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HE BUSINESS REVIEW LIBRARY HUG 1 3 w' r mssmB FEDERAL RESERVE BANK OF PHILADELPHIA AUGUST 1, 1946 Business and Finance Since the War Having achieved high levels of employment and income, we are still faced with the problem of economic balance. A review of our progress since V-J Day, made in the light of conflicting expectations, helps to focus attention on potentialities of strong and divergent forces now shaping our future. Now that the labor force is almost fully employed, the attainment of a larger and adequate flow of finished goods and services depends upon the improvement of our industrial efficiency. Restocking the channels of distribution and increasing production are stabilizing forces which help to neutralize the unstabilizing pressure exerted by the large supply of money. Achievement of economic balance calls for continued effort and cooperation on the part of all concerned. Expectations for the First Year of Peace achievement of a peacetime economy of full employment. To know where we are heading it is necessary to know whence we have come. Present eco nomic conditions are to a great extent the result of plans and prophecies which were made prior to the end of the war. For it was in the light of predictions of what was to come that early recon version policy was formulated. To be sure, such predictions are by nature uncertain but their use as a basis for policy is essential, and policies nec essarily predicated upon them may have unfav orable consequences. With the accelerated decline of munitions output after V-E Day the prospect for a post-war deflation loomed large. Many felt that the re duction of Government expenditures after the war might result in large declines in employment and pay rolls. The consequent drop in consumer purchasing power was seen as a deterrent fac tor in reconversion and a long-run threat to the On the other hand, the accumulation of a record volume of savings during the war and the temporary inability of industry to meet the de mands for consumers’ goods presented inflation ary possibilities. The need for replacing depleted inventories and the time requirements for plant reconversion, especially in durable goods indus tries, made shortages appear inevitable. It was estimated, and very accurately, that the physical aspects of reconversion could be completed within a few months; but the “catching up” period in which many necessary readjustments would impede production while consumers clam ored for goods was viewed as a danger. Many estimates and projections were made of the level of gross national product which would be required to provide full employment. These estimates varied from $155 billion to $220 bil lion at current prices. Full employment for a Page 77 post-war labor force of 60 million was generally taken to mean 57 million at work with 3 million unemployed due to seasonal factors and normal frictions. Many observers doubted that the first year after the war would see the attainment of high levels of income—predictions of four, six, and even eight million unemployed were not uncommon. But side by side with expectations of unemployment was the anticipation of a pos sible price inflation during the reconversion period, especially an inflation that would affect only narrow segments of the economy. Recommendations for fiscal and monetary policy reflected the expectations for both infla tionary and deflationary tendencies. Because no one was certain what the future would bring, attempts were made to devise policies which would cover any eventuality. Some authorities recommended that Government expenditures be reduced but that a program of public works be kept on the shelf in case recession threatened. Post-war tax plans appeared in large numbers, all endeavoring to devise a tax system that would stimulate full employment as well as pre vent inflation. The public debt, it was believed, should be reduced but there was some skepti cism as to the possibility of pursuing an anti inflationary debt policy without disturbing re funding operations. Monetary policy, it was frequently empha sized, should continue to be directed toward the maintenance of low interest rates in order to hold down the cost of servicing the public debt and to stimulate business activity. Yet it was becoming apparent that maintenance of the pat tern of rates on Government securities compli cated the problem of restricting monetary expansion. marginal enterprises formed a special aspect of this problem and provoked discussion of Govern ment lending activities and guarantee devices. By way of answering these questions, banks pre pared to meet demands for private credit by establishing credit pools, by attempting to re vitalize correspondent banking relationships, and by indicating their intention of expanding into new fields and devising new lending tech niques. All the while there was some question as to whether there would be much demand for bank loans. It was known that business and individuals held large amounts of liquid assets but there was no information on the distribution of those assets. At any rate, banks were pre pared to supply whatever credit might be de manded by private enterprise—one of the few instances in the economic picture where supply was more certain than demand. Since it was felt that loans might increase and since it was thought likely that banks would be called upon to absorb more Government securi ties when nonbank investors liquidated some of their