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LIQUIDITY
its impact on SPENDING
and its implications for
STABILITY
The Thirty-fourth
FEDERAL
Annual
Report
the
BANK
RESERVE
OF PHILADELPHIA
of
...
1948
CONTENTS
Page
Liquidity,
Spending and Federal Reserve
Policy
Credit
1
...........................
and the Money Supply
.........
S
Spending and the Flow
of Income ........
16
Production
22
and Prices
..................
Federal. Reserve Bank
of Philadelphia.....
26
Directors
29
Officers
...........................
.............................
Appendix
...........................
30
31
To Member Banks in the
Third Federal Reserve District:
stability at high levels of produchas long been the
tion, employment, and income
business
Government.
Yet it beand
goal of
during
1948 that the
came increasingly apparent
from
inflation
is
to
stability
a precarious
step
its
one. One of the many factors hindering
large
liquid
amount of
achievement was the
funds in the hands of the public-a
condition
Economic
which has prevailed since the war.
The public's large holdings of money and other
liquid assetscontributed to a heavy volume of
spending. And inasmuch as industry could not
always produce rapidly enough to meet the demand for goods and services,this situation helped
to sustain inflationary pressures, especially during the second and third quarters of the year.
Anti-inflationary policies were employed within
the limits imposed by maintaining a stable Government security market. The Treasury's large
cash surplus, rising short-term interest rates, and
other anti-inflationary policies were successful
in reducing somewhat the volume of money held
by the public.
Although
inant
inflationary
forces were still
dom-
during
1948, more and more soft spots
in
appeared
the economy as the year progressed.
By the end of the year some observers believed
that we were on the verge of stability, others
thought we had already entered a recession, and
a few believed it quite possible that inflationary
dangers were
not over. The year's experience
suggested, however, that liquid assets may not
have the
stabilizing influence that had been generally expected.
The questions raised by this problem of increased liquidity are likely to remain for some
time to come. For without a decline in money
supply or repayment of nonbank-held Government debt, liquid assetsof individuals and businessesdo not disappear. They may be shifted
from one holder to
another, but they remain with
us and continue to raise problems for the economy as a whole, and particularly for the monetary authorities.
I
President.
Liquidity, Spending, and Federal ReservePolicy
To achieve a transition from inflation to stability, we must
have the proper balance between the flow of money and the flow
of goods and services. If there is too much money and too few
goods,the problem is one of damping down spending to prevent
rising prices and inflation. If, however, there is too little spending and goods are glutting the market, the problem is to stimulate
the money flow to check falling prices and prevent a depression.
The achievement of stability requires flexibility-action
to restrict spending when it is excessiveand measuresto bolster spending when our economy is tending to run down from lack of
demand.
The factors influencing the total volume of spending are
numerous, but they all operate either through changes in the
money supply or its rate of circulation. Of the factors influencing the volume
of spending, the monetary authorities are particularly concerned with the actual and potential supply of money.
They have no means
of influencing directly the rate at which
holders choose to circulate
money. Moreover, it was primarily
the great wartime growth in the money supply and in assetsreadily
convertible into money which created the problem of inflation and
which is making the achievement of stability so difficult.
The
the money supply, "near
money" assets, and spending are the result of countless decisions.
Since payments
is
are made in money, the volume of spending
influenced greatly by
conusually
the available money supply,
sidered to be currency plus commercial bank deposits. An increase
in
in the money
supply is usually accompanied by an increase
spending and a decrease by a reduction in total spending. This is
not always true, however. Money is desired not only as a means of
payment but also for building up a reserve of buying power.
There is
a widespread desire to accumulate a reserve fund which
will provide protection
against unforeseen emergencies - the
inter-relationships
between
1
day. " Others may accumulate a reserve to take
proverbial "rainy
better
buying opportunities
expected in the near
advantage of
When we build up our money reserves, for whatever
future.
is a corresponding increase
reason, spending is reduced unless there
When
in the money supply.
as a group these money reserves are
drawn down the tendency is to increase the total volume of spending even though there is no change in the total money supply.
The demand for a reserve of buying power can be satisfied by
assetsother than money. To serve adequately as a reserve against
contingencies, however, an assetmust be convertible into money
at such times as additional. funds may be needed. The ability of
the holder to convert assetsinto money without loss of time or
inan important
principal-usually referred to as liquidity-has
fluence on the selection of assetsto be held as a reserve fund.
There are certain types of non-monetary assets,such as United
States savings bonds, Treasury bills, bankers acceptances, which
are so liquid that they are sometimes referred to as "near money. "
From "near money" assetsat one extreme there is a whole series
of gradations of liquidity to assetswhich have no ready market
and which frequently cannot be converted into cash without subIn
stantial effort and possible loss of both time and money.
general, the net yield of assetsvaries inversely with their liquidity,
so that liquidity usually is acquired only by sacrificing some yield.
Thus, every individual and businessfirm is confronted with the
problem of arranging assetsin such a way that money may be
obtained as needed and yet so as to provide the maximum income
consistent with safety and liquidity.
There has been a substantial growth in cash and assets
with
a
high degree of liquidity, especially during the war period.
Total
holdings
private
of money, Government securities, and savings and
loan association sharesincreased about $168 billion from the
end of
1939 to the end of 1947. Of this total, about $65 billion was in
currency and demand deposits, about $29 billion in time deposits,
$69 billion in United States Government securities, and $S billion
in shares in savings and loan associations. Government
security
holdings have become particularly important, the gross direct Federal debt accounting for 62 per cent of total. public and private
debt at the end of 1947, the latest date for which data are
available,
as compared to 23 per cent at the end of 1939.
2
The volume
by the
of spending, then, is affected not only
money supply in active circulation, but also by the total reserve
of buying power which is being held for use at such times as the
holders may
choose. The accumulation
of idle money balances
from
withdraws money
the spending stream and tends to decrease
total expenditures.
An increase in idle balances is reflected in a
decline in
the average rate of circulation
of the total money
supply. On the other hand, the return of idle balances to active
circulation tends to increase the velocity of circulation
and swell
the spending stream even though there is no change in the total
money supply.
Liquid assetsother than money-the potential money supply
-may also influence the volume of spending. To the individual
holder,
of course, they represent a source of buying power which
may be drawn on as needed. But the sale of such assetsto some
other individual or businessfirm does not increase total spending
power. The seller has more money to spend but the buyer has
less. Total. spending is
liquid
affected only to the extent that
assetsinfluence the rate of use of money balances already held or
result in changesin the supply of money available for expenditure.
It is possible that
a large volume of liquid assets may tend to
increase
by
spending
causing the money supply to circulate more
rapidly.
As liquid assets become larger in relation to expected
needs, holders may spend a larger proportion of their current income. But the effect of liquid asset holdings on the willingness
of consumers and businessmen to spend is not likely to be constant. For example, if
idle currency
prices are expected to rise,
and deposit balances may be brought into use, increasing spending
and the average rate
On
of turnover of the total money supply.
the other hand, idle balances
be
increased
when prices
are likely to
are expected to fall in
be in a better
order that the holders will
position to take
advantage of the better buying opportunities
which are anticipated.
Such withholding
of money from the
spending stream tends to decrease total spending and the average
rate of turnover
of the money supply.
The volume
of spending may be influenced also through the
effect of liquid assetson the money supply. As indicated pre3
nonbank holders has
viously, the shifting of such assetsamong
but
if liquid assetsother
no effect on the total supply of money,
banking
into
the
system there
or out of
than money are shifted
deposits.
And
in
a change in
total
is a corresponding change
in the
bring
tends
to
about
a
similar
change
the money supply
however,
It
is
that as a
apparent,
total volume of spending.
liquid assetsinto money only to
group, holders can convert their
the extent the banking system is able and willing to create the
additional currency and deposits.
