exporting countries which enabled them to improve their export delivery
terms. However, our terms of trade improved considerably, as prices for im
ports into this country fell by about 5 per cent.
i n c r e a s e d i m p o r t a n c e o f f o r e i g n s e c u r i t i e s . When seen in longer
perspective, rather than in comparison with the abnormal export developments
of 1957, the major shift in the United States balance of payments occurred in
the outflow of portfolio capital. United States investment in new issues of
foreign and international securities amounted to about $1 billion for the year
as a whole. Flotations were greater than in any previous postwar year, largely
as the result of relatively easy capital and money market conditions in the first
half. More countries were represented among the borrowers, while the Inter
national Bank was the largest single external borrower.
The net direct investment outflow was, however, smaller than during the
two preceding years and accounted for only one third of the total private capital
outflow, in contrast to over one half in other recent years. On the other hand,
long-term Government loans abroad were almost twice those of 1957, reflecting
the increased activity of the Export-Import Bank. Bank lending and other short
term credit extensions also contributed to the large capital outflow in the first
half of 1958. After the midyear, the outflow of this type of short-term credit
slackened somewhat.

The Out
standing development in the New York foreign exchange market during 1958
came near the year end with the announcement on December 29 of nonresident
convertibility for most Western European currencies. On balance, convertibility
should result in greater trading activity since New York exchange dealers, for
the first time since 1939, will be able to carry out arbitrage transactions in all
the leading European currencies in exchange markets throughout the world.
During 1958, the pound sterling and the Canadian dollar again dominated
trading activity. American-account sterling was traded through most of the
year above its International Monetary Fund parity of $2.80, reflecting the under
lying strength of the United Kingdom economy. A four-year high of $2.813y3
2
was reached in April, and a 1958 low of $2.791%6 in September. Transferableaccount sterling generally followed the movement of American-account sterling
and was traded at only a small discount. It was affected on several occasions
by convertibility rumors and just prior to the actual announcement rose to $2.80.
Convertibility, which brought about the merger of all foreign-owned sterling
balances (except securities sterling) into a single external-account sterling, had
only a minor effect on the exchange rate. The rate dipped on the first day from
$2.801%2 to $2.80%2 but closed the year at $2.80%2 with a firm undertone.
Securities sterling, which continues in a blocked status, gradually improved during
the year as a result of investment demand for British securities, with the quotation
advancing from $2.73 to $2.80^ at the year end.
The most significant feature in the forward-sterling market was the marked
decline in forward discounts near the year end. Three months’ forward sterling,
at a discount of 27 cents in the spring, was quoted at par with spot sterling
/s
just prior to the convertibility announcement. By the year end, however, the
discount had widened to s cents.
/16
The Canadian dollar, quoted at $1.00% in January, gradually strengthened
during the first half of the year, reflecting particularly the transfer to Canada
of the proceeds of Canadian borrowings in New York. In June the Canadian
dollar was quoted at $1.041%2>the high for the year. Thereafter, the rate moved
rather erratically, responding to day-to-day market requirements including occa
sional demands from the Continent, oil lease bids on the part of American com
panies, and grain buying. Subsequently the quotation eased below the $1.03
level in September but by mid-October was again above that level. At the year
end it was quoted at $1.032%2*
Other factors which affected the exchange market during 1958 were the
A CTIV ITY IN THE NEW YO RK FOREIGN EXCHANGE M ARKET.

abolition in July of the liberalized “capital” mark account by the Federal Republic
of Germany, the devaluation of the French franc in December from 420 to
493.706 francs per dollar ($0.00202550), and the revisions in the exchange
systems of Argentina, Brazil, Chile, and Colombia.

Foreign Econom ic and Financial D evelopm ents
The recovery staged by the Western European economies in the past decade was
highlighted at the close of 1958 by the establishment of nonresident convertibility
for most Western European currencies. This concerted move reflected the sub
stantial improvement in 1958 in the external accounts of virtually all Western
European countries. As noted above, the balance-of-payments positions of these
and other industrial countries abroad benefited from the improvement in their
terms of trade, as well as from the general easing of their own domestic demand.
These developments, in turn, permitted a widespread relaxation of monetary
restraints. The primary-producing countries, on the other hand, generally con
tinued to face both internal and external difficulties as a result of their large-scale
development programs and the decline in their export prices during much of
the year. By the year end, economic activity in industrial countries once more
showed signs of picking up and commodity prices began to firm.

D ECLIN E AND PA R TIA L R EC O V ER Y OF ECONOMIC A CTIV ITY.
In the
course of 1958, Western Europe as a whole registered a slight decline in indus
trial production, the first since 1952. This decline, the timing and degree of which
varied widely in individual countries, was largely independent of the contraction
in the United States. Similarly, at the close of the year economic activity abroad
appeared to have been little affected by the recovery here. In the United King
dom, production had begun to slacken as early as 1956 (see Chart 13); in other
countries, such as the Netherlands and Belgium, output turned down in early
or mid-1957. Elsewhere, notably in France and Germany, continuing expansion
into 1958 was largely responsible for boosting Western European industrial

CHART 13

IN DUSTRIAL PRO DUCTIO N A B R O A D
S e a so n a lly a d ju s te d , 1953=100

1956

1957

1958

1 95 6

1957

1958

N o te : F o u rth q u a r te r 1 9 5 8 p a r tia lly e s tim a te d .