holdings, the probability was that bank deposits would not decline and might even increase. The return of a substantial volume of currency from circulation was considered to be another factor likely to increase deposits. De posit shifts among areas, among banks, and among owners were expected, however, and banks were encouraged to anticipate future movements by adjusting their loan and invest ment policies accordingly. Developments in the Early Months of Reconversion De-control Precipitates a Wage-Price Crisis In the field of banking, plans for the first post Basing their actions upon the need for coun war year centered about the return to peacetime teracting deflationary tendencies, Government bank lending, relatively little attention being war agencies moved speedily to relax restrictions paid to the possible inflationary effects of such on industry and labor immediately after V-J lending. Temporary problems of reconversion Day. All but a few critical materials were ex credit were approached through the establish empted from rationing, allocation, or priorities ment of the T-loan arrangement to provide control in order to avoid hampering reconver credit to war industries upon termination of war sion in any way. Restrictions on construction, contracts. The longer-run problem revolved first industrial construction and later all build about the basic function of banking—would ing, were withdrawn in an effort to stimulate commercial banks be content to provide riskless capital investment and to provide for plant re credit on the basis of Government securities, or conversion and alteration. Manpower controls would they take vigorous action to provide credit and the War Labor Board were abolished and to private enterprise in their own communities? wages were again made subject to collective bar The problem of credit for small business and gaining between employers and employees. Price Page 78 control was retained as a lone protector of price stability. The Government reconversion wage-price policy had been announced in the second quarter of 1945. In order to compensate for decreased take-home pay, some wage rate increases were believed necessary. It was hoped that the return to the conditions of peacetime production would permit this to occur within the general frame work of existing prices. The Office of Price Ad ministration was ready to make adjustments in individual cases but it was determined to hold the price line against the inflationary pressures which might be generated by shortages. Thus prepared to combat both deflationary and infla tionary developments, the Administration sought to stabilize business conditions while peacetime production got under way. During the last quarter of 1945 numerous wage increases were granted. Hundreds of strikes occurred in instances where price ceilings compelled employers to resist increased wages. The effect of work stoppages on a productive system whose inventories were depleted and whose distribution pipe lines were dry was im mediate and severe. Although working time lost directly as a result of strikes was not serious in the last quarter of 1945, materials shortages resulting from strikes delayed production and resulted in “lost motion” in many industries. Physical reconversion of plants for peacetime operation had been nearly completed by the end of the year. But instead of greater effi ciency and a steadily rising flow of products which might make wage boosts possible, indus try was faced with the shortages, uncertainties, and interruptions which make for higher oper ating costs. Strikes generated more strikes. Al though a steadily increasing share of total out put was for civilian consumption, industrial pro duction fluctuated erratically and failed to make substantial gains. It became apparent that higher wages would mean higher prices. A crisis in wage-price policy came during the first quarter of 1946. Nation-wide walkouts in basic industries, including steel, automobiles, and electrical equipment, precipitated a sharp decline in industrial production. In February an impasse was overcome by the issuance of a new stabilization order which granted price relief to hard-pressed producers who raised wages. A definite limit was placed on the amount of wage increase which the Wage Stabilization Board would allow, and once new prices were set they were to be held. Some degree of wage control had been reestablished. Stability was sought through a realignment of wages and prices which, it was hoped, would establish more equitable and more workable economic relation ships at a slightly higher price level. The settle ment of disputes in steel and other important industries subsequent to the promulgation of the February stabilization order enabled produc tion to recover to the level it had reached before the wave of strikes began. Controls were reestablished in another area during the first quarter of the year. The acute housing shortage, accentuated by the needs of returning veterans, required priorities assistance for residential building. What was happening to consumer expendi tures while reconversion was progressing? Far from falling off sharply as had been feared, spending continued at a high level. After a dip in the spring of 1945, department store sales again moved upward and by the end of the year they had reached record proportions. In every month of the first quarter of 1946 new records were made. From V-J Day to March the depart ment store sales index rose over 30 per cent. Total consumer expenditures