The liquidity of assets,that is the ability of holders
Federal
Reserve
and to convert them into money, ultimately depends on
liquidity
Federal Reserve policy. A general movement from
into
assets
money is possible only if the Federal Reserve Banks
them
or are willing to supply the reserves that compurchase
mercial banks must have to back the deposits created when they
purchase them. The high degree of liquidity of Government
securities is due mainly to the willingness of the Federal Reserve
Banks to buy them at the support prices. In reality, therefore,
the liquidity of assets, and not merely their shif tability
among
nonbank holders, is determined by the policies of the commercial
banks and in the last analysis by the policies of the Federal Reserve
System.
The Federal Reserve'sinfluence over the volume of spending
dependslargely on the liquidity it imparts to assets. If the System
stands ready to convert certain assetsinto money in unlimited
quantities on terms which result in little, if any, loss to holders,
such assetsbecome practically the equivalent of cash. But the
supply of money which can be created at the initiative of the
public is limited only by the amount of such assetsheld. Thus,
the Federal Reserve makes assetsmore liquid only by sacrificing
some control over the money supply and spending.
The large growth in Government securities has greatly increasedthe importance of public debt management. If the structure of the debt, as to maturity, interest rate, and so on, conforms
to the preferences of those who are accumulating liquid assets
shifting of the debt among ownership groups will, be held to a
minimum. If it does not, selling pressure will force down the
4
price of some securities.
Such price declines can be prevented
by
having
only
some agency such as the central bank stand ready
to buy whatever amounts are necessary to support existing prices.
But such purchases increase the
money supply.
The large volume
of Government securities poses these alternatives: (1) to manage the debt structure so that it conforms to
the preferences of liquid asset holders, thus removing the cause
for widespread
(2) to permit such price
shifts in ownership;
changes as are necessary to adjust the market supply to market
demand;
or (3) for the banking system to stand ready to purchase, at stable prices, the securities the public is unwilling
to
hold. Such
purchases, however, add to the money supply and
tend to raise the prices of other goods and services. Adjustments
of the debt structure to the preferences of liquid asset holders
should be a major objective of debt management, but, even so,
Thus, the monetary
perfect adjustment is not to be expected.
likely
frequently
authorities are
with the decision
to be confronted
as to whether it is best to stabilize the price of certain liquid
assets,such as Government securities, or to put primary emphasis
on efforts to stabilize the prices of goods in general.
Credit and the MoneySupply
One objective of Federal Reserve policy in 1948 was to maintain a stable market for Government securities. But while the support of Government security prices provided liquidity for banks
and the economy at large, it made more difficult the achievement
I
OI the System's other major objective-checking
inflation.
As
forces were at
a result, strong inflationary
and anti-inflationary
work at the same time-some
acting to increase the money supply,
others to reduce it.
Supporting
the bond
I'larket
.
To maintain prices
levels, the System
at the support
a,
tý of
.,
a'-Leu
aggressively
curing
two
SU Lai%-u Y..,.,..,
--1 1_vv
c Al1 1'
1_
1_
"1
.
Llll.
_ l.__-1_.
ülaj
-jr--
-!
1InnY
--_--ICU
Vy Dona liquiaatlon.
in the eariy
banks
investors were still selling large amounts followand
other
ing the
1947.
Despitesudden drop in the support level near the end of
the statements of Federal Reserve officials that support
of Government
securities would continue for the "foreseeable
-.
uv
i
LJU11l.
L 11tjulu4tL
u".
5
Ann
-
--
----
,
---.
I
THE MONEYSUPPLYAND WHAT INFLUENCED IT
UNITED
STATES
1948
S
THE
PRIVATE
DESPITE
MONEY
THESE
SUPPLY
DECLINED
EXPANSIONARY
BY
9.9
BILLION
INFLOW
OF
AND
OF
OTHER
THESE
MISCELLANEOUS
CONTRACTIVE
5.9
1
GOLD,
RISING BANK LOANS
BECAUSE
0
194B.
FORCES!
FEDERAL RESERVE PURCHASES OF LONG TERM
GOVERNMENTBONDS FROM NON-BANK INVESTORS,
AN
N
0
DURING
1
1.5
1 BILLIONSY
4.4
FACTORS.
0
FORCES!
THE TREASURY
EITHER
USED ITS SURPLUS
TO
PAY OFF GOVERNMENT
SECURITIES
HELD
BY
BANKS, OR KEPT THE FUNDS IDLE IN DEPOSITS,
7.7
BILLIONS
NON-BANK
INVESTORS
BOUGHT ELIGIBLE
BONDS
AND, ATTRACTED
BY HIGHER
RATES, BOUGHT
SHORT-TERM
SECURITIES
GOVERNMENT
FROM
THE BANKING SYSTEM.
5.7
-
future, "
further drop
some investors apparently were fearful of a
in prices. In March, heavy
the reserve
squeezed
tax payments
positions of banks, forcing them to sell, some more Government
bonds. By
mid-year the volume of bonds being bought by the
System had diminished; but
began
a second wave of liquidation
in July and lasted
While
some selling was still
until November.
being done by investors
future of support
concerned about the
prices, the principal sellers were insurance companies and other
nonbank investors disposing of their Governments to obtain funds
for more
This
profitable lending to individuals and businesses.
selling was supplemented somewhat in September by banks raising funds
However,
to meet the higher reserve requirements.
toward the end of the year, bond prices rose so that the Federal
Reserve was
had apparently
able to sell some bonds. Investors
interpreted
election results as an indication that support prices
More fundamental, however, was the fact
would be maintained.
leveling
loans
that
and other alternative outlets for funds were
Government
banks
off, so that
and other investors turned more to
securities.
The bond support
In buying
program was inflationary.
from
billion
bonds
almost $6
nonbank
of long-term Government
investors the Federal
Reserve System generated directly an equivalent amount of new money. As this money was deposited, it provided member banks with a volume of reservessufficient to support
a further large expansion of deposits. In buying Government
bondsfrom
commercial banks the System added that much more
bond
to bank reserves. All in
all, the policy of supporting the
market tended directly to increase the money supply by almost
$6 billion and, indirectly through its addition to reserves, made
possiblea further expansion of several times that amount.
Gold inflow; Additional
by a
money and reserves were generated
bank
Federal
billion
$1'/2
inflow of gold. Inasmuch as the
lending
Reserve System has no control over this, it was fortunate that the inflow
was slowing up during 1948. Our export
surplus was declining
foreign countries
and our assistance to
reduced the
necessity for them to make payments to us in gold.
7
Bank lending, too, slowed down during 1948, rising only twobefore. A slackening in the demand
thirds as much as in the year
for credit was apparent in all major types of bank loans, parBusiness loans, where
ticularly in the last quarter of the year.
leveling off in prices
down
the
the most, reflected
activity slowed
inventory
in
the
accumulation
and plant
rate of
and a slackening
less
Mortgages
increased
in
rapidly
as many
areas.
expansion some
demands
for
houses
met
and
many
other
were
the
more
urgent
of
The slackening
potential buyers were priced out of the market.
in consumer lending reflected, among other things, the weakening
of the market for many consumers' durables.
The supply of credit generally was becoming tighter. Banks
themselvescontinued to exerciseconsiderable caution in granting
credit of all kinds. Rates on many business loans were raised,
other terms were tightened, and more applications were turned
down. Banks, lessattracted by the rates on guaranteed mortgages
or finding themselves "loaned up, " became more reluctant to
make mortgage loans. They required larger down payments,
shorter maturities, and stricter appraisals.
Another reason for the leveling off in bank loans was the
increasing use of other sources of funds. Businesses themselves
continued to supply out of earnings a large proportion
of the
funds for capital expansion and they floated over $5.9 billion
of
insurance
securities for new money. Other lenders, particularly
And this expansion
companies, expanded their lending activity.
lending
in
of nonbank
was,
many cases, as inflationary
as the
expansion of bank loans. For every dollar's worth of Government
lenders
securities that insurance companies and other institutional
sold to the Federal Reserve in order to make loans, they added
directly one dollar to the money supply and made possible
an even
greater expansion of the money supply on the basis of newly
created reserves.
These three factors-Federal
Reserve purchases of long-term
bonds from nonbank investors, the inflow of gold, and the
expansion of bank loans-plus
other miscellaneous factors tended
to increase the money supply by $12%2 billion.
