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NOVEMBER, 1942 SINESS CONDITIONS A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO Nine Billion Fighting Dollars To finance the war effort the United States Treasury will borrow during December the unprecedented sum of nine billion dollars. The Treasury issues offered are designed for every class and type of investor, from the largest com mercial banks, corporations, and insurance companies to the smallest investor or wage earner. Every American will have an opportunity to back the armed forces with bonds. The nine billion dollars to be borrowed in December—the largest amount of money ever raised by any government in such a short time—will be raised partly through the continuing sale of Series E War Savings Bonds, Series F and 6 United States Savings Bonds, Series A and C Tax Savings Notes, and Treasury bills, and partly through offerings of three series of new securities. The special offerings to be sold during December will consist of 21^% Treasury Bonds of 1963-68, called the “Victory two and one-halves,” 1%% Treasury Bonds of 1948, and %% Treasury Certificates of Indebtedness of 1943. An intensive drive which will continue for several weeks is being launched by the Viptory Fund Committee. The “Victory two and one-halves” will be the principal security to be sold during the drive. The 44,000 volunteer Victory Fund workers, drawn largely from the securities and banking fields, will conduct a vigorous campaign to assure the widest possible public participation in the Treasury offering. Public borrowing by the Treasury in the fiscal year ending June 30, 1943, will amount to sixty billion dollars. It is imperative that as much as possible of the borrowing be from outside the banking system, so as to minimize the expansion in bank deposits. Purchase of Government obligations by the bank ing system increases the quantity of bank deposits. Purchase of Government obligations by individuals and firms other than banks does not increase the quantity of bank deposits. Almost every American citizen, firm, and organiza tion has idle funds in the form of currency or bank deposits which can be enlisted in the war effort through the purchase of Government securities. At the same time, the War Savings Staff will intensify its drive to sell Series E War Savings Bonds through the payroll savings plan. The 300,000 volunteer workers of the War Savings Staff will endeavor to raise the present figure of 23 million income earners now investing an average of 8 per cent of their pay to a figure of at least 30 million workers setting aside an average of at. least 10 per cent of their earnings every payday. War borrowing must be done to the greatest possible extent out of current income and savings of the people. This is the soundest means of financing the war deficit. Since the Treasury is borrowing an unprecedented sum in December, the program calls for longer intervals between loan flotations. The expectation is that no further financing will develop, after completion of the current program, until February, with the exception of the continuing sales of tax savings notes, savings bonds, and Treasury bills. War Borrowing and the Banks In war the banking system must be prepared to do whatever may be necessary to finance Treasury war needs. The extent to which United States Government securities will have to be bought by the banks will depend on the amounts received by taxation and through channelling into the war effort the current and accumu lated savings of the people. “Interest rates on bills have been fixed at % of 1 per cent, a rate that is designed to promote the wide spread distribution of this type of security. . . . For all practical purposes, excess reserves can now be invested in Treasury bills without sacrificing liquidity. As a result, we have been able to increase steadily the amount of bills outstanding. At best a substantial share of the war deficit will have “In addition to this large increase in bills, we have to be financed through purchase of Government obliga also revived the use of another short-term security—the tions by the banks. This situation necessitates wise policy certificate of indebtedness. . . . Together with bills, the and effective action, not only on the part of the Treasury certificates provide a large supply of short-term paper, and the Federal Reserve System, but also on the part of and thus add a large measure of liquidity to the banking , the commercial banks. The Government obligations system. Incidentally, it should be remembered, that this which the Treasury offers to commercial banks are of liquidity is going to be a very welcome offset to declining such maturities as to preserve a maximum of liquidity capital ratios, and will make it easier for banks to in the banking system. Member banks should utilize adjust themselves to the need of shifting deposits from existing excess reserves to the fullest possible extent. area to area, a process that seems likely to continue. Additional reserve funds, as needed, will be provided ‘ ‘ In securities of over one-year maturity, we have con to the banks through appropriate Federal Reserve action. tinued to offer the banks Treasury notes, and Treasury The Federal Reserve System and the Treasury will ease bonds with a term of not over ten years. This means a any strains on the money market that develop. Banks maximum interest rate of two per cent on Treasury must develop the utmost flexibility in adjustment of bonds sold to commercial banks. their own reserve positions through holdings of short 1 ‘ It may seem at times