production as a whole to an all-time peak in the first quarter of 1958, or about
a year after the peak in the United States. In most European countries the
1957-58 downturn was generally less severe than in the United States and in
some economic activity merely expanded less rapidly. Although some recovery
appeared at the year end, a vigorous expansion was not yet under way.
The dip in Western Europe largely reflected widespread inventory liquida
tion, together with a decline in business demand for plant and equipment in
some countries. At the same time, however, private consumption expenditures
and residential construction activity remained high—partly with the aid of
easier credit conditions— and thus continued to check declines in aggregate
output. In contrast to wholesale prices, which generally fell in 1958, consumer
prices in many Western European countries continued to rise, albeit in most
cases more slowly than in earlier years. These increases, at a time when economic
activity was slowing down, reflected not only a general rise in the price of services,
but in some countries higher prices for food and nonfood consumer goods as well.
44

The authorities in a number of European countries have been displaying increas
ing awareness of the necessity of guarding against inflationary pressures arising,
not only from excessive demand, but also from the upward push of costs.
In Canada, both the decline and the subsequent recovery of economic
activity occurred earlier and were milder than in the United States. While
Canadian industrial production reached its low point as early as December 1957,
the 1958 revival was by no means uniform and continuous; in the closing months
of the year, however, a definite upward trend became evident. Throughout the
Canadian recession, increasing consumer and government expenditures, together
with record residential construction, tended to offset the drop in business invest
ment. In Japan, the end of the investment boom in the second half of 1957
led to a decline in economic activity that was felt through the spring of 1958 but
gave way to a vigorous upturn thereafter.
In a number of primary-producing countries, economic activity likewise
declined last year, with mineral producers in particular reducing their output.
The fall in export receipts, as industrial countries cut back their purchases, often
led to tighter exchange restrictions, with the result that some industries had to
curtail output because of the scarcity of needed imports. The weakness in inter
national commodity prices, which dates from early 1957, was intensified by the
decline in economic activity both in the United States and in other industrial
nations, and in the case of aluminum and tin by Soviet sales on world markets.
Moreover, the expansion in raw material production that had begun in the early
fifties had led to increased supplies, which also exerted a depressing influence
on world prices. However, the present problems of primary-producing countries
are not related only to adverse movements in the prices received for their prod
ucts. More and more of these countries are grappling with the formidable task
of raising incomes from their extremely low levels through development programs
and economic diversification. The domestic financial and monetary policies
adopted in pursuance of this goal, however, have not always been such as to
prevent inflationary excesses. Even in years of high export earnings these coun
tries often have found it difficult to channel additional resources into investment
or to provide for an increase in exchange reserves to tide the economy over years
when export earnings decline.

t h e f i n a n c i a l f r a m e w o r k . The trend toward credit restraint and tighter
money in the industrial countries that began in 1955-56 and reached its climax

in the third quarter of 1957 was halted toward the end of that year. Credit restric
tions were eased in 1958, as the investment boom slackened, inflationary pressures
receded, and reserves of gold, dollars, and other foreign currencies increased.
In France, however, the persisting inflation necessitated the maintenance of some
restrictive measures throughout 1958, while in West Germany the accumulation
of international reserves had led to a reduction of the discount rate as early as
September 1956—with further reductions in 1957 and 1958. On the other hand,
among the primary-producing countries, many of which have suffered severe
economic stress, the tendency to keep credit restrictions in force, or even to
strengthen them, generally continued through 1958.
The move away from the 1955-57 phase of credit restraint was spearheaded
in virtually all industrial countries by successive reductions in official discount
rates. In a number of cases, these reductions followed declines in short-term
market rates, and thus merely represented technical adjustments. In other in
stances, they constituted conscious attempts to adapt credit conditions to the
abatement of inflationary pressures, the decline in economic activity, or the
increase in international reserves. Relaxation of monetary policy also involved
shifts in open market operations and changes in commercial bank reserve require
ments in countries where these instruments are actively used. Elsewhere, as in
the Netherlands, these same tools were employed, however, to offset excessive
additions to market liquidity arising from gains in gold and foreign exchange
reserves. In fact, the monetary measures taken last year were generally not
intended as outright stimulants to economic expansion, but rather represented
a removal of the often severe credit restraints imposed in 1957. In the United
Kingdom and Canada, however, the authorities adopted a combination of mone
tary policy and of fiscal measures in order to pave the way for economic expansion.
As conditions in money and capital markets eased and interest rates declined,
public and corporate borrowers abroad were often able to fund their short-term
debt and to finance projects that had been postponed during the prior phase of
economic expansion. In Canada, in particular, the government undertook a
massive funding operation to consolidate outstanding issues maturing in 1959-66.
In a number of Western European countries the easing of monetary and credit
conditions last year made possible the broadening of consumer credit and per
sonal loan facilities, which still are less developed abroad than in the United
States. These enlarged facilities may well provide a stimulus to further develop
ment of mass-produced consumer durables and, if supported by sound credit
practices, may set the stage for a further rise in the standard of living.
46