during the first quarter of 1946 were at the rate of $120 billion a year—$15 billion ahead of the same period in 1945. There were several reasons for this develop ment. Physical reconversion had been accom plished rapidly and without the degree of fric tion that had been expected. Income payments to individuals were 5 per cent below the pre vious year, but with reduced taxes spendable income of individuals was maintained practi cally undiminished. A huge backlog of wartime savings was available to buy goods which had previously been unobtainable. Finally, the high rate of savings which had obtained during the war was drastically reduced. People saved less and spent more. It became clear that business was faced with an inflationary situation. The dangers of unem ployment and low incomes remained in the minds of many as a long-run problem, but the gap between unprecedented spending power and a small flow of finished goods, and the ef fects of higher wages and rising prices, made the fear of an upward spiral unquestionably domi Page 79 nant. The upward movement of wholesale prices accelerated during the first quarter of 1946. In nine months OPA had authorized over 500 in dustry-wide price increases, and more were on the way. In the urban real-estate market, where prices were not controlled, prices which had risen at the annual rate of almost 7 per cent during the preceding 5% years increased 18 per cent in five months after V-J Day. In the absence of supplementary wage, rationing, and allocation controls and with a let-down in war time restraint, it became increasingly difficult for OPA alone to hold the price line until supply might catch up with demand. Inflation Emerges as the Main Financial Problem Financial developments after V-J Day re flected the continuation of certain wartime pol icies as well as the revival of typically peacetime activities. Toward the end of 1945 tax burdens were made considerably lighter, partly in an effort to facilitate rapid reconversion and re sumption of peacetime production. Individual income taxes were reduced by raising exemp tions and making other adjustments; the excess profits tax was repealed, rates were reduced, and various other changes made in corporation THE FINANCIAL PICTURE SINCE V-E DAY COMMERCIAL BANKS TREASURY BILLIONS BILLIONS (REPORTING MEMBER BANKS-U.S.j PUBLIC DEBT PUBLIC CREDIT PRIVATE CREDIT TREASURYk BALANCE ' llll. I...I i i i i 1945 1945 SECURITY YIELDS y EXPENDITURES CORPORATE “ BONDS RECEIPTS lilt . ..... 1946 LONG-TERM ■* GOV'T FEDERAL RESERVE MEDIUM-TERM GOV'T BILLIONS $ 30 CURRENCY IN /CIRCULATION ------------' 20 llll t—1—1— 1945 Page 80 1946 NOTES — CERTIFICATES X-F^R. CREDIT 1 1 1 1 1 » 1 1 1 1 1 1946 1 l 1 i-l 1945 1946 CHANGES IN PUBLIC AND PRIVATE BANK CREDIT SINCE V-J DAY (Reporting member banks in 101 cities—United States) Aug. 15, 1945 to Feb. 27, 1946 Percentage change Goverment securities........................................................................................................................................... Bills.................................................................................................................................................. Certificates.................................................................................................................................................... Notes............................................................................................................................. Bonds.............................................................................................................................................. Guaranteed......................................................................................................................................................... Loans on Goverment securities................................................................................................................. Total public credit.................................................................................................................................. Loans (excluding Government securities loans).............................................................................. Commerical, industrial, and agricultural........................................................................................ Real estate.................................................................................................................................................... Other...................................................................................................................................................................... Non-Goverment investments......................................................................................................................... Total private credit............................................................................................................................. Total loans and investments......................................................................................................................... + + + + + 6% 7 24 17 8 46 17 7% + 17% + 24 + 7 + 4 t- 13% + 8% Percentage of the total increase + 54% - 2 + 49 - 32 + 40 * + ii + 65% + 32% + 28 + i + 2 + 3 + 35% 100% Feb. 27, 1946 to July 17, 1946 Percentage change + + + + 14% 26 26 37 1 14 34 15% 7% 6 16 9 * + 6% - 11% Percentage of the total decrease - 94% - 5 - 45 - 40 - 4 * - 18 -112% + 12% + 6 + 2 + 4 * + 12% 100% ♦Less than 0.5 per cent. taxes. The Treasury