that banks are being discrim term Treasury issues, through full use of war loan de posit accounts, and through borrowing at the Federal inated against in not being permitted to subscribe for longer-term securities which bear higher interest rates Reserve banks. than two per cent; but this is not the case. The Govern ment would certainly be doing the banks no favor if it Treasury Issues for Commercial Banks A statement on the place of the commercial banks in permitted them to load themselves with long-term issues. the war financing program was made in an address by . . . The report of the Economic Policy Commission of Daniel W. Bell, Under Secretary of the Treasury, be the American Bankers Association, issued last April, fore the Investment Bankers Association in New York concluded that securities sold to banks should be limited on October 19. “It is our firm belief in the Treasury,” to a ten-year maturity. ... A frozen banking system stated Mr. Bell, “that we should borrow from commer trying to become unfrozen after the war by selling long cial banks only on a residual basis—that is, to resort to term Government securities might create a bad situation. the commercial banks only after every effort has been made to finance the deficit from other sources. We must recognize that the commercial banks will be called upon to finance a large share of the deficit—in fact, a share of unprecedented magnitude. In the months—perhaps years—to come, it is important that the banks preserve a maximum of liquidity. To help them to do so, we have decided that securities sold to the banks should have a range of maturities running from 3 months, in the case of Treasury bills, to 10 years in the case of Treasury bonds. “It should also be noted that a large part of the securities which will be bought by banks will be financed by increases in deposits for the banking system as a whole. It seems reasonable that the interest rate on securities financed in this manner should be kept down to a maximum of two per cent—regardless of the matur ities involved—because the costs incurred by the banks in making loans direct to the Government, and in hand ling the increased deposits resulting from these loans, are small. Furthermore, from the point of view of the cost of financing the war, interest rates should be kept Page 1 as low as is compatible with the objective of financing the war as much as possible outside of commercial banks. “We all realize that a great deal more remains to be done in financing the deficit as far as possible from outside the commercial banking system. To the extent, however, that we must resort to the commercial banks, it is imperative that interest rates be kept at prevailing levels and that the maximum of liquidity be preserved. The success of our war financing depends upon attaining these objectives.” Bank Examination and Supervisory Policy Bank supervisory agencies, state and Federal, issued a joint statement on November 24 of examination and supervisory policy with reference to Government finan cing and the banks. “The Comptroller of the Currency, the Federal De posit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Executive Com mittee of the National Association of Supervisors of State Banks make the following statement of their exam ination and supervisory policy with special reference to investments in and loans upon Government securities. “1. There will be no deterrents in examination or supervisory policy to investments by banks in Govern ment securities of all types, except those securities made specifically ineligible for bank investment by the terms of their issue. “2. In connection with Government financing, indi vidual subscribers relying upon anticipated income may wish to augment their subscriptions by temporary bor rowings from banks. Such loans will not be subject to criticism but should be on a short term or amortization basis, fully repayable within periods not exceeding six months. “3. Banks will not be criticized for utilizing their idle funds as far as possible in making such investments and loans and availing themselves of the privilege of temporarily borrowing from or selling Treasury bills to the Federal Reserve banks when necessary to restore their required reserve positions.” Reserve Funds and Treasury Financing Purchase of Government obligations in unprecedented amounts by commercial banks requires utilization of existing excess reserves to the fullest possible extent, as well as action by the Federal Reserve System to increase the supply of reserve funds. The Board of Governors of the Federal Reserve Sys tem issued a statement on December 8, 1941, which declared, in part, that “the System is prepared to use its powers to assure that an ample supply of funds is Page 2 MEMBER BANK RESERVE REQUIREMENTS (Per cent of deposits) Nov. 1, Aug. 20. Sept. 14, 19421942- Effective 1941Aug. 19, 3ept. 13. Oct. 2, Oct. 3, 1942 1942 1942 1942 Classes of Deposits and Banks Minimum Permitted by Law On net demand deposits: Central reserve city...... Reserve city..................... Country banks................ On time deposits: All member banks......... 