CR O SSCU RR EN TS IN INTERNATIONAL P A Y M E N T S

AND

RESER V E

The sharp shift in the terms of trade in favor of foreign industrial
countries, which to an important extent made possible the notable improvement in
their payments position, at the same time led to a corresponding deterioration
in the payments position of primary-producing countries. The value of imports
into the industrial countries dropped sharply with the reduction in domestic
demand and, more important, with the fall in the prices of imported raw materi
als. On the other hand, the exports of these countries declined only slightly.
Moreover, the balances of payments of a number of Western European countries
were favorably affected in 1958 by the reversal of the speculative flow of funds
into the dollar that had marked the winter of 1956-57, following the Suez crisis,
and again the summer of 1957 when fears had arisen that certain Western
European currencies would be devalued. In contrast, the payments difficulties
of primary-producing countries were intensified as these countries received lower
prices for their exports. Moreover, their demand for imports in many instances
remained high despite efforts to curb prevailing inflationary pressures.
Aggregate official gold reserves and official and private dollar holdings of
foreign countries rose by a record $3.6 billion last year. By far the most impor
tant single factor in this increase was the over-all balance-of-payments surplus
the rest of the world had with the United States, noted earlier. Foreign coun
tries, in addition, acquired about $800 million of gold from new production
outside the United States as well as from Soviet gold sales and other sources
abroad.
The increase in foreign gold and dollar holdings, however, was most unevenly
distributed, being confined largely to Western European countries, Japan, and
Canada (see Chart 14). The official gold and dollar reserves held by the
United Kingdom as banker for the sterling area thus rose by $796 million in
1958 to $3,069 million, despite the year-end repayment of $188 million on the
United States and Canadian postwar loans. The countries of Continental Western
Europe accounted for over $2.7 billion of last year’s total increase in reserves,
their aggregate holdings rising to $17.8 billion.
Western Europe’s economic and financial resurgence since the end of World
War II, as already mentioned, was dramatically confirmed by the convertibility
moves in the closing days of 1958. Foreign holdings of these currencies, with the
exception in most countries of certain capital proceeds, may now be freely con
verted in the exchange markets within official support margins into any other
currency, including the dollar. This long-planned and long-awaited decision
tre n d s.

CHART 14

GO LD AND D O LLAR H O LDIN G S
O F FOREIGN COUNTRIES
UNITED
K IN G D O M

GOLD HOLDINGS

FEDERAL
REPUBLIC OF
GERM AN Y

OTHER
C O N TIN EN TAL
EUROPE

1957 1958

1 957 1958

DOLLAR HOLDINGS

REST OF
W O R LD

-jj
1957 1958 I

1957 1958

N o te : H o ld in g s in c lu d e o ffic ia l g o ld re s e rv e s a n d o f f ic ia l a n d p riv a te d o lla r h o ld in g s ( p r im a r ily
b a n k d e p o s its , U n ite d S ta te s G o v e rn m e n t s e c u r itie s , a n d b a n k e rs ' a c c e p ta n c e s ).

represents a substantial advance toward a sound international monetary system,
which has been a major goal of United States postwar policy. The convertibility
move also drastically changed the pattern of intra-European payments arrange
ments. The eight-year-old European Payments Union was terminated and was
replaced by the European Monetary Agreement which had been signed on a
stand-by basis in August 1955. In France, external convertibility was accom
panied by a devaluation of the franc and by a series of sweeping fiscal and
other measures to strengthen the country’s economy.
During the year, Canada’s holdings of gold and dollars rose some $230
million, as its trade deficit declined and the capital inflow from the United States
continued to be relatively high. And in Japan, a sharp reduction in imports was
reflected in a $383 million rise in reserves.
48

Total gold and dollar holdings of primary-producing countries declined only
moderately despite a substantial rise in these countries’ current-account deficits.
The decline, however, might have been greater had not their increased currentaccount deficits been largely met by credits from international financial insti
tutions, United States lending agencies, and, in the case of primary-producing
countries in the sterling area, by a substantial drawing-down of their sterling
balances.
The international payments developments of the past year tended to dispel
earlier fears that a severe and general international liquidity crisis would develop
as a result of the United States recession. On the contrary, the increase in
foreign reserves last year established a new record. Moreover, the governors
of the International Monetary Fund and the International Bank for Reconstruc
tion and Development, looking to the future, approved the United States proposal
under which (subject to approval of the national legislatures) additional inter
national liquidity would be provided through increases in the resources of these
institutions. Finally, the improved reserve positions of Western European coun
tries, coupled with the moves to convertibility, should make Western European
currencies more useful in international trade and finance, thereby adding to
international liquidity.
International reserves, however, are concentrated in the hands of industrial
nations. While last year the often more-than-adequate reserves of the industrial
countries abroad rose further, the already inadequate holdings of many primary
producers declined further. This, of course, is another aspect of the gap that
exists between the economies of the major industrial countries and the economies
of the less developed areas of the world. The Western European economies,
however, are now sufficiently strong to take part in a much-needed cooperative
effort to aid these areas in raising their very low living standards.

V olum e and Trend of the Bank’s O perations
o p e r a t i o n s . In spite of the decline in business activity during
1958, some major departments of the Bank showed increases in the volume
of operations over the previous year. However, the increases were generally
smaller than in previous years, and some departments showed a decline in activity.
During 1958 this Bank processed 552 million checks amounting to $394
billion, excluding United States Government checks. This represented a rise of
3.4 per cent in the number of items handled and of 1.2 per cent in dollar volume
over the preceding year and compared with an average annual increase during
the previous six years of 4.4 per cent and 6.6 per cent, respectively. Despite
the large volume of checks processed, the average level of float at this Bank in
1958 was lower than in 1957, and the monthly fluctuations in the amount of
float outstanding were generally smaller.
The number of United States Government checks handled at this Bank dur
ing 1958 fell by about 9 per cent from the previous year’s total, thus continuing
the downward trend that had begun in 1957 with the adoption of the Treasury’s
new payment and reconciliation procedure, under which all United States Gov
ernment checks are now payable at the Treasury Department in Washington
rather than through individual Federal Reserve Banks. Further simplifications,
instituted during 1958, in the procedures for making social security benefit
payments also contributed to the reduction. In contrast to the decline in the
number handled, the dollar volume of Government checks collected during 1958
rose by 4.4 per cent.
A further expansion in the Treasury’s refunding and financing operations,
as well as the high level of activity in the Government securities market during
1958, again boosted the volume of most of this Bank’s fiscal agency operations,
although not by so great a margin as in the previous year. The dollar volume
of all Government obligations, other than United States Savings bonds, processed
by this Bank in 1958 was $415 billion, an increase of 4.5 per cent over the
volume for 1957. The number of pieces handled during 1958 was 5.3 million,
or 3.7 per cent more than in 1957. On the other hand, the dollar volume of
issues, redemptions, and exchanges of United States Savings bonds in 1958 con
tracted to $2.3 billion, which was 26 per cent less than the volume of 1957 and
the lowest level since 1953. The number and the dollar volume of securities
received and delivered in conjunction with safekeeping operations, which rose
sharply from 1956 to 1957, increased only slightly during 1958,
d o m e s t ic