continued to borrow and to maintain a large working balance. Govern ment expenditures for war purposes, of course, were reduced rapidly after the cessation of hos tilities, more than offsetting a rise in non-war expenditures. The continuation of wartime fiscal and mone tary policies contributed to the extension of basic wartime trends in banking and the security markets. Deposits still rose as a result of bank extension of public credit—that is, purchases of Government securities and loans made for the purchase of Government securities. Member bank reserves were supplied by Federal Reserve operations designed to offset the demand for cur rency and to maintain the pattern of rates on Government securities. The large bank demand for Governments and the pressure of nonbank funds extended the downward trend of interest rates to the lowest levels on record. Although this expansion of public credit rep resented almost two-thirds of the total increase in bank credit during the six and a half months after the end of the war, private credit was growing steadily during the same period at a rate considerably more rapid than that of public credit. Banks already were returning to risk lending. This incipient revival of private risk credit extended by banks sharpened problems of the adequacy of bank capital, reserves for losses, and competition for new business. Industry, setting out to reconvert, replace worn-out plant and equipment, and expand op erations, obtained part of the necessary funds from banks. Commercial, industrial, and agri cultural loans, as shown in the accompanying table, rose by one-fourth’ from August 15, 1945 to February 27, 1946. Another part of the funds for business financing during the recon version period was supplied by the businesses themselves. Demand deposits of manufactur ing and mining concerns held by Third District banks, for example, declined by 8 per cent be tween July 1945 and January 1946. Still an other part of the funds required by industry was obtained by the issuance of securities. In the second half of 1945 the average monthly volume of corporate security issues for new money was almost one and a half times the average monthly volume during 1941. Banks increased their holdings of these and other non Government securities, partly because they were searching for higher yields than those offered by eligible long-term Governments. In addition to supplying credit to business, banks expanded their outstanding volume of consumer credit, despite continued shortages of consumers’ durables. Real-estate loans also rose somewhat, reflecting the revival of construction activity as well as rising real estate prices. The perpetuation of many wartime policies, the continued growth of public credit extended by banks, and the revival of private credit re sulted in a persistent expansion of the money supply. By early 1946, financial developments definitely reflected the fact that the immediate threat was inflation, not deflation. Page 81 Steps Toward Stability Production Gathers Momentum The achievement of economic balance involves the problems of the rate and efficiency of pro duction as well as the supply and the use of money. The increasing flow of goods available to meet the demands of both individuals and busi nesses during the second quarter of the year marked an important step toward stability. For the first time in a year the total output of the civilian economy increased. Gross national prod uct reached a rate of $185 billion a year—a rec ord peacetime level, even allowing for price changes. Industrial production to be sure was inter rupted in April and May. The soft coal strike, coming just as industry had recovered from the February steel dispute, set production back by forcing a gradual shut-down of iron and steel output. But the settlement of the coal dispute and other important strikes brought production up sharply by the end of the quarter. Pre liminary estimates of the Federal Reserve Board place June production at a new post-war peak— 170 per cent of the 1935-1939 average. In the Third Federal Reserve District, where manu facturing industries are for the most part a few steps removed from the output of primary ma terials, the effects of the coal strike were felt somewhat later, and full recovery had scarcely been achieved by the middle of the year. The prospect for the immediate future, however, is for much greater production. It is important to emphasize that “soft” goods continued to reach the markets steadily in large quantities. Almost the entire impact of the strikes was felt in the durable goods industries. Most likely a supply-demand balance will be achieved first in the nondurable fields. Since purchases of many items in this category are of the non-deferrable type—clothing, fuels, and foods, for instance—this would be a most impor tant contribution to the establishment of more stable conditions. Contributing to the smoother flow of goods through the country’s channels of production and distribution was an appreciable increase in bus iness inventories. Although there may have been some hoarding of finished goods toward the end of the period in anticipation of price increases, all evidence points to the fact that such with Page 82 holding has not been excessive and that most of the increase has been in raw materials and goods in process. With industry’s pipe lines fill ing up, the output of finished consumers’ goods should accelerate greatly in the coming months. Such interruptions in production as may occur