8
Restraining Fortunately, the monetary and fiscal authorities had
themoney some weapons available to combat these inflationary
supply
forces. They had no direct control over the spending
of money, but they could reduce the liquidity of certain assetsheld
by the public. Among
other things, they could induce people to
give up money for "near money" by pushing the sale of United
Statessavingsbonds. Because
savings bonds can be redeemed on
demand after
a short waiting period, and without loss of value,
they are very close to being money. But the public apparently does
not think of them as such; people are reluctant to draw on their
holdings of savings bonds
except for major expenditures. Consequently, the amount by which sales of savings bonds to nonbank investors
exceeded redemptions was directly anti-inflationary, reducing the volume of readily spendable money.
The most
Treasury's cash
effective weapon, however, was the
surplus.
Despite reduced tax rates, higher exemptions, and
other changes designed to lighten the tax burden, good business
and high incomes kept the Treasury's cash receipts at a high level.
And while the Government,
like every other segment of the
economy, was spending tremendous amounts of money it was,
nevertheless, spending less than it was taking in. The result was
a cash surplus of $8 billion, most of it acquired in the first quarter
of the year.
The raising
of this money was a directly anti-inflationary
force. For
when the Treasury collected the taxes, it drained off
spendingpower from individuals and businesses. And the authorities pursued
a consistent policy of preventing these funds from
being returned
either to the public or the commercial banks,
using most of the funds to retire Federal Reserve Bank-held debt
or holding them idle in Treasury deposits.
The Government
security holdings of the Federal Reserve
hanks
were reduced not only by cash retirements, but also by
salesof short-term issues to banks and other investors. This
was made possible by a continuation of the rising trend in shortterm interest rates. The
yield on Treasury bills rose from .952
to 1.16 during the
The
year.
rate on certificates of indebtedness
9
January from 1 to 11/8 per cent, and in the fall of
was raised in
In keeping with this policy, the Federal
the year to 1 I/4 per cent.
Reserve Banks also raised their discount rates at about the same
Alfrom 1 to 11/4 per cent, then to 1 V2 per cent.
time-first
from
Banks,
little
the
the Reserve
though banks were-borrowing
rates
discount rates had to be kept in line with other short-term
lest this be a source of cheap credit. Moreover, the increases in
discount rates had the psychological effect of demonstrating
inflationary tendencies. Higher short-term
official concern over
into
the private credit field where loans became
rates spread over
harder
to obtain.
more expensive and
by two increases in reserve requirements
of
banks, involving $500 million
each
reserve
city
member
central
interest rates
time, the Treasury surplus and rising short-term
bank
reserves and deposits
exercised a substantial restraint over
during the first half of the year. But the prospects during
the
second half were for renewed vigorous expansion of bank credit
and the money supply. The major weapons of the monetary
authorities by that time had been pretty largely exhaustedthere would be little Treasury cash surplus; bank reserve requirements were practically at their legal limits; and, inasmuch as banks
were obtaining only a small part of their additional reserves by borThe
rowing, the discount rate had practically no direct effect.
Federal Reserve System accordingly asked Congress for the power
to raise reserve requirements against demand deposits an additional
10 percentage points, and against time deposits an additional
4 percentage points. Congress granted the Board authority
to
increase requirements 4 percentage points and 11/2
percentage
The Board
points against demand and time deposits, respectively.
took action under this authority, effective in September, raising
requirements against time deposits to their new legal maximum
and against demand deposits by 2 percentage points, involving
$2 billion of reserves in all. In order to meet these requirements,
banks sold a large volume of Government securities. But they did
not meet all of the additional requirements through resort to
Federal Reserve credit, and the higher reserve requirements
had
some restrictive effect.
Supplemented
10
Regulation
W Although by no means the most important of the
System's anti-inflationary
weapons, the power to
specify limits on consumer credit terms is its closest approach to a
direct influence
largest segment
over consumer expenditures-the
of total spending. By specifying minimum down payments and
maximum periods over which credit may be repaid, the System
can exercise some influence over the volume of consumer credit
those
and the demand for consumers' durable goods, particularly
in short
Stricter terms necessarily require more saving
supply.
before purchases
are made and during the early period of consuming the goods. Those unable or, unwilling
to do this saving
are prevented from entering the market for such goods. Consumer credit controls thus help to counteract the normal tendency
of consumers to buy extensively on credit in booms and to pay
off (or default on) their debts in depressions.
During three-fourths
of the year 1948, consumer credit controls were absent. The total. volume of such credit rose by $1.4
billion during
that period, reaching a record peak of more than
$14.8 billion. The fastest
for the
expansion took place in credit
After conpurchase of durable goods, particularly
automobiles.
trols had been removed late in 1947, there was a general relaxation
of terms. Down payments for new automobiles were still large,
but
payments generally were spread over twenty-four
months.
Major
appliances were usually bought with 10 per cent down and
twelve to eighteen
months to pay. By mid-1948, credit was exConpanding rapidly and the prospects were for further growth.
sumers were expected
heavily,
buying
apparently
to continue
willing to spend beyond their incomes to do so. Accordingly,
the Federal Reserve System
requested, and received, renewed
authority over consumer instalment credit.
Regulation W
was reimposed in September, requiring a onethird down
for the purchase of automobiles and onepayment
fifth for
the purchase of eleven other durable items. Credit of
less
than $1,000 was required to be paid off within fifteen months,
and amounts from $1,000
to $5,000 were limited to eighteen
months. In the last
quarter of the year, under the renewed con11
to rise, almost reaching $16
trols, consumer credit continued
But
compared with the previous
billion by the end of the year.
One reason was
slackened
markedly.
of
growth
the
rate
year
in the case of
influences,
as
seasonal
undoubtedly the return of however,
the
Automobiles,
experiencing
were
also
used cars.
buyers'
appliances.
as
were
major
to
markets,
gradual return
Regulation W undoubtedly played a part, but it is impossible to
determine how much.
during
Third Dis- Banking developments in the Third District
forces
trict banking 1948 reflected the restraining
which were operMember bank reserves were under
trends
ating nationally.
holdings of Government
pressure, loan expansion slowed up,
decreased,
demand
deposits
and
were off slightly.
securities
There is one important difference, however, in that member
by the
bank reserves in this district were influenced significantly
interdistrict flow of funds. The major source of reserve funds
was a gain of $925 million in private commercial and financial
This is the largest gain from
transactions with other districts.
this source since 1945, when interdistrict transactions resulted in
a $944 million inflow of funds. The net inflow of funds represents the combined effect of a great variety of commercial
and
financial transactions.
A significant factor, for example, is the
purchase of Government securities by the Federal Reserve System
These funds are
which puts funds into the New York market.
then redistributed via commercial. and financial transactions,
a
part of them finding their way into this Federal Reserve District.
Heavy purchases were made by the Federal Reserve System in
supplying member banks with reserve funds during the war and
more recently in supporting the price of Government
securities.
A return of currency from circulatoin was another factor tending
to build up reserve funds.
The effect of the inflow of funds to the District was
nearly
offset, however, by a drain of over $900 million due to Treasury
operations. The Treasury takes funds out of the market by tax
collections and receipts from the sale of new securities. It puts
funds into the market when it pays its expensesand redeems its
securities for cash. In this district, there has been a substantial
12
excessof Treasury receipts over disbursements during
post-war periods.
Changes in Member
Third
Bank
Items
Reserves and Related
Federal Reserve District
(Millions
of dollars)
1947
1948
148
+ 751
+1
587
-
+9
+ 925
Sourcesof funds:
Reserve Bank credit extended in district........
Interdistrict
commercial
transfers
Mint gold purchases,
..............
net .....................
Treasury
operations
........................
.
Total
................................
Usesof funds:
Currency demand
.........................
Member bank reserve
deposits
Other deposits"
................
at Reserve Bank ..............
Other Federal Reserve accounts.
...............