SO M E M EA SU R ES O F TH E VO LUM E O F O PERA TIO N S OF
T H E F ED ER A L R E S E R V E BANK O F NEW Y O R K (Including Buffalo Branch)
Number o f p ieces handled ★

Discounts and advances ..........................................................
Currency received and counted ..............................................
Coin received ............................................................................
Gold bars and bags of gold coin handled..............................
Checks handled:
United States Government checks........................................
All other ...............................................................................
Postal money orders handled....................................................
Collection items handled:
United States Government coupons p a id ..............................
Credits for direct sendings of collection items ................
All other ................................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States Savings bonds................................................
All other United States obligations......................................
Obligations of the International Bank for Reconstruction and
Development ..........................................................................
Safekeeping of securities:
Pieces received and delivered ..............................................
Coupons detached.................................................................
Transfers of fu n d s f....................................................................

1958

1957

2,087
1,249,986,000
2,165,780,000
292,000

3,106
1,255,818,000
2,049,247,000r
198,000

54,675,000
552,224,000
43,037,000

60,349,000
534,285,000
48,290,000

4,003,000
359,000
12,115,000

3,889,000
396,000
10,584,000

28,501,000
5,266,000

30,724,000
5,077,000

701,000

212,000

7,368,000
3,342,000
509,000

7,091,000
2,583,000
467,000

Amounts handled

Discounts and advances .......................................................... $ 11,072,095,000
$ 29,410,688,000
Currency received and counted................................................
8,165,085,000
8,045,632,000
Coin received ...........................................................................
226,977,000
219,988,000r
Gold bars and bags of gold coin handled................................
4,062,503,000
2,725,867,000
Checks handled:
United States Government checks........................................
19,261,007,000
18,443,732,000
All other ...............................................................................
393,860,426,000
389,354,518,000
Postal money orders handled ..................................................
733,765,000
802,303,000
Collection items handled:
United States Government coupons paid ............................
2,087,965,000
1,685,790,000
Credits for direct sendings of collection item s....................
702,094,000
805,408,000
All other .............................................................................
1,989,532,000
2,009,581,000
Issues, redemptions, exchanges by fiscal agency departments:
United States Savings bonds ..............................................
2,251,751,000
3,059,125,000
All other United States obligations......................................
414,542,707,000
396,504,969,000
Obligations of the International Bank for Reconstruction and
Development ..........................................................................
1,134,564,000
291,821,000
Safekeeping of securities:
Par value pieces received and delivered ............................
580,961,706,000
574,124,044,000
Transfers of fu n d s f....................................................................
598,770,651,000
471,063,822,000
★ or more checks, coupons, etc., handled as a single item are counted as one “piece",
Two
f Includes wire and mail transfers; excludes Treasury transfers and Reserve Bank interdistrict settlements,
r Revised.

The dollar volume of wire and mail transfers of funds made through the
facilities of this Bank, other than Treasury transfers and Reserve Bank inter
district settlements, rose 27 per cent during 1958 and totaled $599 billion for
the year. This rise apparently reflected a more intensive use of funds in the
New York money market. The number of transfers was also higher in 1958
than in 1957, but the rise was only 9 per cent.
As a result of easier credit conditions during the past year the dollar volume
of advances to member banks contracted sharply from $29.4 billion in 1957 to
$11.1 billion in 1958—a reduction of 62 per cent. While the number of advances
declined by one third, the number of banks accommodated decreased by only
9 per cent, as 282 member banks borrowed one or more times during the year.

Gold and dollar assets held
for foreign account by this Bank on behalf of all Federal Reserve Banks—
including dollar deposits, securities, and gold earmarked for foreign account—
increased from $9,926 million to $12,115 million during the year. This rise
of $2,189 million represented a vigorous resumption of the uptrend which began
in July of 1952, when total assets were $6.1 billion, but which was interrupted
by a leveling-off period in 1956 and 1957. Of total assets held for foreign
accounts, $7,668 million was represented by earmarked gold, a rise of $2,180
million. United States Government securities held for foreign account amounted
to $3,695 million at the year end, a decrease of $34 million over the year;
deposits were $272 million, down slightly; and miscellaneous securities, in
cluding bankers’ acceptances, aggregated $480 million, a rise of $127 million.
Gold and dollar assets in the accounts of the International Bank, International
Finance Corporation, and the International Monetary Fund, not included in
the foregoing figures, increased by $508 million; other Federal Reserve Banks
do not participate in this Bank’s operations for these accounts.
New gold loan arrangements were made with four foreign monetary authori
ties, involving a total of $43.3 million. These arrangements were made within
the framework of this Bank’s policy of extending credits against gold for the
purpose of meeting seasonal and other dollar shortages of a temporary nature.
The newly organized central bank of Rhodesia and Nyasaland, and the
new central bank of Ghana, opened accounts.
f o r e ig n

an d

in t e r n a t io n a l o p e r a t io n s .

As fiscal agent, the Bank administered the blocking regulations affecting
assets held in the United States for Communist China and North Korea and
their nationals, and transactions with those countries; also, the regulations affect
ing the assets of the Government of Egypt and the Suez Canal Company until
their revocation on May 1.