will be cushioned to a greater extent. The nation’s civilian labor force increased substantially during the second quarter of this year. For the most part this was due to the con tinuing return of veterans, but the return of women to the agricultural labor force, which began in March, also swelled the total. The size of the civilian labor force—estimated at 59,300, 000 in June—is significant in that it promises an over-all adequacy of manpower to do the job that is required. The improving composition of the labor force, however, is even more impor tant. Over-age workers have dropped out. Men are available to replace women in heavy work undertaken by the latter during the war. Less efficient workers may be down-graded as skilled men return to civilian jobs. Nevertheless, labor shortages persist in some lines. A decline of women in nonagricultural jobs has created a tight situation in certain “soft” goods industries. In the Philadelphia area the United States Em ployment Service reports openings in nearly 100 different occupations, with critical needs devel oping in a number of skilled jobs. While these conditions are troublesome, a general manpower shortage is not expected to limit production in the immediate future. The flow of greater quantities of materials, restoration of industrial peace, accumulation of larger inventories, and more adequate man power will all contribute to increased industrial efficiency for the production of more goods at lower cost. Before the pattern of industrial out put was so drastically altered by the war the introduction of improved methods and machines increased the efficiency of production year after year. As civilian products once again begin to roll from the assembly lines in large quantities and as working crews become “grooved” into their jobs, there is every reason to believe that productivity will resume its upward trend. In creased industrial efficiency, as well as increased efficiency in the service fields, will be an impor tant stabilizing factor in the immediate future. The Demand for Goods and Services The highest level of productive activity in the nation’s peacetime history is matched by un- CHANGES IN INCOME PAYMENTS (ANNUAL RATES; SEASONALLY ADJUSTED) BILLIONS TOTAL*'* SALARIES AND WAGES-TOTAL SALARIES AND WAGESPRIVATE shows. Government pay rolls have declined sharply. But salaries and wages in private industry and trade have recovered since last fall. Other payments, including dividends, profits, unemployment compensation, and vet erans’ mustering out pay, have also risen. The net result is a level of income payments very close to the wartime peak of February 1945. If kept within bounds, the strong demand for goods generated by high incomes can be the basis for stabilization at a level of production high enough to sustain full employment. How ever, if competition for goods among consumers and business enterprises should lead to inordi nate bidding up of prices, a disastrous inflation may be touched off. A speedy, uninterrupted output of goods thus is of paramount import ance. Toward Financial Stability Beginning in March, the Treasury pursued a policy of reducing the public debt by drawing on OTHER PAYMENTS its working balance. About $13y2 billion of ma SALARIES AND WAGESturing marketable Governments was retired be GOVERNMENT tween March 1 and August 1. The retirement of securities held by commercial banks together 1939 1940 943 1944 1945 1946 with the repayment of some of the loans for the purchase of Government securities reduced the volume of public credit outstanding at commer precedented demand. Consumers’ goods of many kinds are snapped up as soon as they appear on cial banks and contributed to a decline in the dealers’ shelves, and backlogs of orders for pro total money supply. ducers’ goods are large. In the Third Federal Just as incomes derived from private activity Reserve District department store sales have risen to the highest level of all time. The index continued to increase while incomes from Gov for the month of June was 78 per cent above the ernment pay rolls declined, private credit still rose when public credit declined. But the growth average for the year 1941. of private credit was considerably less rapid Demand arises out of urgent need supported between February and June 1946 than between by accumulated wartime savings, high levels of August 1945 and February 1946 and reflected a current income, and reenforced optimism con different situation among the various types of cerning future business. In June almost every private credit. Commercial, industrial, and agri body had a job. Unemployment was only 2% cultural loans rose less rapidly in the second million. Average weekly earnings of manufac period than in the first, while real-estate loans turing workers were somewhat below the levels and consumer credit expanded at an accelerated of 1944 and 1945 but they were much higher rate. than at any time prior to the war and were in In the spring of this year there were some creasing. The average hourly wage rate of $1.07 in May was an all-time record. Farm in indications that the downward trend of interest come also was very high. Income payments to rates had ceased. The chart illustrates the up individuals in May were at a rate of $161 billion ward turn of yields on various types of Govern a year, an increase over all of the preceding ment securities as well as corporate bonds. In nine months. There has also been a reshuffling April the Reserve Banks eliminated the prefer of