Full text of Basic Business News : June 4, 1957 to June 10, 1957

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Published Weekly by the FEDERAL RESERVE BANK of CLEVELAND
June 4, 1957

to

June 10, 1957

DU PONT-G. M. RULING
MAY HAVE WIDE EFFECT

The Supreme Court handed the Government some
powerful new antitrust weaponry in its decision
last Monday against the du Pont Company. By
the broadest reading of the Court's opinion, the trust-busters might
now swing their axe at untold numbers of companies that have purchased
stock in companies with which they do business. Nothing so sweeping
will happen, but the new ground rules set by the Court are bound to
have broad impact. The case at hand involves the purchase by E. I. du
Pont de Nemours & Co. of 23% of the stock of General Motors Corporation
some forty years ago. The Court, by a majority of 4 to 2, ruled that
du Font's interest in G. M. posed the likelihood that du Pont would
dominate a market illegally, in violation of the Clayton Antitrust Act.
The violation was detected in the market for auto paints and fabrics,
where G. M. is a big du Pont customer. (Mooney. N. Y. Times, 6/9 V p.7)
CONSTRUCTION
UP IN MAY

Spending for new construction put in place rose 11i in
May to a level 'z:fi higher than a year earlier, the Commerce and Labor Departments reported in a joint release.
New construction outlays totaled more than $4 billion last month. The
Government termed May's increase "seasonal". May activity brought total
construction outlays for the first five months of the year to a record
$17.1 billion. This topped last year's January-May total by 3%- On a
seasonally adjusted basis, new construction activity last month reached
an annual rate of $46.9 billion, compared with the revised estimate of
$46.1 billion spent in 1956. (Wall St. J., 6/10 p.7)
Wholesale prices in primary markets rose 0.3% to
117.5% of their 1947-49 level during the week ended
last Tuesday, according to the U.S. Department of
Labor's Bureau of Labor Statistics. This was the sharpest 1-Teekly rise
since January. Average prices of farm products and processed foods

WHOLESALE PRICES
MOUNT SHARPLY

Selection of these items does not imply this bank's guaranty of their accuracy,


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nor agreement with the views expressed .

increased li and l.li respectively. Prices of all commodities other
than farm and foods rose 0.1%. (N. Y. Times, 6/8 p.29)
Manufacturers' sales and unfilled orders declined
in April, the Commerce Department reported, while
new orders and inventories increased. According to
the Department's seasonally adjusted index, manufacturers sold $28.5
billion worth of goods in April. This was a drop of $300 million from
the previous month's level with all of the decline coming in the durable goods sector--mainly transportation equipment. However, an increase in incoming business for nondurable goods produters more than
offset a reduction in orders received by durable goods manufacturers.
Inventory book values held by manufacturers at the end of April totaled
$52.5 billion on the seasonally adjusted scale. This was a $200 million increase during the month with most of the rise occurring in the
fabricated metal, machinery and aircraft industries. The Department
noted the April inventory climb was at a "considerably moderated" rate
from monthly increases over the previous year or so. (Wall St. J.,
SALES ARE DOWN,
INVENTORIES RISE

6/4 p.7)
Spending by State and local governments has come to
play an important role in the national economy.
Such spending has increased particularly rapidly
since World War II and further acceleration seems assured for at least
several years, according to the Federal Reserve Bank of New York. in
an article in its "Monthly Review of Credit and Business Conditions,"
the Bank said that State and local governments constitute one of the
country's biggest "industries". The 48 State governments and more
than 100,000 local government authorities employ more than five million
people. This is la{o of the nation's nonfarm employment and more than
twice the number of civilians employed by the Federal Government. Purchases of goods and services by these governments, currently at a seasonally adjusted annual rate of over $35 billion, absorb about 8/fo of
the nation's total output. This nearly matches the recen~ rate of business investment spending for new plant and equipment or for consumer
purchases of durable goods. Looking to the years ahead, it seems virtually certain that further population growth and shifts wili continue
to push State and local spending steadily upwa~d. (Amer. Bkr., 6/6 p.1)
STATE, MUNICIPAL
SPENDING UP

I

FED. RES. CREDIT NOT
AVAILABLE FOR SPECIAL AID

The Federal Reserve System cannot stabilize
both the volume of money supply and the
leve~ of interest rates at the same time
and cannot aid any special sector of the money market, whatever its
condition may be, Woodlief Thomas, economic adviser to the Federal Reserve Board, said in an address before a general management conference