13 26 10 7 20 14 24 20 14 22 20 14 20 20 3 6 6 6 6 14 available at all times for financing the war effort, and to exert its influence toward maintaining conditions in the United States Government security market that are satisfactory from the standpoint of the Government’s requirements. ’ ’ In recent months the Federal Reserve System has made large purchases of Government securities in the open market. These purchases have been made for the purpose of supplying the banks with reserves and also for the maintenance of market stability. From December 31, 1941, to November 25, Federal Reserve holdings of Government obligations increased by 2,589 million dol lars. Holdings of Treasury bills increased by 372 million dollars, certificates of indebtedness by 736 million, Treas ury notes by 575 million, and Treasury bonds by 906 million. Bill holdings increased from April to August. Increased holdings of certificates of indebtedness have offset declines in bill holdings the last four months. Most of the increase in holdings of bonds and notes occurred in October and November. FACTORS DETERMINING AMOUNT OF EXCESS RESERVES OF ALL MEMBER BANKS. DECEMBER 31. 1941 - NOVEMBER 18. 1942 (In millions of dollars) Factors which decreased excess reserves: Increase in required reserves as a result of higher deposits (if reserve requirement against net demand deposits of central reserve city member banks were 26 per cent) .............:...................................................... 2,012 Increase in money in circulation.................... 3,304 Total.......................................................................... 5,316 Factors which increased excess reserves: Increase in Federal Reserve holdings of Government obligations................................. 2,441 Redaction in Treasury deposits with Fed eral Reserve banks........................................... 567 Decrease in required reserves as a result of reduction in reserve requirement against net demand deposits of central reserve city member banks from 26 to 20 per cent.......................................................... 1,240 All other operations—net................................. 468 Total.......................................................................... 4,716 Decrease in excess reserves..................................................... 600 In addition to reserves supplied by open-market pur chases, the Board of Governors has made reserves avail able to central reserve city member banks in New York and Chicago by reduction in reserve requirements against net demand deposits at these banks. A first reduction in reserve requirements, from 26 to 24 per cent, became effective on August 20; a second, to 22 per cent, on September 14; and a third, to 20 per cent, on October 3. Altogether about 1,200 million dollars of reserve funds were released by this action. Excess reserves of member banks taken as a whole were 600 million dollars lower on November 18 than on December 31, 1941. The continued increase in money in circulation and the increase in required reserves as a result of higher deposits created by bank purchases of Government securities have diminished excess reserves. As an offset to these forces, the increase in Federal Reserve holdings of Government obligations and the reduction in reserve requirements against demand de posits of central reserve city member banks have aug mented the excess reserves of member banks. Marked changes have taken place in the distribution of excess reserves among groups of member banks. In January 1941, central reserve city member banks in New York and Chicago held 57 per cent of excess re serves of all member banks, while reserve city and country member banks held 43 per cent. In September 1942, central reserve city member banks in New York and Chicago held 16 per cent of excess reserves of mem ber banks taken as a whole, whereas reserve city and country member banks held 84 per cent. In September 1942, reserve balances of country mem ber banks in the nation were 51 per cent greater than their required reserves, while reserve balances of reserve city member banks exceeded required reserves by 30 per cent. Excess reserves of central reserve city member banks were only 8 per cent of those required. In the semi-monthly period ended November 15, Seventh District country member banks held excess re serves which were 52 per cent of their required reserves. Reserve balances of Seventh District reserve city mem ber banks were 25 per cent greater than their required reserves. The policy of holding large amounts of excess reserves in relation to those required is not appropriate when such enormous amounts of money are needed to finance the war effort. That is particularly true in view of the measures which have already been taken by the Federal Reserve System to maintain an adequate amount of reserves and to facilitate adjustments in the reserve positions of individual member banks. To finance the war effort, all banks must participate in proportion to the funds which they have available. Sharp fluctuations in Treasury deposits with Federal Reserve banks cause sharp fluctuations in reserve bal ances and excess reserves of member banks. When Treasury deposits with Federal Reserve Banks rise, usually as a result of heavy tax collections and cash payments for new Treasury issues, reserve balances de cline. When Treasury deposits with Federal Reserve banks decline, chiefly as a result of heavy war expen ditures, reserve balances rise. The increasing amount of war financing and the consequent large temporary shifts in reserves accompanying each financing operation make it desirable to soften, through various means, the impact of Treasury financing on bank reserves. Treasury and Federal Reserve policy can do much to smooth out fluctuations in Treasury deposits with Fed eral Reserve banks and prevent, to a great extent, the wide fluctuations in bank reserves, particularly reserves of member banks in money market centers, which would otherwise occur. Moreover, the impact of Treasury financing on bank