incomes since the war, tending toward a more ential discount rate of % of 1 per cent on ad normal pattern, as the accompanying chart vances to member banks secured by Govern SOURCE OF DATA S DEP'T OF COMMERCE Page 83 ment obligations due or callable in not more than one year. Leading banks in the money centers raised their rates on loans to brokers and dealers for the purchase of Government securities. Several of the Federal Reserve Banks recently increased their minimum buying rates for bankers’ acceptances. Finally, call money rates have risen after remaining unchanged for some years. During the coming months any further retire ment of Government securities held by com mercial banks would be anti-inflationary. The effect of such action on the volume of bank deposits however, probably still would be offset to some extent by continued growth of private credit. Over the remainder of the year more than $18 billion of marketable Governments other than bills will fall due. The Treasury has just redeemed in cash about one-half of the $2y2 billion of certificates maturing on August 1 but thus far has not announced its plan for handling later maturities. High taxes and re duced federal expenditures will help curb in flationary pressures by helping to balance the federal budget. Intensive efforts to sell savings bonds to nonbank investors through pay roll deductions should be continued as an important part of the anti-inflationary program, and to the extent that holdings of the federal debt can be shifted from the banks to individuals, a re duction in money supply will have a stabilizing influence. The Inflationary Tug of War Persistence of Shortages Despite record production in many fields, some critical shortages persist. The output of many types of consumers’ goods is far short of requirements. Some of these products are actu ally being turned out at well above the pre-war rate. Other items, of which motor vehicles are the most conspicuous, still lag far behind. Resi dential building is proceeding at a rate which is better than that of 1941, but the industry has a long way to go to meet minimum housing re quirements. Nonresidential construction has been drastically curtailed by the Veterans Hous ing Program, and a large backlog of building re quirements exists for business and industry. Although recent legislation has stimulated the output of building materials and the recruiting of construction workers, the attainment of a bal ance is a long way off. The current real estate Page 84 boom reflects the critical nature of the housing shortage. Food supply is another “shortage” area. The nation’s farms are producing as never before and there is enough for all to eat. But increased consumption of higher quality foods by domestic consumers, coupled with the requirements for foreign shipments, has created a situation in which people are willing to buy more food than was being offered for sale at OPA ceiling prices. During the second quarter of the year certain foods were among the most conspicuous “black market” commodities. The Price Crisis The steadily developing conflict of opinion with respect to price control was climaxed by its temporary elimination after the end of June. The pressure of increased costs on the one hand and unsatisfied demands for goods on the other had forced continued upward adjustments of prices. Wholesale commodity prices had increased almost 4 per cent during the second quarter. Up grading of consumer purchases continued. During three weeks without price control the Bureau of Labor Statistics index of sensitive wholesale commodity prices showed an increase of almost 25 per cent. The rise was led by foods and grains where subsidies had been eliminated, but many other commodities subsequently joined the upward trend. Reactions were varied. Ac cording to the Journal of Commerce, hides jumped 67 per cent; cotton print cloth rose over 18 per cent; and metals rose about 7 per cent. The interim without OPA control was too short and too uncertain to indicate the course of “free” prices. It appeared that while the price rise was sharp at the beginning of the period and was still continuing when controls were rein stated, there was a tendency for those prices which had risen fastest to level off. Consumer resistance to high prices was scattered and, for the most part, unorganized; but in some areas prices of meat and dairy products were forced down as store shelves filled up. While most general merchandise at the retail level had not yet been affected by the up-swing, department store sales in July showed the usual seasonal de cline, indicating caution on the part of buyers rather than a stampede of “scare” buying. Manufacturers and businessmen generally made a genuine effort to hold prices in check and did not take advantage of the opportunity for specu lative profits. How effective the new price control legisla tion will be will not be known for some time, but the manifestations of business and consumer re straint in the recent past are encouraging. Rap idly rising prices forestall the attainment of sta bility. Without definite knowledge of produc tion costs, industrial planning is difficult. There is a tendency for hoarding of inventories to take place at all stages of production. Labor, faced with mounting living costs, eventually would demand higher wages which in turn would mean higher and higher prices. Selfreenforcing interruptions of output, labor un rest, and hoarding of goods would culminate in painful readjustment. I The Role