Financial S ta tem en ts
s t a t e m e n t o f c o n d i t i o n . At the end of 1958 the Bank had total assets
of $13.7 billion, of which $5.6 billion consisted of cash or gold certificates and
$6.7 billion of Government securities. The Bank’s principal liabilities were $6.5
billion of Federal Reserve notes and $6.0 billion of deposits.
Over the year, the dollar volume of total assets remained virtually unchanged
but there were some significant shifts in the distribution of particular asset items.
These changes were an increase of $254 million (3.9 per cent) in total loans
and securities and a decrease of $247 million (4.2 per cent) in cash holdings.
The change in cash holdings reflected primarily a $229 million reduction in
holdings of gold certificates, resulting from the outflow of gold to foreign coun
tries. However, this Bank’s share in the $2.1 billion decline of the System’s
gold certificate holdings was substantially less than proportionate, due to the
favorable net balance of this Bank in the Interdistrict Settlement Fund.
Liabilities changed little during the year. Federal Reserve notes of this
Bank outstanding increased by only $12 million, although the note circulation
of the other eleven Federal Reserve Banks increased by $325 million. Thus,
there was either a net importation of notes of other Banks into the Second
District or a decline in the demand for currency in this area relative to demand
in other parts of the country.
The capital accounts increased $11 million, or 3.2 per cent, to $368 million,
compared with the $24 million rise in 1957. One factor contributing to the
slower growth of capital accounts was the transfer of $7.8 million from this
Bank’s surplus accounts to the Treasury, pursuant to the provisions of the
Small Business Investment Act of 1958.

STA TEM EN T O F CONDITION

(In thousands of dollars)

A ssets

DEC> 31f 1958

DEC> 31p 1957

Gold certificates ....................................................................................

5,277,366

5,522,298

Redemption fund for Federal Reserve notes ......................................

198,412

182,497

Federal Reserve notes of other Banks..................................................

83,865

95,948

Other ca sh .............................................................................................

60,901

66,423

Total cash

5,620,544

5,867,166

Discounts and advances ......................................................................

11,568

4,695

Acceptances...........................................................................................

49,089

65,689

United States Government securities ..................................................

6,714,791

6,451,005

Total loans and securities

6,775,448

6,521,389

Due from foreign banks*.....................................................................

Uncollected ite m s.................................................................................

1,215,353

1,173,568

Bank premises .....................................................................................

10,313

10,664

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

36,478

55,343

Total other assets

1,262,148

1,239,579

Total A ssets

1 3 ,6 5 8 ,1 4 0

1 3 ,6 2 8 ,1 3 4

Other assets:

★ After deducting participation of other Federal Reserve Banks amounting to

ST A TEM EN T O F CONDITION
(In thousands of dollars)

Liabilities

DEC. 31, 1958

DEC. 31, 1957

6,512,632

6,500,863

Member bank — reserve accounts ......................................................
United States Treasurer — general account ......................................
Foreign* ...............................................................................................
Other .....................................................................................................

5,570,787
35,307
103,755
307,036

5,716,993
68,735
111,163
150,962

Total deposits

6,016,885

6,047,853

Deferred availability cash items ..........................................................
All other ...............................................................................................

755,659
5,375

717,765
5,368

Total other liabilities

761,034

723,133

Total Liabilities

13,290,551

13,271,849

Capital paid in ......................................................................................
Surplus (Section 7) .............................................................................
Surplus (Section 13b) .........................................................................
Other capital accounts..........................................................................

105,850
238,902
Of
22,837

102,215
223,963
7,319
22,788

Total Capital Accounts

367,589

356,285

Total Liabilities and Capital Accounts

13,658,140

13,628,134

Federal Reserve notes ..........................................................................
Deposits:

Other liabilities:

Capital Accounts:

Contingent liability on acceptances purchased for foreign
correspondents^ ...............................................................................

19,119

21,398

Ratio of gold certificate reserves to deposit and Federal Reserve
note liabilities combined ..................................................................

43.7o/o

45.5%

★ After deducting participation of other Federal Reserve Banks amounting to

168,730

245,179

48,680

54,716

t Pursuant to the Small Business Investment Act of 1958, $7,752,044 was repaid
to the United States Treasury; of this amount, $7,318,631 was transferred from
Section 13b surplus account and $433,413 from Section 7 surplus account.
$ After deducting participation of other Federal Reserve Banks amounting to

e a r n i n g s a n d e x p e n s e s . Total current earnings of this Bank declined by
$6 million, or 3.1 per cent, to $188 million between 1957 and 1958, thus
reversing the trend of rising earnings observed during 1956 and 1957. The
major portion of the decline, amounting to $5.1 million, was accounted for
by a reduction in earnings on loans extended by this Bank. Earnings on Govern
ment securities held by this Bank under repurchase agreements declined by $1.9
million, but those on this Bank’s share of securities held by the System Open
Market Account increased by $1.0 million.
Net expenses of this Bank increased by $1.5 million, or 5.5 per cent. The
largest item was an increase in salary and wage payments amounting to nearly
$1.0 million. Expenditures for purchases of equipment and furniture as well as
for repairs and alterations rose by $0.6 million, while this Bank’s regular
contribution to the Retirement System of the Federal Reserve Banks increased
by $0.3 million. Among the items showing a decline from the previous year’s
figures the largest was a $0.4 million reduction in the assessment for the expenses
of the Board of Governors.
Net earnings, after all adjustments, amounted to $160 million, out of which
slightly more than $6 million was paid to member banks as the statutory
6 per cent dividend on outstanding Federal Reserve Bank stock. Of the remain
der, 90 per cent, or somewhat more than $138 million, was transferred to the
Treasury as an interest charge levied by the Board of Governors under Section 16
of the Federal Reserve Act on Federal Reserve notes not covered by gold
certificates. The remaining 10 per cent, or somewhat more than $15 million,
was added to the Bank’s surplus account.