reserves emphasizes the need for ut most flexibility in adjustment of reserve positions on the part of individual member banks, through use of war loan deposit accounts to the fullest possible extent, through holdings of Treasury bills and certificates of indebtedness, and through member bank borrowing. There are various means by which fluctuations in Treasury deposits with Federal Reserve banks and tem porary shifts in reserve balances accompanying Treasury operations can be smoothed out. The use of tax savings notes to pay income taxes lessens the heavy concentra tion of Treasury cash receipts from income tax collec tions on quarterly tax dates. Heavy war expenditures, which now amount to about $1,500 million a week, serve to alleviate temporary strains on the money market caused by income tax collections and cash payment for new issues. Purchases of special one-day certificates of indebtedness by the Federal Reserve banks direct from the Treasury are used to adjust the Treasury’s cash position. The Federal Reserve banks purchase such special certificates direct from the Treasury under au thority granted in the Second War Powers Act of 1942. Timing of Treasury bill maturities in periods of heavy income tax collections and payment in cash without re placement was used in March and June to synchronize Treasury cash receipts and Treasury expenditures. Use of War Loan Deposit Accounts Use of war loan deposit accounts by member and non member banks in payment for Government obligations purchased, not only by themselves but by their customers as well, mitigates the sharp fluctuations in reserves caused by Treasury operations. War loan deposit ac counts are accounts due to the United States Govern ment on the books of qualified depositary banks which (continued on page 6) Page 3 UNITED STATES TREASURY Type of Issue Date of Issue Date of Maturity Interest Rate Issue Price Denomina- Treasury Bills Weekly Usually 91 Days Discount bid Discount bid $1,000, $5, $10,000, $100,000 $500,000 a $1,000,000 Treasury Certificates of Indebtedness Dec. 1, 1942 Dec. 1, 1943 %% Par and accrued interest $1,000, ^5,0 $10,000 anc $100,000 Treasury Bonds of 1948 Dec. 1, 1942 June 15, 1948 1%% Par and accrued interest $500, $1,00< $5,000, $10, $100,000 a $1,000,000 Treasury Bonds of 1963-682 (“Victory 2y2’s”) Dec. 1, 1942 Dec. 15, 1968 (see redemption) 2%% Par and accrued interest $500, $VP0i $5,000, $10, $100,000 ar $1,000,000 United States Savings Bonds Series F3 * Dated the first day of the month in which payment is received by issuing agent Twelve years from date of issue Equivalent to 2.53% compounded semi annually if held to maturity; lesser yield if redeemed at earlier date 74% of maturity value $25, $100, $ $1,000, $5,0 and $10,00< (Maturity value) United States Savings Bonds Series G3 Dated the first day of the month in which payment is received by issuing agent Twelve years from date of issue 2.50% if held to maturity; lesser yield if redeemed at earlier date Par Treasury Tax Savings Notes Series A—1945 5 Sept. 1, 1942 Sept. 1, 1945 16 cents a month per $100. If not used for tax payment, no interest paid Par and accrued interest $25, $50, $1 $500, $1,00 and $5,000 Treasury Tax Savings Notes Series C 6 First day of month in which purchased Three years from date of issue Average rate about 1.07% a year if held until maturity; lesser yield if re deemed for cash or tendered for taxes at earlier dates Par $1,000, $5,0 $10,000,» $100,000, $500,000 ai $1,000,000 War Savings Bonds Series E 3 Dated the first day of the month in which payment is received by issuing agent Ten years from date of issue 2.9% a year on principal and accumu lated interest if held to maturity 75% of maturity value $25, $50, $ $500, and $ $100, $50V $1,000, $5,0 and $10,00( • •i 1 Applications from commercial banks in amounts up to $100,000 will be allotted in full, and larger subscriptions on an equal percentage basis. All applications from others than commercial banks will be allotted in full. 2 Upon the death of the owner, the bonds may be redeemed at the option of the duly constituted representatives of the deceased owner’s estate at par and accrued interest, for the purpose of satisfying Federal estate taxes. 3 You may now own up to $100,000 (cost price) of Series F or Series G, or G and F combined, issued in your name in each calendar year, including both those in your name alone and those in your name as co-owner. Limit on Series E is $5,000 maturity value originally issued to any one person during any one calendar year. 4 DigitizedPage for FRASER VICTORY LOAN” SECURITIES Form Redemption Subscription Books Open Bearer certificates On demand at %% at Federal Reserve Banks Each week by bid only All types of investors Bearer certificates with two coupons Not subject to call prior to maturity For commercial banks, Dec. 16, 17, and 18. All others from Nov. 30 for several weeks 1 All types of investors Bearer bonds with interest coupons at tached or registered as to principal and interest. Denomination of $1,000,000 in registered form only. Interchangeable Not redeemable prior to maturity For banks, Nov. 30, Dec. 1, and 2. All others from Nov. 30 for sev eral weeks 1 All types of investors Bearer bonds with interest coupons at tached or registered as to principal and interest. Denomination of $1,000,000 in registered form only. Interchangeable Not callable until Dec. 15, 1963; then and thereafter at par and accrued interest From Nov. 30 for several weeks All types of inves tors, except com mercial banks which accept de mand deposits Registered only On first of any month, six months