Total
................................
i
the war and
}
+
+2
ý
1
-{912
-
17
-ý
23
34
49
-
+
61
84
-ý
23
+
17
1
Resourcesof district member banks totaled nearly $7.1 billion
at the end of the year. This represents practically no change in
the total. as increasesin cash assetsand loans were nearly sufficient
to offset the decrease in investments. Cash assetswere up $32
million and represented about 23 per cent of total resources at
the end of the year. Member bank loans amounted to $1.7
billion
at the end of the year-a gain of $160 million in 1948
as compared to about $319 million in 1947. Nearly all of the
increasein loans
was accounted for by the rise in business, real
estate,and consumer loans. Business loans, which at the end of
the year made up about 44 per cent of total member bank loan
portfolios, increased $52 million. This was substantially lessthan
the $158 million rise in the previous year. Real estate loans on
residential property were up $53 million, and instalment loans to
individuals
gained $56 million. The expansion in real estate and
instalment loans
but not as much as in the caseof
businessloans. slowed up also
13
1942
1943
1944
EARNINGS
1945
1946
1947
AND
PROFITS
1948
-j
TOTAL
EARNINGS
EXPENSES
NET PROFITS
AFTER
TAXES
DIVIDENDS-'
The decrease in investments was the big factor tending to
pull down bank resources. Member bank holdings of Government securities in this district dropped $201 million, bringing
the total decline since the end of 1945 to about $1,362 million.
The cash redemption
directly and indiof Government securities,
rectly, was the major factor tending to reduce member bank
investments. Of the
billion redeemed in
national total of $8.3
1948, a small part was held by the commercial banks. These cash
redemptions resulted in a direct decrease in Government security
holdings. A
drain on
more important factor, however, was the
reserves which resulted from the redemption of about $5.5 billion
of securities held by the Federal Reserve System. To replenish
reserves, both member and nonmember banks sold some of their
Government securities.
There was little change in the maturity distribution of Government security portfolios of member banks in this district.
Over $100 million of Treasury bills were added to member bank
holdings as the
rise in short-term rates made them more attractive.
Holdings of short-term bonds decreased,however, with the result
that the proportion of Governments maturing or callable within
five years changed little. There
was a slight increase in the proportion of Governments maturing or callable within 5-10 years,
and a slight decreasein the over-l0-year group. Member bank
holdings
of securities other than Governments showed little change
in this district.
Earnings
of member banks continued to rise despite a slight
decline in
largely because of the continued shift
earning
from Government assets
Total earnsecurities to higher yielding loans.
ings went up to $167 million-8
1947,
and despite
per cent over
a further rise in expenses,
in net
increase
banks
most
reported an
current earnings before income taxes. Net profits after taxes
showed little change in the
aggregate despite a substantial increase
in transfers
to valuation reserves under the new ruling with respect
to reserves for bad debt losses
on loans.
15
Spending and the Flow of Income
The year 1948 ended with $.9 billion less money in the hands
beginning of the year.
of individuals and businessmen than at the
Total spending increased, however, as the money supply was
The turnover of demand deposits (in
being used more rapidly.
New
York City) averaged 19.2 in 1948 as
leading cities outside
in
18.0
1947,
and once more was approximating
compared with
the pre-war level. While qualms of pessimism entered the ecobreak in February
nomic picture during the commodity price
during 1948 as
toward
the
end
of
the
year,
the
outlook
and again
had larger
businesses
Individuals
and
a whole was optimistic.
incomes than ever before, were spending heavily, and planned to
The rapidity with which money was being
continue to do so.
was
a
reflection
of the heavy spending by all segments of
used
thing which most characterized the business
the economy-the
during
most of 1948.
situation
The gross product of the American economy amounted
to
$255 billion, which was 10 per cent more than the year before.
This is viewing business from the standpoint of expenditures
for
Consumers did most of the
all goods and services produced.
spending; their expenditures amounted to about 70 cents out of
every dollar of total outlay. Business expenditure on plant and
inventories plus investment in housing amounted to almost 16
cents, Government expenditure 14 cents, and foreign buyers
spent less than one cent net.
The problem of liquidity had an immediate bearing
on business trends in 1948. The extent of the influence is uncertain,
but
there is little doubt that the possession of large amounts of liquid
assetsby individuals and businesses had an important effect upon
total spending and upon the production and employment
which
The fact that many buyers
spending called forth.
were in
comfortable liquidity positions contributed in general to the willingness to spend; but it is probable, too, that this influence
was
not steady and that it might have been extremely sensitive to the
public's sometimes erratic and always volatile business expectations. Small wonder, then, that under circumstances in which
16
BUSINESS DEVELOPMENTSIN 1948
THIRD
FEDERAL
DISTRICT
RESERVE
SPENDING
INDEX
(IDIIDNILIY
PLANT AND EQUIPMENT
EXPENDITURES
IDIU]TDD)
MANUeACrURER3
PHILADELPHIA
120
DfnýRiu[uT
aný[s
3
ýý
IN THE STORES IT WAS ON THE
INCREASE UNTIL NOVEMBER.
110
FOR
too
90
WAS
PLANT
ON
AND
THE
EQUIPMENT
IT
WANE.
L-LI-1-1-1
184B
INDEx
INCOME
INDEX
($CAiO11ALL'J
ADJV$tCD)
120
110
120
FACTORY WORKERS MADE MORE
MONEY AND FARMERS ALSO
HAD A GOOD YEAR.
110
loo
C"!
100
H r
90
1945
90
ý
J-1i
unncöýý*"*u
( rric(,
ýý
Lr
CýN'ýýýý
ý.
I
17
higher prices, and the filling of pipelines
growing production,
by
business
uncertainty the boom of 1948 proceeded
gave rise to
fits and starts.
business held liquid
the beginning of 1948, American
bank
deposits
and Government securiassets, consisting mainly of
billion.
Even taking into ac$65
ties, in the amount of nearly
funds, by usual
in
1939,
these
prices since
count the great rise
liquidity cushion of sizable proportions.
standards, represented a
For corporations, they were more than adequate in relation
to
liabilities.
At
sales and far above the pre-war relation to current
buy new equipment and to expand
the very least, the incentive to
inventories and receivables was not impaired by this situation and
in early 1948, may well have been strongly enhanced by it.
At
Strong though they were at the start of 1948, the
of corporate liquidity positions had declined from the
year. To speak of this decline as a deterioration of the
condition of corporations is misleading, since it was a
strength
previous
financial
necessary
Inpart of the transition from an abnormal wartime situation.
complete data show, however, that rising inventories and receivablesnecessitatedby a higher dollar volume of salesduring 1948
have made for a continuation of the decline. This must mean
that a number of firms were in an uneasy position by the end of
the year. The removal of the liquidity cushion in such cases
undoubtedly made for increased sensitivity to price and sales
volume changes.
Total liquid asset holdings of individuals at the beginning
of
1948 were three times the pre-war level. The Board of Governors' survey of consumer finances indicated that more than a
quarter of all consumer spending units held virtually
no liquid
assets, other than currency, and that during the previous year
(1947) the proportion of liquid assetsheld by top income
people
had increased somewhat. Nevertheless, early in 1948 the
plans
of consumers to purchase automobiles and other durable goods
were fully as enthusiastic as the year before, and the demand for
lower, still
new homes, though
exceeded the prospective supply.
Apparently,
the widespread holdings of liquid assets available
for spending and as a precautionary reserve were still effective
stimulants to consumer buying at that time.
18
These spending plans were revealed at a time when most
consumers expected active business conditions to continue and
had been
expected their incomes to rise-at
a time when prices
further.
Such
expectarising steadily and were expected to rise
tions may not have been sustained throughout
the year. Fragmentary evidence indicates that the public may have been expecting lower prices at the year's end. This, combined with a
continued, gradual weakening of the consumer's financial status,
through a rise in debt and further loss of liquid assets by lowincome groups,
dampening influmight have had an appreciable
ence on consumer spending.
Retail
People did $130 billion worth of shopping in the
sales
stores last year. While retail trade for the year as
a whole was up 10 per cent, merchants encountered substantial
consumer resistance near the end of the year at the very time
when further expansion from early Christmas shopping was
expected.