STATEM EN T O F EARN IN GS AND E X P E N S E S FOR
TH E CALEN D AR Y E A R S 1 9 5 8 AND 1957

(In thousands of dollars)

1958

1957

Total current earnings..........................................................................

188,059

194,070

Net expenses..........................................................................................

28,139

26,667

Current net earnings

159,920

167,403

Reimbursement for Fiscal Agency expenses incurred in prior years..

129

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

Total additions

214

Retirement System (adjustment for revised benefits) ......................

2,115

Reserves for contingencies ..................................................................

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

Additions to current net earnings:
Profit on sales of United States Government securities ( n e t )..........

Deductions from current net earnings:

Total deductions

2,170

Net additions or deductions (— ) ........................................................

— 1,956

Net earnings before payments to United States Treasury

159,921

165,447

Paid United States Treasury (interest on Federal Reserve notes) . . .

138,349

143,648

Dividends paid ......................................................................................

6,200

5,838

Transferred to surplus (Section 7) ......................................................

15,372

15,961

Surplus— beginning of y e a r ..................................................................

223,963

208,002

Transferred from net earnings for y e a r ..............................................

15,372

15,961

Surplus Account (Section 7):

239,335

223,963

Paid United States Treasury (pursuant to Small Business Investment
Act of 1958) .....................................................................................

433

Surplus - end of year

238,902

223,963

C hanges in M em bership
During 1958 the total number of commercial banks in this District that are
members of the Federal Reserve System declined from 560 to 531. The net
decrease of 29 banks was the result of mergers of 31 member banks with other
banks and the admission of two State banks to membership. The 531 banks
constitute 86 per cent of all national banks, State banks, and trust companies
in this District and hold 96 per cent of the total assets of all such institutions
in this District.

N UM BER OF OPERATIN G M EM BER AND NONM EM BER BAN KS IN
SECO N D F ED ER A L R E S E R V E D IS T R IC T AT TH E YEA R END
(Exclusive of savings banks, private bankers, and industrial banks)

DECEM BER 31, 1957

D ECEM BER 31, 1958

Type of Bank

National banks
State banks and
trust companies

Members

....................

165
—

Total
★

Per cent
members

100

366*

....................

Nonmembers

85
—

531 ★

—

Members

386 *
174
—
560 ★

Nonmembers

Per cent
members

100

90
—
90

66
—

Includes one national bank located in the V irg in Islands.

CH AN GES IN FED ER A L R E S E R V E M EM B ERSH IP IN
SECO N D D IST R IC T DURING 1958

Total membership at the beginning of the year..........................................................................................

560

Increases:

Newly organized State bank admitted............................................. .. ..................................................
Nonmember State bank admitted...........................................................................................................

1
1

Decreases:

Member banks combined with other members......................................................................................
Member banks combined with nonmembers..........................................................................................
Total membership at the year end

28
3
531

Changes in Directors and Officers
In December 1958, member banks in Group 1
elected Henry C. Alexander, Chairman of J. P. Morgan & Co. Incorporated,
New York, N. Y., a Class A director of this Bank for a term of three years
beginning January 1, 1959. Mr. Alexander succeeded Howard C. Sheperd,
Chairman of the Board of The First National City Bank of New York, whose
term expired December 31, 1958.
At the same time, member banks in Group 1 elected Philip D. Reed, Chair
man of the Finance Committee, General Electric Company, New York, N. Y.,
a Class B director for a term of three years beginning January 1, 1959. Mr. Reed
succeeded Clarence Francis, Director of General Foods Corporation, New York,
N. Y., whose term expired December 31, 1958.
Also in December 1958, the Board of Governors of the Federal Reserve
System redesignated John E. Bierwirth, Chairman of the National Distillers and
Chemical Corporation, New York, N. Y., as Chairman of the Board of Directors
of this Bank and Federal Reserve Agent for the year 1959. At the same time,
Forrest F. Hill, Vice President of The Ford Foundation, New York, N. Y., was
reappointed by the Board of Governors as Deputy Chairman of the Board of
this Bank for the year 1959.
In January 1959, the Board of Governors of the Federal Reserve System
appointed James DeCamp Wise, Chairman of the Board of the Bigelow-Sanford
Carpet Company, Inc., New York, N. Y., a Class C director for the unexpired
portion of the term ending December 31, 1961. Mr. Wise succeeded Franz
Schneider, Consultant of the Newmont Mining Corporation, New York, N. Y.,
whose term expired December 31, 1958.
At the Buffalo Branch of the Federal Reserve Bank of New York, in Decem
ber 1958, Raymond E. Olson, President of Taylor Instrument Companies,
Rochester, N. Y., was designated by the Board of Directors of this Bank as
Chairman of the Board of Directors of the Buffalo Branch for the year 1959.
At the same time, the Board of Directors of this Bank appointed Denton A.
Fuller, President of The Citizens National Bank of Wellsville, Wellsville, N. Y.,
a director of the Buffalo Branch for the three-year term beginning January 1,
1959. He succeeded Leland B. Bryan, President of the First National Bank and
Trust Company of Corning, Corning, N. Y., whose term expired December 31,
1958. The Board of this Bank also reappointed John W. Remington, President
of the Lincoln Rochester Trust Company, Rochester, N. Y., a director of the
ch a n g e s

d ir e c t o r s .