after issue date, upon one month’s written notice Continuously All types of in vestors, except commercial banks which accept de mand deposits4 Registered only On first of any month, six months after issue date, upon one month’s written notice Continuously All types of in vestors, except commercial banks which accept de mand deposits4 Name and address of single owner in scribed as in income tax return, but not issued in names of two or more persons jointly, Not callable. May be redeemed at pur chase price only, without advance notice Continuously Any individual, corporation, or other entity Name and address of single owner in scribed as in income tax return, but not issued in names of two or more persons jointly Par and accrued interest after six months from purchase date upon 30 days’ notice, or at maturity except if inscribed in name of bank that accepts demand deposits in which case redeemable at par only Continuously Any individual, corporation, or other entity Registered only On demand 60 days after date of issue Continuously Only natural per sons ins 0, Who May Buy 1 v ), 10 >0 [0, > • * I o 't *■ 4 Bonds may be bought in the name of one person; in the names of two persons (but not more than two) as co-owners; in the name of one person with one other peron designated as beneficiary; in the name of a fiduciary; in the name of a custodian of public funds; or in the name of an unincorporated or incorporated body, other than commercial banks. 8 Acceptable at par, and accrued interest for Federal income, estate and gift taxes. Limit $5,000 principal amount Tax Series A for each taxpayer in any one year for each type of tax. Series A Notes may be presented at par and accrued interest for taxes during and after the second calendar month after date of purchase.6 x 6 Acceptable in unlimited amounts for Federal income, estate and gift taxes at par and accrued interest during and after the second calendar month after date of purchase. Page 5 (Continued from page 3) may be credited in payment of subscriptions to most new Treasury issues purchased by these banks and their customers. Banks need not provide immediately available funds at the time subscriptions are allotted if use is made of war loan deposit accounts, for the proceeds of such subscriptions can be retained on deposit until called for by the Treasury. The Treasury withdraws funds from war loan deposit accounts at intervals, as needed, by calls on war loan depositaries for a percentage of the balance, notice of which is given several days in advance by the Federal Reserve bank. Use of war loan deposit accounts allows the Treasury to keep a lower level of deposits with the Federal Re serve banks and permits a closer synchronization of war expenditures with withdrawal of funds from war loan deposits. The transfer of Treasury funds from war loan accounts in commercial banks to the Federal Reserve banks in itself causes a decline in member bank reserve balances. Such effects, however, are usually offset by war expenditures made at the same time, which in them selves cause a rise in member bank reserve balances. For this reason, withdrawal of war loan deposits accom panied by Treasury expenditures causes little change in the level of reserve balances for member banks taken as a whole. To be sure, even with the use of the war loan pro cedure, Treasury financial operations exercise a major influence in the distribution of reserves among various classes and groups of member banks. Member banks in areas where Treasury cash disbursements, chiefly war expenditures, are greater than Treasury cash receipts, chiefly income tax receipts and proceeds from sale of new issues, tend to gain reserves and deposits. Member banks in areas where Treasury cash expenditures are less than Treasury cash receipts tend to lose reserves and deposits. Although withdrawal of war loan deposits accompanied by Treasury expenditures does bring about significant changes in the distribution of reserves, the disturbing effects of Treasury financing on reserve posi tions of banks are reduced to a minimum by the use of war loan deposit accounts in payment for purchases of new Treasury issues purchased by banks, and by their customers. War loan deposit accounts must be secured by col lateral deposited with the Federal Reserve bank, for which all issues of negotiable Government securities are eligible as well as various other municipal and cor porate securities under conditions and limitations set forth by the Treasury Department. The amount for which a special depositary can qualify may, upon the recommendation of the Federal Reserve bank, be any amount which in its opinion is justified to meet the requirements of the depositary bank and its customers. 6 Digitized Page for FRASER Member and nonmember banks not already qualified are urged to apply for designation as special deposi taries. Member and nonmember banks now qualified are urged to make full and effective use of their war loan deposit accounts. Extensive use of the war loan pro cedure becomes more and more important as the magni tude of war financing mounts to higher and higher levels. Longer Reserve Computation Period for Central Reserve and Reserve City Member Banks The effect of sharp day-to-day fluctuations in deposits and reserve balances is lessened by the amendment to Regulation D, effective February 28, 1942, which pro vides that member banks in all central reserve and reserve cities shall make their computations of required reserves on a weekly basis. Under the Board's regula tion, as it has been in the past and as it remains, a member bank is not