The year-end
slow-down in the momentum of spending occurred in many types of stores, including those selling drugs,
building
materials, hardware, home furnishings, jewelry, and general merchandise. As the year progressed, supply caught up with
backlogs
and consumers became harder to please with respect to
both
Nevertheless, it was still the topmost year
price and quality.
for spending.
People spent
in this
rather generously at department stores
district throughout
November
most of the year, that is until
buying
when, for some peculiar
reason, they suddenly stopped
-or so it seemed to the merchants. During the first ten months,
merchants were
ringing up sales at a rate of about 5 per cent
better
than the year before. But November sales dropped sharply,
and the backslide
was not halted until merchants offered attractive price
concessions. The fact that people later responded to
price reductions
seemed to indicate that it was not a matter of
credit or weather, but high-price
weariness.
As if endowed
with a premonition of the approaching slump
in consumer
spending, merchants began reducing their inventories
about mid-year. They reduced their commitments by placing
19
than they had in the previous
smaller orders with their suppliers
deliveries
enabled them to operate on
year, and of course,quicker
By
inventories.
the
end
of
the
year the ratio of stockssmaller
low
to
point.
order
sales
was
at
a
plus-goods on
The only thing we can really be sure of is that the year-end
hesitation in consumer spending was not caused by a decline in
flow of the tide, personal income
consumer incomes. Like the
kept rising from an annual rate of $207 billion in the first quarter
of the year to $220 billion in the last quarter. People in the
Third District enjoyed about the same measure of prosperity as
workelsewhere,judging by the flow of money income. Factory
last year,
ers in Pennsylvania averaged better than $51 a week
which was 10 per cent over their average weekly earnings of the
year before. Earnings were higher in all major industrial groups
but one, and the increasesranged from 3 to 13 per cent. Employment declined in some industries but was compensated by higher
employment in others, so that total employment in Pennsylvania
factories continued near the high 1947 level. Farmers in Pennsylvania, New Jersey, and Delaware also had a good year. They
marketed over $1 I/4 billion worth of agricultural products, which
was 8 per cent better than the year before.
Business
Business spending for inventories, plant, and equipspending
ment made a substantial contribution
to the high
level of business activity last year. Manufacturers,
wholesalers,
and retailers enlarged their inventories by $6 billion over and
above the $8 billion of expansion that took place the year before.
Rising prices accounted for slightly over half of the increased
In manufacturing,
the lion's share of
spending for inventories.
the increase in book values took place in finished goods-which
might be interpreted as a caution signal. The expansion in total
inventory values, however, was not out of proportion
to the
increased dollar volume of business sales.
Businessfirms really spent big money for plant expansion
and
modernization last year. Total outlays were almost $19 billion
buy out a dozen companies the size of the United
-enough to Corporation.
States Steel
Manufacturers, the biggest spenders,
less
in
for
went
somewhat
plant expansion and more for modern20
by comization of machinery
Expenditures
and equipment.
mercial enterprises, railroads, and utilities,
were stepped up
sharply and the utilities, especially gas and electric, gave strong
indications that they had
a long way to go before completion of
True enough, labor
their extension and improvement
programs.
and material, costs were high. We do not know how many firms
were scared out of spending for new equipment and more plant
because
of high costs. That many were not scared is plainly
shown by the record.
Our own survey
indicate that postof Philadelphia seemed to
war spending on plant expansion and renovation was apparently
over the hump. " The $130 million outlay by manufacturing
concerns between the fall of 1947 and the fall of 1948 was about
Never15 per cent below the
expenditures of the preceding year.
theless, in certain lines such as food and tobacco, chemicals and
petroleum, iron and steel., contemplated
outlays for 1949 were
reported to be almost as large or larger than the sums spent last
year. Local public utilities made heavy outlays for plant improvements and extensions, and they reported plans for continued
expenditures throughout
1949 at a rate only slightly below that
of last year.
No doubt
one of the reasons for the large business spending
was large business profits.
Corporate profits after taxes were $20
billion,
some 9 per cent over the former year. For many firms a
lack
of equity capital could not be considered a serious deterrent
to investment.
Internal funds, originating from retained profits,
depreciation,
and liquid assets, accounted for more than 65 per
cent of all corporate funds
used during the year. In this connection, manufacturing
firms in Philadelphia
that contemplated
further
capital expenditures during 1949 stated that they were in
funds from their
position to supply 90
per cent of the required
own resources.
GovernmentGovernment
spending for goods and services was
spending
another powerful expansionary force. Spending on
FederalGovernment
account amounted to $36 billion-up almost
30 per cent from
the
year before. State and local governments
increased
their outlays on education, health, fire and police pro21
Maintenance
tection, highways, and other community needs.
delayed by the war interlude were resumed, and
long
programs
resulting from increasing population called
growing communities
for additional facilities in the way of hospitals, schools, streets,
water supply, sewagedisposal.systems, and other public works.
Federal Government expenditures rose last year under the
double strain of paying for past wars and spending to avert
future wars. While we were nominally at peace with the world,
it was a fragile peace that had to be handled with care. Material
Europe was stepped up last spring when Congress
aid to Western
Food
billion
for the European Recovery Program.
$S
authorized
for
Westlife
the
of
were provided
people
and other essentials of
for lack of funds. In view
ern Europe who were in desperation
defense, Federal expenditures
of the heavy cost of foreign aid and
for numerous civil programs were discouraged.
Foreign
Foreign spending in our markets was the only major
investment class of expenditures that declined last year.
Net
foreign investment, which is that part of the export surplus not
financed by Government or private gifts, declined from almost $9
billion in 1947 to approximately $1 %Zbillion in 1948. However,
this did not remove as much inflationary pressure as the figures
might indicate because part of the decline was due to a shift from
loans to grants; that is to say, compared with the year before
we sold less to our neighbors but gave them more. Disbursements
of nearly $2 billion under the European Recovery Plan, while a
real stimulus to business, were nevertheless not as great a stimulus
as the spending engendered by the loan of almost $3 billion
to
the British in 1947.
Production and Prices
The physical output of our national. economy in 1948 is
estimated to have increasedabout 4 per cent over the year before.
This is a very real gain and was achieved by practically full
utilization of our human and material resources. Toward the
end of the year the word "bottleneck" had almost fallen into
discard, except for steel and a few minor items. Since we
pro-
duced more and sold or gave away lessabroad, we had more for
useat home. By the year's end, consumers could get immediate
delivery on almost anything except certain lower-priced automobiles,and prices were retreating.
Production
Under the stimulus of heavy consumer, business, and
factories, forests, and
Government
spending, our
For the year
mines turned out an enormous volume of products.
as a whole, the country's industrial output averaged 192 per cent
of the pre-war volume-better
than in 1947 both with respect
to total output and regularity of flow. With the exception of certain appliances, durable goods were in heavy demand throughout
most of the year, and backlogs were not completely wiped out in
such lines as motor cars, housing, and railway equipment or in the
industries
making the basic materials required for their production, such as steel and the nonferrous metals. Nondurable goods
were generally quite adequate, and in some lines surpluses appeared
to the extent that producers had to resort to old-fashioned, prewar methods of merchandising to dispose of their goods.
Industrial
production in this district averaged slightly above
that of the year before. The greatest gains in output were made
by the
producers of building materials, textiles, and chemicals;
small declines in output
equipment,
occurred in transportation
food products,
Seasonality, long buried
and paper and printing.
under a heavy over-lay of war and post-war demand, began to
reassert itself in
Among minerals, anthracite held
some lines.
its own
in mechanized extraction,
owing
but bituminous chiefly to rapid strides
Coal exports detook a 10 per cent set-back.
clined as a consequence of
and at
greater over-seas production,
home
the railroads continued to shift from coal to oil-burning
locomotives.
Most of the district's 6 per cent gain in output of
refined petroleum
products came from the Philadelphia region,
already one of the country's leading
further
refining centers, and
expansion of capacity is in
process.
Last
year we came within a fraction of equaling the 1925
record of 937,000
new houses started. The large volume of construction was
accomplished by steadily increasing production of
construction materials
of over 2 million
and the employment
23
Unlike the year before, when
workers on construction sites.
last
ignore
seasonal,patterns, building activity
activity seemed to
Rising
in
August.
declined
costs
of
after reaching a peak
year
both labor and materials pushed up the costs of new housing into
fancy brackets where some people would not and others could
not pay the price.