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of the American Management Association at the Hotel Statler. "Federal
Reserve credit should not be used," said Mr. Thomas, "to provide special
aid to any particular sector of the market--whether it be Federal securities, home mortgages, the borrowing needs of States and local governments, or business credit. Each of these sources of demand for credit
must compete with others for the funds available for lending and pay
the inte.rest rates that become established by the forces of the market."
(J. of Comm-., 6/6 p.5)
The Treasury's shol·t-term borrowing costs soared
to 3.374%--the highest level in almost a quarter
of a century. In the "Bank Holiday" period of
1933, the Treasury paid more than 4% to borrow short-term money. The
highest rate since then had been 3.331% reached in mid-December of last
year. This week's interest rate climb is the third straight weekly
rise. In 1955, the rate stood at 1.390% at _this time of year. At its
current level, the rate now tops the discount rate charged by the Federal Reserve System on loans to member banks for the third straight
week. The present disaount rate is 3%. Though in theory the Reserve
System likes to keep its discount rate above the prevailing Treasury
bill rate, in practice, a higher bill rate has held very little clue to
future Reserve Board policy. The Treasury rate has been above the
Reserve System's discount rate most of the last six months. (Wall St.
TREASURY BILL RATE
HIGHEST SINCE 1933

J., 6/4 p.2)
Short-term money rates again strained at their
leashes. Commercial paper yield rates, for bills sold
in the open through dealers, rose 1/8 of 1~ to 3-3/4%
for four to six months paper, the highest since the early 1930's and
the first rise since last September. The bankers acceptance market became critical, as one dealer raised yield rates, with others likely to
follow. U.S. Treasury bills, which this week went at a record rate
since 1933 at 3.374%, promised to go still higher. These developments
raised the familiar debate as to how long the Federal Reserve rediscount
rates could stay so far below open market rates. There were no real
signs that important changes were brewing in bank lending rates to business, though, if a business boom is reinstated later this year, higher
borrowing rates would be almost sure. ·(J. of Comm., 6/6 p.1)
SHORT-TERM MONEY
RATES RISING

HOME MORTGAGE DEBT
TOPS $100 BILLION

Home mortgage debt early this year finally pushed
across the $100 billion figure to reach an all-time
high, the Federal Home Loan Bank Board reports in
its latest statistical compilation. The current total is twice the
1950 .level and over five times as great as at the close of World War II.
The inc,rease in non-farm mortgage debt last year was $11 billion,.


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establishing the total at the year end at
The
that its figures can be only approximate,
recordings on nonfarm property in amounts
Comm., 6/ 5 p. 4)

1955 year end figure of $88 billion.

$99 billion compared with a
Home Loan Bank Board noted
based largely upon mortgage
of $20,000 or less. (J. of

The nation's money supply rose $2.3 billion between
March 27 and April 24 to within striking distance of the
record level of last December 31. An increase in bank
credit, both through loans and investments in Government securities,
accounted for the increase. Total money supply on April 24 was $219.5
billion, compared with $217.2 billion March 27, and $220.9 billion December 31, 1956. Figures from which the Federal Reserve Board compiles
money supply statistics monthly are based on consolidated condition
·
statements of all commercial, savings and Federal Reserve banks, the
Postal Savings System and Treasury currency funds. (J. of eonrrn., 6/6
MONEY SUPPLY

INCREASES

p.4)
BOND
PRICES FALL

The bond market sagged to the lowest levels in more than
twenty years as big new corporate issues continued to
compete for investment funds. Major developments were:
The new issue of New York Telephone Co. 4-1/'cfo debentures broke from an
issue price of 101-3/4 to 98-3/4 followin·g the dissolution of the syndicate that brought the securities to market on May 21. The Boston Edison Co. sold to investment bankers $25,000,000 of AAA-rated mortgage
bonds, which are being reoffered to investors at a price to yield 4.53%.
The 3-3/4 Government bonds due in 1983 hit a new low at 95-5/8, yielding about 3.49% to maturity. With price rises persisting, the Federal
Reserve is maintaining a policy officially described as "passive". As
a result, bond men see no prospect of a downturn in interest rates
stemming from official money management. (Heffernan. N. Y. Times,

6/5 p.49)
FRANCE MAY DRAW

Officials indicate that the gold reserve of the Bank
of France, $860 million, may have to be drawn upon
by the end of July. They suggest this may be necessary in spite of the aid granted to France last week by the European
Payments Union. This sum, $200 million, was granted because the French
quota with the Union was exceeded by the end of April. The part of the
deficit exceeding the quota must be settled lOCl/o in gold. But the supplementary quota enables France to continue the normal system of paying
75% of her debt in gold. The creditor receives the remaining 25% of
the debt as a credit. However, despite the supplementary credit, re~ort to the gold reserve can hardly be avoided at the end of July, un~ess France receives, meanwhile, a substantial foreign loan. (N. Y.
Times, 6/10 p.37)
ON GOLD RESERVES


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