Branch for the three-year term beginning January 1, 1959. Also in December
1958, the Board of Governors of the Federal Reserve System appointed Whit
worth Ferguson, President of the Ferguson Electric Construction Co., Inc.,
Buffalo, N. Y., a director of the Buffalo Branch for the three-year term beginning
January 1, 1959. Mr. Ferguson succeeded Ralph F. Peo, Chairman and Presi
dent of Houdaille Industries, Inc., Buffalo, N. Y., whose term expired Decem
ber 31, 1958. In January 1959, the Board of Governors appointed Cameron
G. Garman, fruit grower of Burt, Niagara County, N. Y., a director of the
Buffalo Branch for the unexpired portion of the term ending December 31, 1960.
Mr. Garman succeeded Daniel M. Dalrymple, Manager of Pomona Fruit Farms,
Appleton, N. Y., who resigned from the Buffalo Branch board on January 9, 1959.

c h a n g e s in o f f i c e r s .
George Garvy, formerly Senior Economist in
Research and Statistical, was appointed Adviser, effective May 16, 1958. The
new position of Adviser, equivalent to the position of Assistant Vice President,
was created at the time to handle special assignments over the entire range of
the Research and Statistical function’s responsibilities.
Alan R. Holmes, formerly Special Assistant in the Research Department,
was appointed Manager and assigned to the Research Department, effective
May 16, 1958.
Robert G. Link, formerly Special Assistant in the Research Department,
was appointed Manager and assigned to the Research Department, effective
May 16, 1958.
Frank W. Schiff, formerly Chief of the Domestic Research Division, Research
Department, was appointed Senior Economist, Research and Statistical, effective
May 16, 1958.
Arthur I. Bloomfield, Senior Economist, Research and Statistical, resigned
as an officer of the Bank, effective August 31, 1958, to become Professor of
Economics at the University of Pennsylvania. Mr. Bloomfield had been with
the Bank since December 1, 1941, and Senior Economist since June 1, 1953.
From April 1957 to April 1958, Mr. Bloomfield had been on a leave of absence
of one year during which he was engaged in a special study project in Europe
under a Rockefeller Foundation award.
G. Morgan Browne, formerly Emergency Planning Assistant, was appointed
Manager, effective August 8, 1958, and assigned to the Emergency Planning
Department, a newly created department in the Accounting, Planning, Building

Operating, and Service function. Mr. Browne died on January 14, 1959. He
had been a member of the Bank’s staff since August 1942.
Thomas O. Waage, Assistant Vice President, formerly assigned to Cash
(Cash and Cash Custody), was assigned temporarily to emergency planning
work, effective August 8, 1958. Effective January 16, 1959, Mr. Waage was
reassigned to Cash (Cash and Cash Custody).
Tilford C. Gaines, Manager of the Securities Department, returned to the
Bank September 30, 1958, following a leave of absence of six months granted
under the Bank’s Program for Advanced Education of Personnel to enable him
to complete his dissertation for a doctoral degree.
Edward G. Guy, formerly Assistant Counsel, was appointed Assistant General
Counsel, effective January 15, 1959.
John P. Ringen, formerly Chief of the Credit Division, Credit and Discount
Department, was appointed Manager, effective January 15, 1959, and assigned
to the Bank Examinations Department.
Thomas C. Sloane, formerly an Attorney in the Legal Department, was
appointed Assistant Counsel, effective January 15, 1959.
Lawrence E. Quackenbush, Assistant Vice President, in addition to his
assignment to Accounting, Planning, Building Operating, and Service, was
assigned to Emergency Planning, effective January 16, 1959.
Fred W. Piderit, Jr., Manager, formerly assigned to the Bank Examinations
Department, was assigned, effective January 16, 1959, to the Bank Relations
Department, to succeed A. Chester Walton.

m e m b e r o f f e d e r a l a d v i s o r y c o u n c i l — 1959 . The Board of Direc
tors of this Bank selected John J. McCloy to serve during 1959 as the member
of the Federal Advisory Council representing the Second Federal Reserve Dis
trict. Mr. McCloy is Chairman of the Board of The Chase Manhattan Bank,
New York, N. Y. He replaced Adrian M. Massie, Chairman of the Board of
The New York Trust Company, who had served as a member of the Council
for the past three years.

Directors of the Federal Reserve Bank of New York
Term expires Dec. 31

D IR EC T O R S

Class Group

1961

1959

1960

J o h n E. B ie r w ir t h , Chairman, and Federal Reserve A g en t ...............
Chairman, National Distillers and Chemical Corporation, New York, N. Y.

1959

F o r r e s t F . H i l l , Deputy Chairman...................................................
Vice President, The Ford Foundation, New York, N. Y.

1960

Ja m e s D

1961

H enry C . A

lexander

.....................1961
................................................................................................................................................1961

Chairman, J. P. Morgan & Co. Incorporated, New York, N. Y.
C h arles W . B i t

ze r

.....................1959
.....................................................................................................................................................195 9

Chairman, City Trust Company, Bridgeport, Connecticut
C yrus M . H

ig l e y

.....................1960
.......................................................................................................................................................... 1 9 6 0

President and Trust Officer, The Chenango County National Bank
and Trust Company of Norwich, Norwich, N. Y.
P h il ip D. R e e d ...........................................................................................................
Chairman, Finance Committee, General Electric Company, New York, N. Y.
L a n s in g

S h i e l d ...............................................................................................................

President, The Grand Union Company, East Paterson, N. J.
A u gustus C . L o

n g

............................................................................................................

Chairman, Board of Directors, The Texas Company, New York, N. Y.

eC a m p

is e

.........................................................................................................

Chairman of the Board, Bigelow-Sanford Carpet Company, Inc., New York, N. Y.

D IR EC T O R S — B U FFA LO BRANCH
R a y m o n d E. O l s o n , Chairman ....................................................................................... 1959
President, Taylor Instrument Companies, Rochester, N. Y.
V e r n o n A l e x a n d e r ........................................................................................................................................ 1959
President, The National Bank of Geneva, Geneva, N. Y.