Construction of housing in Philadelphia was eclipsed by
greater activity in the adjoining surburban counties. Contract
awards for all kinds of construction throughout the Third District amounted to almost four times the pre-war volume. This
was well above the rate of increase for the entire area east of the
Rockies, and activity in the local area was well distributed in all
major categories-residential, nonresidential, public works, and
utilities. A let-up in awards made after mid-summer occurred
locally as elsewhere.
The country's 1948 agricultural
output was about 10 per
larger
before.
Once
than
the
cent
year
again farmers had good
luck on weather, so that their efforts were rewarded with
the
largest crops ever. All the storage bins in the country could not
hold the largest corn crop in our history.
However, production
livestock
livestock
of
and
products was slightly lower, due chiefly
to smaller herds and therefore less meat and milk production.
Farmers in the Third District had bountiful harvests. The
corn and tobacco crops were the largest on record and large
harvests were also obtained in potatoes, fruits, and vegetable
crops generally. Output of dairy and poultry products equalled,
and in somelines exceeded,the quantities marketed in 1947. Egg
production was higher, and dairy farmers in Pennsylvania and
New Jersey increased the size of their herds, contrary to the
country-wide trend.
The changing temper of the post-war boom in 1948
is reflected in the behavior of prices. Price-wise,
the
year ended just about where it began; but rising prices in wholesale markets during the first half of the year gave way to falling
prices in the second half. There were many nonconformists
to
this pattern as various families of commodities parted company
Prices
24
with each other. In 1948, prices of twenty-nine
major classes of
The year before
wholesale commodities rose and eighteen fell.
In other words,
the figures were forty-four
up, and four down.
the inflationary-deflationary
tug-of-war
changed from a score of
11 to 1 in 1947 to a score of about 3 to 2 last year.
Prices of agricultural, products suffered the sharpest declines.
Under pressure of heaping harvests, agricultural prices began to
slip in July, descending month by month to a point in December
which was 13 per cent below the January peak. During the year,
corn, wheat, cotton, and some minor crops were below support
levels, which
required over $1!12 billion worth of Commodity
Credit Corporation
aid in the form of loans and purchase agreements. Wholesale prices of foods, naturally, declined along with
prices of basic farm staples. Foods at the end of the year were
about 10 per cent below their mid-year peak.
Unlike farm
products, which needed Government price support, prices of other products, for the most part, moved up a few
notchesthroughout the year. Prices of metals and metal products
rosethe most, which was indicative of continued inability to close
the gap between demand
and supply despite increased output and
greater capacity. Abolition of the basing point pricing by the
steel industry, following the Supreme Court decision in the
cement case,resulted in higher
costs of steel for some fabricators
and lower costs for others, but had little to do with the simple
and obvious fact that we just did not have enough steel. Even
here there
was some evidence, toward the end of the year, of a
slight easingin demand
as revealed by the shrinkage in premiums.
Building
materials, like metals, displayed great strength, but,
unlike metals, suffered
small price declines during the last quarter.
Prices fuel
lighting
of
and
materials rose substantially, kept their
gains, and refused
decline.
Advances also occurred in housefurnishings, but to
textiles,
chemicals, and hide and leather products declined.
Consumer
price changes, though less pronounced, generally
followed in
the wake of wholesale prices. By year's end, food
costshad receded
slightly from their July peak; rents were still
25
items in the households of modrising, and prices of most other
families
were resisting decline stubbornly.
erate-income
In the early months of 1949, fresh recessionary winds chilled
This was reflected in
the business atmosphere over a wide area.
falling
faltering
employment,
sales at departweakening prices,
declining
business
loans.
Perhaps
the greatest
ment stores, and
decline occurred in that unmeasurable index-business
and conYear-end financial statements reported abunconfidence.
sumer
Yet, businessmen were apprehensive,
dant corporate profits.
business who had lived through
especially the seasonedveterans of
both lean and lush years. A large proportion
of the business
of
the
younger
generation,
whose only exconsisted
community
perience was to raise prices when rising costs impinged on profits.
The veterans dreaded the day when profits had to be sweated out
of falling prices and obstinate costs.
Federal ReserveBank of Philadelphia
Nineteen hundred and forty-eight was another active
year in the operation of the Federal Reserve Bank of
The number of checks handled and pieces of curPhiladelphia.
rency counted ran somewhat ahead of 1947, and unit volume in
fiscal agency activities taken as a whole did not change materially.
In the coin division, some decline in volume occurred as further
progress was made in arrangements for direct interchange between
banks. In all branches of the work efforts continue
to be
made to improve handling and to promote efficiency through
mechanization.
Operations
Purchases and salesof Government securities continued heavy.
The Bank's holdings of Governments are in reality a participation
in System holdings, which are administered by the Federal. Open
Market Committee in the interests of an orderly market
for
these issues and the maintenance of sound banking and business
Direct advances to member banks dropped
conditions.
sharply
in dollar volume and somewhat in number, but the number
of
banks accommodated during the year rose to 164 from 153 in
1947. Following approval. by Congress and reinstatement
of
Regulation '\V by the Board of Governors of the Federal Reserve
26
System, the consumer credit department again was set up to
administer the Regulation in this district.
No steps have been spared to promote mutual understanding
between this Bank
district so that
and the member banks in the
they may work shoulder to shoulder in the effort to promote those
forces working for
the good of the economy and restrain those
which may do harm. As a step in this direction, the Bank resumed the practice in March, discontinued during the war years, of
having
each
members of its bank relations staff visit individually
of the banks in the district.
And, for the third successive year,
field meetings
were held, each including bankers from one or more
counties, for the consideration of current problems, reasons for
actions that had been taken, and a general interchange of views.
The entire
round of twenty-eight
meetings in 1948 covered every
part of the district.
A further feature of this aspect of our work
hasbeen
the semi-annual meetings of the Federal Reserve Relations
Committee,
attended by representatives of bankers' associations
and groups, and participated in by officers and staff members of
this Bank.
Through
speaking engagements, service on committees, attendance at meetings,
of the
and dissemination
publications,
results of special studies, the Department
of Research endeavors
to keep the banking
informaand business public supplied with
tion and comment designed to be helpful in planning operations.
Directors
George W. Reily and Albert G. Frost were reelected
and ofcers directors
beginof the Bank for terms of three years,
ning January 1,1949.
Mr. Reily was chosen as a Class A director by the banks
of Group 2, and Mr. Frost as a Class B director
by Group 3 banks.
Thomas B. McCabe,
a Class C director and Chairman of the
Board
of Directors from 1939 on, resigned in the spring of 1948
to take office
Chairman of the Board of Governors of the
Federal Reserveas
System. In March of 1949, Warren B. Whittier
was made Chairman, having
served as Deputy Chairman since
1941. At
the same time, C. Canby Balderston was made Deputy
Chairman for
the balance of the year, and Philip T. Sharples was
appointed a Class C director for
the unexpired portion of the
term ending December
31,1951.
27
By appointment of the Board of Directors of this Bank,
Frederic A. Potts, President of the Philadelphia National Bank,
represents the district on the Federal Advisory Council during
1949. He succeedsDavid E. Williams, President of the Corn
Exchange National Bank and Trust Company of Philadelphia,
who served for three successiveyears.
Effective May 1,1948, Philip M. Poorman, Cashier of the
Bank, was made Vice President and Cashier; James V. Vergari,
an Assistant Vice President and Assistant Secretary, was made
Counsel also; Richard G. Wilgus, an Assistant Cashier, was made
Assistant Vice President; and Roy Hetherington, head of the
Fiscal Agency Department, was made an Assistant Cashier. As
of January 1,1949, L. E. Donaldson, an Assistant Vice President,
was made Vice President; at this time also, Mr. Vergari's title
was made Counsel and Assistant Secretary.
Directors
as of April 1,1949
Class A:
1
1950
George W. Reily
...................................
President, Harrisburg National Bank,
Harrisburg, Pennsylvania
2
1951
John B. Henning
.................................