required to maintain its reserves at the legal minimum every day, but its average reserves held over a prescribed period of time must equal or exceed the average amount required over that period. The amendment was made for the convenience of member banks in central reserve and reserve cities in adjusting their reserve positions. Wide fluctuations may occur from day to day in the deposits and reserves of such banks. The amendment provides that deficiencies in reserve balances of member banks in all central re serve and reserve cities shall be computed on the basis of average daily net deposit balances covering weekly periods. Until February 28, deficiencies in reserve bal ances of member banks in cities where Federal Reserve banks or branches are located and in a few other reserve cities had been computed on the basis of average daily net deposit balances covering semi-weekly periods. Member banks located outside of central reserve or reserve cities continue as heretofore to compute defi ciencies in reserve balances on a semi-monthly basis. Loans and Dividends of Member Banks Deficient Reserves with Member banks are no longer restricted from making new loans or paying dividends even though their re serves are below the minimum requirements. The provi sion of law which had prohibited member banks from making loans or paying dividends while reserves are deficient was repealed in the Act of Congress, approved by the President on July 7, 1942. Regulation D was amended by the Board of Governors on July 14 to con form to the change made in the law. The regulation retains the provisions prescribing penalties for de ficiencies in reserves. Treasury Bills and Certificates In recent months a substantial part of the Govern ment securities offered by the Treasury to commercial banks has taken the form of Treasury bills and certi ficates of indebtedness. On November 25, the amount of Treasury bills outstanding was 5,722 million dollars, more than three times the amount outstanding at the end of March this year. The four issues of certificates of indebtedness now outstanding total 6,739 million dollars, and a fifth issue of over 2 billion dollars will be offered in December. The Federal Reserve banks stand ready to buy all Treasury bills offered at a rate of % of 1 per cent. Moreover, if desired by the seller, any such purchases shall be upon the condition that the Federal Reserve bank upon the request of the seller before the maturity of the bills, will sell to him Treasury bills of a like amount and maturity at the same rate of discount. For all practical purposes these arrangements—the buying rate and the option to repurchase Treasury bills—-make Treasury bills as liquid as excess reserves. Effective October 17, the Federal Reserve Bank of Chicago established a discount rate of % of 1 per cent on advances to member banks secured by direct or fully guaranteed United States Government obligations matur ing or callable in one year or less. This rate supple ments the rate of 1 per cent on advances to member banks secured by other direct obligations of the United States or by eligible paper and on discounts on eligible paper. The discount rate of y2 of 1 per cent on advances to member banks secured by Government securities ma turing or callable within one year or less provides an additional means for member banks to obtain reserve funds, as occasion requires. Continuing the policy which was announced follow ing the outbreak of war in Europe, Federal Reserve banks stand ready to advance funds on United States Government securities at par to all banks. A major traditional function of central banks is to loan to mem ber banks to meet temporary needs. Member banks bor rowing at Federal Reserve banks provides a desirable means of adjustment of reserve positions. It is most desirable that wide distribution of short term Government securities among commercial banks be achieved, that full and effective use be made of war loan deposit accounts, and that member banks borrow at Federal Reserve banks to meet temporary losses of funds. Investment in Treasury bills and certificates provides a reasonable return on otherwise idle bank funds and makes for liquidity of bank portfolios. Bank holdings of Treasury bills and certificates, use of war loan ac counts, and member bank borrowing at Federal Reserve banks together provide for flexibility in adjustment of reserve positions, facilitate the smooth functioning of the money market, and are important factors in the financing of the war. REGIONAL OFFICES UNITED STATES TREASURY VICTORY FUND COMMITTEE SEVENTH FEDERAL RESERVE DISTRICT ILLINOIS NATIONAL BANK OF BLOOMINGTON BLDG., BLOOMINGTON JULIUS P. KLEMM, Regional Manager Telephone: Bloomington 11 INDIANA 1117 CIRCLE TOWER, INDIANAPOLIS WILLIS B. CONNER, JR., Regional Manager Telephone: Franklin 3468 IOWA 508 IOWA-DES MOINES BANK BLDG., DES MOINES JAMES A. CUMMINS, Regional Manager Telephone: Des Moines 4-0329 METROPOLITAN CHICAGO 541 FEDERAL RESERVE BANK BLDG., CHICAGO REGINALD O* DUNHILL, Regional Manager Telephone: Harrison 2320 MICHIGAN FEDERAL RESERVE BANK BLDG., DETROIT EDWIN K. HOOVER, Regional Manager Telephone: Cadillac 6880 WISCONSIN 336 FIRST WISCONSIN NATIONAL BANK BLDG., MILWAUKEE HAROLD F. DICKENS, Regional Manager Telephone: Broadway 3955 Page 7 BANK DEBITS COST OF LIVING Debits to deposit accounts, except interbank accounts indexes of the Cost of Goods Purchased by \Y age Earners and Lower-balaned Workers by Groups of Items October 15, 1942 (1935-1939 averae,e= 100 1 City Chicago.. Detroit... Average: LargeCities Fuel, Elec tricity, and Ice House Miscel Furnish laneous ings Food Cloth ing Rent 118.9 119.9 128.9 128.2 121.3 127.2 114.4 114.5 103.6 107.3 119.5 120.6 111.0 113.6 119.0 129.6 125.9 108.0 106.2 123.6 111.7 All Items Percents are Chang0* from October 15, 1941 to October 15. 