E. P e r r y S p i n k .................................................................................................................................................. 1960
President, Liberty Bank of Buffalo, Buffalo, N. Y.
C a m e r o n G . G a r m a n ....................................................................................................................................1960
Fruit Grower, Burt, Niagara County, N. Y.
W h it w o r t h F e r g u s o n ................................................................................................................................. 1961
President, Ferguson Electric Construction Co., Inc., Buffalo, N. Y.
D e n t o n A . F u l l e r ........................................................................................................................................ 1961
President, The Citizens National Bank of Wellsville, Wellsville, N. Y.
J o h n W . R e m i n g t o n ...................................................................................................................................... 1961
President, Lincoln Rochester Trust Company, Rochester, N. Y.

M EM BER OF FED ER A L AD VISO RY C O U N C IL — 1959
J o h n J. M c C l o y ................................................................................................................................................ 1959
Chairman of the Board, The Chase Manhattan Bank, New York, N. Y.

Officers of the Federal Reserve Bank of New York
A l f r e d H a y e s , President
W i l l i a m F . T r e i b e r , First Vice President
H a r o l d A . B i l b y , Vice President
J o h n E x t e r , Vice President
M a r c u s A . H a r r is , Vice President
H e r b e r t H . K i m b a l l , Vice President
H a r o l d V . R o e l s e , Vice President, and

Economic Adviser*

R o b e r t V . R o o s a , Vice President
R o b e r t G . R o u s e , Vice President
W a l t e r H . R o z e l l , J r ., Vice President
T o d d G . T i e b o u t , Vice President, and

General Counsel

V a l e n t i n e W i l l i s , Vice President*
R e g i n a l d B . W i l t s e , Vice President

J o h n J. C l a r k e , Assistant General Counsel

E d w a r d G . G u y , Assistant General Counsel

C h a r l e s A . C o o m b s , Assistant Vice President
A n g u s A . M a c I n n e s , J r ., Assistant Vice President
H o w a r d D . C r o s s e , Assistant Vice President
S p e n c e r S. M a r s h , J r ., Assistant Vice President
F e l i x T . D a v is , Assistant Vice President
L a w r e n c e E . Q u a c k e n b u s h , Assistant
N o r m a n P. D a v is , Assistant Vice President
Vice President
G e o r g e G a r v y , Adviser
H o r a c e L . S a n f o r d , Assistant Vice President
J o h n J. L a r k in , Assistant Vice President
F r e d e r i c k L . S m e d le y , Assistant Vice President
T h o m a s O . W a a g e , Assistant Vice President
W il l ia m H . B r a u n , J r .,

W il l ia m F . P a l m e r ,

Manager, Government Bond and
Safekeeping Department

Secretary, and Assistant Counsel
H a r d in g C o w a n ,

Assistant Counsel

F r a n k lin E. P e te r s o n ,

Manager, Cash Department

T i l f o r d C . G a in e s ,

Manager, Securities Department

F r e d W . P i d e r i t , J r .,

Manager, Bank Relations Department

C lift o n R. G ord on ,

Assistant Counsel

J oh n F. P ie r c e ,

Chief Examiner

W illia m A . H e in l,

Manager, Security Custody Department
A la n R . H o lm e s ,

Manager, Research Department

E v e r e t t B. P o s t ,

Manager, Personnel Department
C h a r le s R . P r ic h e r ,

Manager, Collection Department

J o h n P. J e n s e n ,

Manager, Accounting Department

J o h n P. R in g e n ,

Manager, Bank Examinations Department

P e t e r P. L a n g ,

Manager, Foreign Department

T h o m a s J. R o c h e ,

Foreign Exchange Officer

R o b e r t G . L in k ,

Manager, Research Department

W a l t e r S. R u s h m o r e ,

Manager, Cash Custody Department

C a r l H . M adden,

Manager, Public Information Department,
and Assistant Secretary

F ra n k W . S c h iff,

Senior Economist
T h om a s C . S lo a n e ,

W illia m E. M a r p le ,

Manager, Credit and Discount Department

Assistant Counsel
K e n n e t h E. S m a l l ,

H e r b e r t A . M u eth er,

Manager, Building Operating Department
D o n a ld C . N ile s ,

Manager, Savings Bond Department
G e o r g e C . S m it h ,

Manager, Planning Department
A r th u r H. N oa,

Manager, Check Department
R o b e r t W . S to n e ,

Manager, Securities Department

Manager, Service Department
G r e g o r y O ’ K e e f e , J r .,

A . C h e s te r W a lt o n ,t

Assistant Counsel

Manager, Bank Relations Department
D on ald

J. C a m e r o n , General Auditor

♦Retired March 1, 1959.
tRetired February 1, 1959.

O F F IC E R S — B U FFA LO BRANCH
I n s l e y B. S m it h , Vice President
H a r o l d M . W e s s e l , Assistant Vice President
G e o r g e J. D o l l , Cashier

G e r a l d H . G r e e n e , Assistant Cashier
M . M o n r o e M y e r s , Assistant Cashier

IN D U STRIA L A D V ISO R Y CO M M ITTEE
W i l l i a m H . P o u c h , Chairman*
Chairman of the Board,
Concrete Steel Company,
New York, N. Y.
A r t h u r G . N e l s o n , Vice Chairmant
Chairman of the Board,
A. G. Nelson Paper Company, Inc.,
New York, N. Y.

* Died on February 16, 1959.
t Term of office expired on February 28, 1959.
t Died on December 28, 1958.

E d w a r d J. N o b l e , $
Chairman of the Finance Committee,
American Broadcasting-Paramount Theatres, Inc.,
New York, N. Y.

Full text of Annual Report of the Federal Reserve Bank of New York : Annual Report : 1958

FRASER