President, Wyoming National Bank,
Tunkhannock, Pennsylvania
3
1949
Archie D. Swift
.............................
Chairman of the Board, Central-Penn National
Philadelphia, Pennsylvania
Bank,
Class ß:
William J. Meinel
.................................
President and General Manager, Heintz Manufacturing
Company, Philadelphia, Pennsylvania
.
Walter H. Lippincott
..............................
President and Director, Lobdell Company,
Wilmington, Delaware
.
Albert G. Frost
........
Chairman of the Board, The Esterbrook Pen Company,
Camden, New Jersey
1
1949
2
1950
3
1951
Class C:
Warten F. Whittier, Chairman
........................
Agricultural Consultant, Chester Springs, Pennsylvania
1949
C. Canby Balderston, Deputy Chairman
.
.................
Dean, Wharton School of Finance and Commerce,
University of Pennsylvania, Philadelphia, Pennsylvania
1950
Philip T. Sharples
Chairman of ...................................
the Board, Sharples Corporation,
Philadelphia, Pennsylvania
1951
29
Officers
as of April 1,1949
ALFRED
W. J.
H.
NVILLIAMS,
President
L.
DAVIS,
JAMES
C. HILL,
G. MCCREEDY,
ROBERT
Vice President and Secretary
ROBERT
N.
V.
VERGARI,
Counsel and Assistant
Secretary
Vice President
WILLIAM
DONALDSON,
Vice President
First Vice President
ERNEST
E.
R.
WILLIAMS,
Assistant Vice President
and Assistant Secretary
HILKERT,
RICHARD
Vice President
G. WILGUS,
Assistant Vice President
KARL
R. Bopp,
WALLACE
Vice President
PHILIP
M.
CATANACH,
Assistant Cashier
POORMAN,
ROY
Vice President and Cashier
NORMAN
M.
G.
HETHERINGTON,
Assistant Cashier
DASH,
30
General Auditor
APPENDIX
Statistical Tables
I
Page
Federal Reserve Bank:
Statement of condition
..................
Earnings and expenses
...................
Volume of operations
.................
Member banks-Third
32
33
34
Federal Reserve District:
35
Combined statement
Earnings, expenses and profits
35
............
Employment and earnings
...................
36
Production, farm income, and prices
............
36
Department store sales and inventories.
---....
37
Statement of Condition
Federal Reserve Bank of Philadelphia
December 31
(000's omitted in dollar figures)
1946
1947
1948
$ 858,145
61,009
$1,016,538
60,691
$1,011,054
60,212
$ 919,154
$1,077,229
$1,071,266
19,235
14,687
17,967
15,547
523
1,645,130
$1,661,200
6,841
1,358
1,565,522
$1,573,721
17,495
767
1,666,658
$1,684,920
10,866
192,379
3,182
7,455
10,935
173,597
3,053
10,279
$2,771,673
$2,879,527
$2,972,021
$1,699,277
$1,681,880
$1,662,531
RESOURCES
Gold certificates ......................
Redemption fund-Fed. Res. notes.........
.
.
Total gold certificate reserves.........
Other cash
............................
.
Discounts and advances...................
Industrial loans .......................
United States Government securities........
Total loans and securities
.............
Due from foreign banks
..................
Fed. Res. notes of other Fed. Res. banks....
Uncollected items
......................
Bank premises
.........................
All other resources
......................
Total resources
.....................
.
884
8.181
157,813
3,170
2,912
.
LIABILITIES
Federal Reserve notes
....................
Deposits:
Member bank reserve accounts...........
United States Government
..............
Foreign
Other deposits
.......................
818,125
34,511
39,555
2,424
1$
Total deposits .....................
Deferred availability items
................
All other liabilities
......................
Total liabilities
.....................
CAPITAL ACCOUNTS
Capital paid in
.........................
Surplus-Section 7
.....................
Surplus-Section 13b
...................
Reserves for contingencies ................
Total liabilities and capital accounts....
Ratio of gold certificate reserves to deposit
and Federal Reserve note liabilities combined
..............................
Commitments to make industrial advances....
32
867,113
77,363
26,649
4,708
894,615 1$ 975,833
951,233
104,176
51,492
6,060
$1,112,961
134,950
674
122,081
528
164,635
898
$2,716,501
$2,823,246
$2,911,116
$
$
$
13,926
34,720
4,489
2,037
$2,771,673
35.4%
$1,281
14,370
35,350
4,489
2,072
$2,879,527
40.5%
$490
14,681
36,704
4,489
0- 31$2,972,021
38.6%
$46
Earnings and Expenses
Federal Reserve Bank of Philadelphia
(coos omitted)
1946
1947
1948
$10,600
$11,193
$21,349
192
220
343
$10,792
$11,413
$21,692
3,704
3,887
4,131
373
316
385
187
214
262
Earnings from:
United States Government
Other sources
...
Total earnings
securities ....
....................
...................
.
Expenses:
Operating
expenses*
.................
Cost of Federal Reserve
currency......
Assessments for
expenses of Board of
.
Governors
...........
Total net
expenses
..................
Current net
earnings
......
. .............
Additions
to current net earnings:
profit
on sales of U. S. Government
securities (net)
....................
All other
...........................
Total
additions
...................
ý 4,417
6,528
6,996
16,914
138
200
456
5
89
.
a
Deductions from
current net earnings
.......
Net additions
to current net earnings.......
Transferred
to reservesfor contingencies
.....
Paid to U. S.
Treasury:
227
ý
$
81
$
33
0
0
$ 6,576
205
3
S
459
$
I
458
3
146
Interest
on Federal Reserve notes........
Under Section
13b
....................
Net earnings
after
reserves
and payments to
U. S. Treasury
...................
Withdrawn
from surplus (Section
13b)
Dividends
.....
paid
......................
.
Transferred
to surplus (Section 7)
.........
$ 4,778
ý 4,264
202
35
2,960
5,672
12,184
7
0
ý 1,484
2,228
12
0
814
854
0
874
630
S 1,354
ý 5,774
E
'After deducting
reimbursementsreceivedfor certain fiscal agencyand other expenses.
33
Volume of Operations
Federal Reserve Bank of Philadelphia
1946
1947
1948
143,000
34,400
141,100
23,900
243,600
540,700
1
39
253,400
463,400
2
42
222
139
Number of pieces
(000's omitted)
Collections:
Ordinary checks
.....................
Government checks
(paper and card).... .
Noncash items ......................
.
Currency counted
......................
Coins counted
.....................
Discounts and advances
to member banks...
.
Transfers of funds
............
.........
Fiscal agency activities:
Marketable securities delivered or redeemed
Savings bonds issued or redeemedBy agents
.
By Federal........................
Reserve Bank
.............
Coupons redeemed (Government
and
agencies) .........................
Coupons cut from
securities held ...........
16,228
1,024
1,403
697
11,488
823
1,378
616
147,500
20,800
700
270,500
391,800
1
44
148
10,779
836
1,151
615
Dollar amounts
(000,000's omitted)
Collections:
Ordinary checks
......................
Government
checks (paper and card)
Noncash items
.......................
.....
Currency counted
......................
Coins counted
.........................
Discounts and advances
to member banks
....
Transfers of funds
......................
Fiscal agency activities:
Marketable securities delivered or redeemed
Savings bonds issued or redeemedBy agents
By Federal .........................
Reserve Bank.
............
Coupons redeemed (Government
and
agencies)
.........................held
Coupons cut from
securities
.
Securities in safekeeping for banks
(December 31)
......................
$33,693
5,074
244
1,428
48
1,060
9,905
$36,190
3,657
199
1,547
44
1,241
11,290
724
350
592
276
394
308
152
75
142
67
120
61
2,783
2,518
2,311
$39,221
2,890
169
1,734
40
623
17,543
7,132
Not available.
Note: Coverage of some of the operations in the table above differs
somewhat from that
in similar tables given in earlier reports, so that in such cases
the figures are not
entirely comparable.