1942 Chicago. . Detroit.. . Average: LargeCities + 7.9 + 7.1 +13.6 +15.4 +10.8 +12.0 + 2.1 - 1.9 + 0.5 + 1.9 + 4.9 + 4.7 + 5.0 + 3.3 • + 8.8 + 16.1 +11.6 + 0.5 + 2.1 + 7.6 + 4.4 Source: Bureau of Labor Statistics. Sept. 1942 Oct. 1941 15,697 15,365 + 6 8 + 4 +26 17,495 4,511,519 14,432 31,082 10,619 33,281 11,464 80,803 46,927 35,927 18,489 4,138,286 13,286 27,327 10,764 +39 + 5 +11 +100 + 6 + 2 +32 +14 +20 +128 + 4 13,583 83,355 42,746 30,533 +21 47,027 25,550 13,267 319,596 22 425 59,984 43,478 59,796 24,584 13,138 323,474 14,222 20,836 62,000 40,762 +10 +22 + 3 +14 +16 + 8 3 + 7 12,990 42,051 11,034 30,621 128,427 14,566 16,855 5.439 20 097 67’,450 29,530 12,555 37,584 9,465 31,963 142,752 13,293 13,878 4,796 16,692 62,150 25,968 6,857 23,342 19,670 1,929,745 38,652 86,127 28,554 33,423 51.678 33 129 6,140 18,669 17,493 1,474,252 35.596 76,939 23,183 33,177 33,070 Oct. 1942 Sept. 1942 Oet. 1941 16,385 19,328 15,463 17,883 24,387 4,727,568 15,998 62,239 11,245 33,850 13,829 87,617 49,185 40,482 65,797 30,939 13,567 368,334 Illinois: Aurora................ Bloomington. . . ChampaignUrbana........... Chicago.............. Danville............. Decatur.............. Elgin................... Moline................ Peoria................. Rockford........... Springfield......... Indiana : Fort Wayne.. .. Gary.................... Hammond......... Indianapolis---- MONTHLY BUSINESS INDEXES Data refer to Seventh District and are not adjusted for seasonal variations unless otherwise indicated. 1935-39 average «= 100 Oct. 1942 Sept. 1942 Aug. 1942 Oct. 1941 Sept. 1941 Aug. 1941 160 243 156 229 153 228 157 192 156 186 153 180 119 157 123 153 122 155 120 140 125 142 123 139 146 216 145 205 143 205 144 176 146 172 143 167 137 177 202 151 197 144 186 233 203 206 183 190 134 121 114 144 137 135 173 146 175 147 168 140 168 165 169 166 161 152 Manufacturing Industries: Non-Durable Goods: Employment............................. Total: Furniture Manufacturing: Paper Manufacturing:* South Bend.... Terre Haute.... Iowa: Cedar Rapids . . Clinton............... Davenport......... Des Moines. . . . Dubuque........... Mason City. . .. Muscatine......... Sioux City......... Waterloo............ Michigan: Adrian................ Battle Creek. . . Bay City............ Detroit............... Flint.................... Grand Rapids. . Jackson.............. Kalamazoo........ Lansing............ . Bituminous Coal Production:* Seventh District—Unadjusted.. Adjusted... . 59,206 27,625 +29 + 7 + 9 + 5 +19 + 4 +17 -12 - -25 -12 -31 - 9 -12 -23 - 1 -56 32,701 20,586 21,892 +10 12,796 442.678 13,260 31,553 27,803 8,766,491 9,402,422 12,354 436.823 12,191 27,334 25,724 8,307,694 8,894,247 10,581 364,463 12,298 127 117 256 266 190 422 121 263 535 200 237 155 303 302 Total 41 Centers Total 50 Centers 138 169 192 167 157 153 146 129 203 179 168 156 155 141 104 130 139 125 130 117 148 122 118 153 137 123 124 118 134 195 161 154 143 152 138 118 124 139 126 132 123 155 Sheboygan......... United States: 274 Centers ... 27,480 7,410,316 55,057,000 52,715,000 50,S69,000 +28 +12 22,718 126 +40 + 18 + 2 +15 +17 - 4 -10 +10 -21 -13 -20 h 9 -14 33J53 132 + 2 + 4 + 1S +33 +12 Green Bay......... 144 Department Store Net Sales:* 37,623 8,540 28,675 117,936 13,842 14,112 5,238 Saginaw............. Wisconsin: 142 Building Contracts Awarded: + 3 ** + 5 + 5 + 3 +16 +14 +10 + 9 + 7 + 2' Manitowoc........ Milwaukee......... Oshkosh............. Illinois, Indiana, Iowa, and 59,721 33,993 + 8 + 5 +13 5,883 22,101 19,746 1,838,647 36,885 83,556 24,556 29,426 46,949 30,298 33’,040 Petroleum Refining—(Indiana, Illinois, Kentucky Area):* Per Cent Change October 1942 from (In thousands of dollars) - 4 + 4 h 1 + 9 +15 + 8 + 6 + 6 +14 + 7 + 3 + 4 +21 +21 + 8 + 1 + 18 + 4 + 8 f New reporting centers for which figures were not collected before May 1942. •Increase of less than one per cent. ••Decrease of less than one per cent. •Daily average basis. DEPARTMENT AND APPAREL STORE TRADE Seventh Federal Reserve District Per Cent Change October 1942 from October 1941 Total Net Sales September 1942 October 1941 Per Cent Change January through October 1942 from January through October 1941 Milwaukee......... Other Cities.... + 18.3 + 8.2 + 10.3 + 17.3 + 2.8 + 13.0 - 6.2 +25.5 + 8.8 +17.4 + 8.4 + 19.6 +16.0 +20.4 +31.4 +26.8 +23.4 +31.2 +41.3 +25.2 +20.4 +31.1 +23.0 +20.6 + 5.4 + 3.1 +22.6 + 15.8 + 7.4 + 5.1 +17.3 - 4.4 + 4.3 + 6.6 +15.1 + 6.1 District total. .. +10.6 +23.7 +30.6 Per Cent Change October 1942 from Locality Fort Wayne----Indianaptdis.... Des Moines.... Sioux City..... Detroit............... Grand Rapids.. Apparel stores.. +12.0 •Increase of less than one per cent. 8 DigitizedPage for FRASER . Stocks on Hand (End of Month) Orders Outstanding Per Cent Change October 1942 from Per Cent Change October 1942 from Open Book Sales Instal ment Sales Cash and C.O.D. Sales * - 9.6 +13.3 + 5.2 -17.8 -50.0 - 7.8 +35.5 +53.2 +69.0 +61.0 + - +14.2 - 7.5 + 8.4 October 1941 September 1942 October 1941 2.5 2.1 2.8 2.7 +19.5 +31.0 + 4.6 +14.6 +24.1 +26.0 - 3.0 +39.7 +20.4 +11.7 +72.2 - 3.6 +32.2 + 7.3 +10.2 +43.1 - 6.4 +15.9 +31.7 -20.3 + 0.7 + 3.2 +30.0 + 7.9 +24.1 + 6.5 +44.3 +13.8 September 1942 +10.8 + 6.0 -10.9 -18.5 +48.2 +47.0 + 9.7 + 5.5 -14.8 +48.3 - 1.7 +20.6 +14.0 +11.4 +13.2 - 3.8 +40.7 +70.3 + 2.2 +23.2 - 1.9 -30.8 INDUSTRIAL PRODUCTION National Summary of Conditions (By