34
Member Banks
Third
Federal
Reserve
District
Statement
(Millions
of Condition
Change from
Dec. 31, Dec. 31, Dec. 31,
1945
1948
1947
of dollars)
Assets
Loans and discounts
U. S. Government
.............
securities ......
Other securities
Cash assets
...............
Fixed assets ...................
..................
Other assets
... . ...............
$1,742
2,995
+$
-
606 +1
.
.
.
32
-$
12 -$
66
26 -4
$7,080
+
+
1,645
Total
.....
Liabilities
Deposits: and capital accounts
160 +$ 808
201 1,362
+
-4
-1
Percent distribution
Dec. 31, Dec. 31,
1948
1945
24.6%
42.3
99
8.6
189
23.2
271
100.0%
.9
.4
12.7%
59.3
6.9
19.8
.9
.4
100.0%
Individuals,
partnerships,
corporationsDemand
and
...............
Time
......
S. Government
BU.
....... ....
anSk
.................
Other
.....................
Total deposits
Other liabilities
..........
Capital
..........
.
accounts
Total
i
$3,714 -$
1,843 +
115
381
.
+
363 +
$6,416 -$
38
626 -2
+
$7,080
.................
-$
88 +$ 335
25
47
30
17
+
-
301
1,020
57
19 +
12 -$
70
271
+
94
29 -L$347
+6
52.5%
45.9%
26.0
1.6
5.4
21.0
15.4
6.0
5.1
90.6%
.5
8.8
3.7
92.0%
.4
7.6
100.0%
100.0%
1947
1948
Earnings, Expenses and Profits
(Millions
of dollars)
Earnings
On U. S. Government
securities
On other
...........
On loans securities ....................
Other
.............................
earnings
........................
Total earnings
...................
Current
Salaries expenses
and wages
I
Interest
on deposits.....................
Other expenses
. .............
... .....................
Total
current
Net
expenses...........
current earnings
before
1945
.
. _
.
.
income taxes .
recoveries and profits
on
sales (ý-)
or
charge. offs (-)
Taxes
................
on net income... ....
Net
Net
profits
Cash dividends
declared
.................
.
62.5
13.4
31.7
23.9
131.5
1946
65.8
14.4
40.3
25.7
146.2
57.8
14.4
54.4
27.1
15 3.7
54.3
14.6
68.5
29.8
167.2
49.1
16.2
41.3
34.8
12.2
32.1
79.1
52.4
40.4
14.2
35.2
fi9. A
44.4
15.9
38.2
98.5
56.4
55.2
+16.4
13.9
} 13.5
17.5
16.9
54.9
17.8
52.4
18.8
37.0
19.4
106.6
GÖ.
G
-
tChar$e-offs
includesubstantial
transfersto reservesfor bad debt losseson loans.
35
9.1t
13.9
37.6
20.3
Employment and Earnings-Pennsylvania
Factory Workers
Nondurable Goods
All Manufacturing
Durable Goods
Employ- I Pay Weekly Employ- I Pay Weekly Employ- I Pay Weekly
rolls` learnings ment"
rolls" earnings ment*
rolls* earnings
ment'
Average:
1939 ."
1940
1941 ..
..
1942
1943 ...
1944 ...
1945 ..
1946 ..
1947 ..
...
1948
..
1948:
January..
February.
March
April ...
May ...
June ..
July ..
....
August
September
October
..
November
December
"1939 = 100.
100
108
130
140
147
142
127
120
129
129
130
130
130
128
128
128
127
128
129
129
129
129
100 $22.42
117
24.22
168
29.02
219
34.95
40.85
268
278
43.81
240
42.26
40.69
219
268
46.47
294
51.22
288
286
289
284
287
288
284
299
304
308
306
306
49.69
49.50
49.91
49.63
50.32
50.38
50.25
52.20
52.73
53.39
53.24
53.39
100 $25.99
129
28.40
204
34.33
283
41.19
47.37
356
369
50.63
299
48.10
44.27
241
305
50.85
337
56.31
100
118
154
178
195
189
162
141
156
155
156
156
156
155
154
154
153
155
156
156
156
156
329
324
328
321
327
326
322
345
349
358
354
357
54.83
54.07
54.56
53.96
55.02
54.83
54.66
57.64
58.26
59.56
59.06
59.31
100
100
108
106
104
101
96
102
105
105
$19.24
19.82
22.22
25.59
29.91
32.33
33.52
36.25
40.69
44.50
100
103
124
141
162
169
168
192
222
243
106
106
106
105
104
105
104
104
106
106
105
104
238
241
241
239
238
242
239
244
250
248
249
245
42.97
43.55
43.79
43.93
44.09
44.53
44.44
44.98
45.47
45.24
45.54
45.44
Production, Farm Income and Prices
1935-1939 = 100
(Adjusted for seasonalvariation)
I
Industrial Production
Third Fed. Res. District
Durable (Consumer
Total
ýý ýI
goods I goods
Average:
1939
102
1940 ...............
109
1941 ...............
136
1942 ...............
162
1943 ...............
183
...............
1944 ...............
178
1945
149
1946 ...............
128
1947 ...............
135
1948
137
1948: January
138
February
137
March
135
..............
April
138
...............
May
138
June ................
137
................
July
137
August................
137
..............
September
137
...........
October
135
November .............
136
December ...........
142
............
Sources: U. S. Department of Agriculture.
104
133
199
289
355
333
251
160
168
175
179
176
176
178
175
171
170
166
174
177
180
192
100
95
106
101
104
106
102
113
117
120
118
119
117
122
122
124
124
123
120
116
117
123
Income
from farm
marketings
N. J., Pa.,
and Del. "
Consumer
prices in
Phila. t
99
104
122
155
197
199
231
268
299
323
277
269
307
326
317
344
388
411
347
324
292
283
tU. S. Bureau of Labor Statistics.
36
99
99
104
115
123
124
127
138
158
171
168
167
166
169
170
172
173
175
175
174
172
171
DEPARTMENT
1935-1939
Third
= 100
(Adjusted for
seasonalvariation) District
1948:
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
.............
.............
.............
.............
.............
.............
.............
.............
January
February ...........
..........
March
............
April
.............
May
June .............
.............
July
August .............
September ...........
.........
October
November ...........
.........
December
.........
.
104
111
129
143
151
167
184
235
261
283
272
280
263
278
284
283
288
289
295
307
269
287
DEPARTMENT
1939
1940 .............
1941
1942 .............
1943 .............
1944
1945 .............
1946
1947
1948 .............
.............
1948: January
February ..........
..........
March
............
April
May
June .............
July .............
August ............
...........
September
.........
October
November...........
December ........
96
99
119
167
141
147
150
191
220
251
243
254
261
264
257
248
238
236
233
251
264
256
STORE SALES
WilkesLancaster Reading Trenton barre
Phila.
101
108
124
140
147
158
172
214
238
253
246
250
239
238
261
250
240
263
269
267
246
260
104
107
129
151
165
178
190
248
276
295
278
290
271
286
293
308
339
263
289
324
269
310
103
111
133
152
165
177
185
249
274
296
291
285
270
304
314
284
302
290
303
335
283
294
110
120
140
153
177
192
223
294
321
355
350
304
317
335
359
343
410
370
409
388
334
359
101
101
118
129
145
174
206
277
304
330
331
325
304
321
351
333
346
332
343
359
306
324
York
107
114
133
157
177
200
220
276
281
311
290
303
283
307
311
295
324
312
310
343
264
333
STORE INVENTORIES
92
92
110
165
138
143
146
184
207
221
214
228
226
233
229
218
209
204
209
220
235
231
37
101
105
120
148
127
132
129
177
218
238
232
238
245
250
247
236
230
221
229
240
244
240
106
112
141
190
158
181
191
229
255
297
297
317
336
322
293
279
262
261
281
305
312
303
97
101
141
184
162
166
167
205
244
319
309
318
328
341
327
326
331
298
300
311
323
332
93
91
113
143
134
144
154
210
249
338
339
325
354
349
338
343
316
330
304
345
349
369
108
113
137
177
161
165
159
212
228
267
268
277
297
294
282
252
252
243
242
259
276
278
@FedFRASER