Board of Governors of Federal Reserve System) Federal Reserve monthly index of physical volume of pro duction, adjusted for seasonal variation, 1935-39 average = 100. Latest figures shown are for October, 1942. DEPARTMENT STORE SALES AND STOCKS SALES STOCKS 1936 1937 1938 1939 1940 1941 1942 Federal Reserve monthly indexes of value of sales and stocks, adjusted for seasonal variation, 1923-25 = 100. Latest figures shown are for October, 1942. COST OF LIVING ALL ITEMS CLOTHING FOOD 1936 Bureau of Labor Statistics’ indexes, 1935-39 average=100. Fifteenth of month figures. Last month in each calendar quarter through September, 1940, monthly thereafter. Latest figures shown are for October, 1942. EXCESS RESERVES OF MEMBER BANKS Wednesday figures, partly estimated. Latest figures shown are for November 11, 1942. Industrial output expanded further in October and the first half of November. Retail food prices continued to advance while prices of other commodities gen erally showed little change. Distribution of commodities to consumers was main tained in large volume. Production—Industrial production continued to advance in October and the Board’s seasonally adjusted index rose 3 points to 188 per cent of the 1935-1939 average. Gains in armament production accounted for most of the increase, and it is estimated that currently well over 50 per cent of total industrial output is for war purposes. In lines producing durable manufactures, approximately 80 per cent of output now consists of products essential to the war effort. Steel output reached a new high level in October as production expanded to 100 per cent of rated capacity. In the first half of November output declined slightly to around 99 per cent, reflecting some shutdowns for furnace repairs, according to trade reports. Activity in industries producing nondurable goods declined less than seasonally in October. Production of foods, especially canning, was unusually large for this time of year and output of textiles continued at a high level. Mineral production, which usually increases in October, declined slightly this year owing chiefly to a decrease in coal production which had been maintained in large volume throughout the summer. Value of construction contracts awarded in October increased somewhat over that of September, according to reports of the F. W. Dodge Corporation. Publiclyfinanced projects continued to account for over 90 per cent of total awards. The Department of Commerce estimates that, in the third quarter of 1942, expenditures for new construction amounted to 4.2 billion dollars, of which 3.5 billion came from public funds. For the first nine months of this year the cor responding figures were 10.2 and 7.7 billion dollars. Construction of military and naval facilities and of industrial buildings accounted for the bulk of the ex penditures. Distribution—Department store sales increased in October and the Board’s sea sonally adjusted index rose to 129 per cent of the 1923-1925 average as compared with 123 in September and 130 in August. In the first half of November sales increased further and were 17 per cent larger than in the corresponding period last year, reflecting in part price advances of about 10 per cent. Railroad shipments of freight were maintained in large volume during October and declined seasonally in the first half of November. Commodity Prices—Retail food prices continued to advance sharply from the middle of September to the middle of October and further increases are indicated in November. Prices of most other goods and services increased slightly in this period. In the early part of October maximum price controls were established for a number of additional foods. Maximum price levels for many other food products have been raised, however, and the Office of Price Administration reports on the basis of a recent survey that in numerous instances sellers are not com plying fully with the regulations now in effect. Bank Credit—Excess reserves of member banks were 2.5 billion dollars in the middle of November, a somewhat higher level than generally prevailed in the preceding four months. At New York City banks excess reserves amounted to about 500 million dollars. Additions to member bank reserve balances during the four weeks ending November 18 were the net result of an increase of 500 million dollars in Reserve Bank holdings of Government obligations, which approximately covered the con tinued heavy currency drain, and a decrease of 200 million in Treasury balances at the Reserve Banks. Holdings of Government securities by reporting banks in 101 cities increased by 1.9 billion dollars to 24 billion during the four weeks ending November 11. Almost half of the increase occurred at New York City banks. There were sub stantial increases in holdings of Treasury notes, bonds, and certificates, and a smaller increase in Treasury bills, while holdings of guaranteed obligations declined. These changes reflected new offerings and retirements by the Treasury during the period. Commercial and industrial loans at reporting member banks in leading cities increased somewhat during the first two weeks of November. Brokers’ loans in New York City increased around Government financing dates, but subsequently declined. United States Government Security Prices—-Prices of United States Govern ment securities were steady in the four weeks ending November 18. Long-term taxable bonds yielded 2.32 per cent, and 3-month Treasury bills sold at a yield of 0.37 per cent. SEVENTH FEDERAL \ IOWA ILL JJ NO RESERVE DISTRICT
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