of Money and Credit Any inflationary spiral which might ensue from the failure of price controls will compli cate existing anti-inflationary monetary and fiscal policies. Press reports have indicated that several measures might be considered in the event of runaway prices. Among these are a re quest for higher tax rates, revival of the excess profits tax, postponement of state aid grants for public works, and a halt in further debt retire ment and maintenance of a high Treasury bal ance as long as uncertainties continue. The President just recently has called for a reduc tion in Government expenditures. Further expansion of private credit extended by banks will be as inflationary as further mone tization of the public debt, particularly if such credit is used for inventory speculation or ex cessive expansion of productive capacity or the purchase of scarce consumers’ goods. The possibilities of growth in consumer debt once consumers’ durables become available in large volume are of particular importance. Much will depend upon the behavior of individuals and business. The use of vast holdings of liquid assets for consumer purchases and unrestrained business expenditures not only would tend to raise prices but also might necessitate further bank purchases of Governments in refunding operations. There is reason for suspecting that liquid assets are not distributed as broadly as has usually been assumed, so that the inflation ary danger of the masses of the population un loading liquid assets may not be so great as once believed; instead the danger may be in a few large holders using their liquid assets for specu lative purposes. However, if great numbers of the population possess no liquid assets to speak of, the demand for consumer credit may be all the larger. In the long run a high level of in come is essential to sustain the purchasing power of those individuals who have accumulated little or no savings. In the short run, however, the danger of inflation from the use of liquid assets hinges largely upon the degree of restraint exer cised by the holders of such assets. Just as moderation on the part of individuals and business will prevent the bidding up of prices, restraint on the part of banks in extend ing credit will limit the growth of the money supply. For, as the Board of Governors pointed out in its last Annual Report, “. . . the money supply can ... be increased on the voli tion of the banks irrespective of national mone tary policy and without control such as exists in other principal countries.” In order to re gain such control and yet prevent the interest payments on the public debt from rising above those now being paid, the Board of Governors has submitted to Congress certain credit control proposals involving the grant of additional power to the Board to cope with the situation. Conclusion With the upturn of production in the second quarter of 1946 we have reached a level of na tional income and employment which is unprece dented in our peacetime history. Our economy has achieved a rate of gross national product which approaches or exceeds many of the calcu lations set forth as desirable goals for full em ployment. However, the fact that the recupera tive powers of this nation are so great that pro duction records have been attained more quickly than many had anticipated is no assurance that this position will be maintained without vigilance and effort. If prices and wages continue to play leap-frog on an ascending stairway of excessive credit ex pansion, the type of collapse which followed World War I may eventually come. On the other hand, if a balance among wages, produc tion, prices, and money supply can now be achieved, and if cooperation and restraint on the part of business, banking, labor, and other groups are obtained, we may be well on the way to economic stability at a level higher than has been known heretofore. Page 85 BUSINESS STATISTICS Production Employment and Income Philadelphia Federal Reserve District in Pennsylvania Adjusted for seasonal variation Not adjusted Per cent change Indexes: 1923-25=100 1946 from 6 Year mos. 1945 ago Mo. ago INDUSTRIALPRODUCTION M AN UFACTURING............... Durable goods........................... Consumers ’ goods................. Metal products......................... Textile products....................... Transportation equipment. Food products........................... Tobacco and products......... Building materials.................. Chemicals and products. . . Leather and products........... Paper and printing................. Individual lines Pig iron.......................................... Steel................................................. Iron castings.............................. Steel castings............................. Electrical apparatus.............. Motor vehicles............................ Automobile parts and bodies Locomotives and cars............. Shipbuilding.................................. Silk manufactures...................... Woolen and worsteds.............. Cotton products......................... Carpets and rugs....................... Hosiery............................................. Underwear..................................... Cement............................................. Brick.................................................. Lumber and products............. Bread and bakery products. Slaughtering, meat packing. Sugar refining............................... Canning and preserving.... Cigars................................................ Paper and wood pulp.............. Printing and publishing......... Shoes................................................. Leather, goat and kid............. Explosives...................................... Paints and varnishes............... Petroleum products.................. Coke, by-product...................... COAL MINING............................ Anthracite...................................... Bituminous.................................... CRUDE OIL............................ ELECTRIC POWER................. Sales, total..................................... Sales to industries...................... BUILDING CONTRACTS TOTAL AWARDS!..................... Residential!.................................. N onresidential f........................... Public works and utilities!.. 96p 97p 92p 99p 93 73p 143p 120p 104 39p 138p 83p 119 129r 96 0 132 4- 1 96 189 90 92 100 92 r 161 -I- 1 66 -f- 1 73 430 4- 6 135 123 r - 4 125 89 - 15 121 38 + 9 36 159r 4- 7 129 80 r - 6 88 100 + S 114 80 86 81 94 110 17 104 54 68 r 82 r 73 110 116r 16r 88 63 101 128 73 169 249 51 125 91 91 72p 53 71p 81 146 46p 51 28 91 73 67 76 142 44 38 r 29 88 64 46 56 66 135 36 51 32 117 303 108 105 194 122 88 r 119 124 54 66 86 193 74 73 79 23 295 111 52 179 88 86 103 104 57 r 201 91 188 159 86 r 82 r 114 323 426 429 449 419 283 208 223 160 223 80 94 202p 104 89 125 115p 52p 71 91 207p 80p 62 55 422 307 206 235 164 197 51 Industry, Trade and Service June 1946 from June May June 1946 1946 1945 -26 -26 -52 4 8 -42 +n -67 _ o +16 + 2 -13 June 1946 May 1946 June 1945 Employment Indexes: 1932=100 94p 95p 91 90 25 27 50 6 47 8 60 1 26 15 18 3 21 94 Tip l44p 107p 112 42p 139p 81p 118 73r 163 64 70 430 141 112 116 96 118 41 37 r 131r 160r 77 r 80 99 115 +19 44+ — — + 4 - 18 5 11 15 5 3 18 14 -21 -32 412 -45" -56 -67 -17 -41 + - 20 39 3 59 57 44 28 47 76 88 80 97 110 20 104 56 96 71r 86 r 130 72 76 176 114 249 106 62 21r 125 93 94 62 — 4 4 4 4 4 4 — 0 2 5 6 6 3 3 35 4 + 3 413 +15 427 +22 4 8 426 +1 -14 + 4 + 4 4 4 + - 2 14 IS 22 14 3 91 I 18 86 69p 50 69p 79 146 55p 53 29 87r 69 50 66 76 143 50 40 r 27 -28 480 +13 + 17 + 3 422 +n - 7 -64 0 +10 -50 -28 -33 4 3 - 6 - 5 - 5 -10 4 + 4 4 4 + - 7 20 6 27 7 23 3 13 67 0 0 - 38 + 5 4 11 - 22 - 6 - 5 - 6 - 15 76 100 145p 112 88 124 110p 53p 71 93 207p 80p 60 55 103 108 129 147 118 88 r 120 113 49 67 91 194 77 73 79 21 307 107 56 129 95 85 102 99 57 r 201 93 189 159 84 r 82 r 100 399 446 341 - 26 - 11 4 4 - 15 4 l 4 5 - 7 - 3 4 8 4 7 4 7 4 8 - 15 - 30 4410 4 3 - 1 4 1 + 8 78 4 72 334 - 1 + 6 + 3 - 11 4163 4137 ** ** 4130 + 106 - 41 - 44 315 405 GENERAL INDEX................ Manufacturing.......................... Bituminous coal mining. . . Building and construction.. Quar. and nonmet. mining. Crude petroleum prod........... Public utilities........................... Retail trade................................. Wholesale trade........................ Hotels............................................. Laundries..................................... Dyeing and Cleaning............ Allentown............. Altoona.................. Harrisburg........... Johnstown............ Lancaster.............. Philadelphia.... Reading.................. Scranton................ Wilkes-Barre.... Williamsport.... Wilmington.......... York......................... May 1946 + + + + 2 1 2 1 3 0 + I 0 + + + + 3 1 5 3 Factory payrolls Building permits value 65 135 44 53 33 336 410 310 402 288 427 433 344 210 249 168 188 199 236 168 156 80 5 73 317 Retail sales May 1946 June 1945 May 1946 June 1945 May 1946 June 1945 -21 -11 - 6 +n - 8 -15 + 3 -17 +13 _ } + 9 +32 0 0 + 2 + 4 -28 - 1 -12 - 3 -10 -25 + 7 -11 - 1 + 14 +353 - 66 - 81 + 12 - 26 ** - 31 0 + 54 - 9 - 45 + 42 +145 ** + i - 19 + 90 + 4 ** + 7 + 3 +13 + 2 - 2 +1 + 6 - 2' + 4 +12 +32? +47 +40 +31 +32 +36 +40 +36 +45 +45 - 4 + 5 - 3 0 + 2 + 9 + 6 - 1 -19 + 1 + 2 +21 + 4 + 3 + 8 -10 - 5 - 1 -13 + 4 + 8 -20 + 7 — 1 -17 - 7 -31 0 -29 - 7 + 10 +107 +927 +174 - 2 + 4 * Area not restricted to the corporate limits of cities given here. ** Increase of 1000% or more from the low level of a year ago. Page 86 +45 +34 +38 +25 +13 + 18 + 7 +15 +21 + 6 + 5 300 389 461 144 331 276 184 208 188 257 239 246 Employment* + 8 + 2 +441 + 4 + 10 + 4 + 2 + 2 + 1 + 1 + 3 + 2 - 6 -16 +27 +23 +30 + 6 +23 +26 +22 +37 +30 +28 Payrolls* Per cent Per cent June change from June change from 1946 1946 index May June index May June 1946 1945 1946 1945 Indexes: 1923-5 =100 TOTAL......................................... Iron, steel and products.... Nonferrous metal products. Transportation equipment. Textiles and clothing............. Textiles....................................... Clothing...................................... Food products............................ Stone, clay and glass............ Lumber products...................... Chemicals and products.. . . Leather and products............ Paper and printing.................. Printing....................................... 99 97 193 87 83 78 103 118 100 53 108 86 122 119 +1 0 + 2 - 1 + 2 + 1 + 2 - 1 + 5 + 4 - 1 + 1 + 1 0 - 9 -17 -12 -38 + 9 +11 + 4 - 2 +22 + 3 - 5 + 19 +21 +24 159 184 426 149 149 140 189 195 164 90 187 146 207 194 Cigars and tobacco............... Rubber tires, goods.............. Musical instruments........... 54 141 115 + 2 0 + 1 +12 - 1 +39 87 333 197 2 1 2 2 1 1 1 0 7 7 0 0 1 1 -16 -28 - 6 -41 +22 +24 + 16 0 +24 + 3 -10 +20 +32 +38 + 2 + 1 2 +17 + 8 +83 + + + + + + + + + + + * Figures from 2763 plants. Debits June 1945 3 3 7 7 - 2 - 9 Manufacturing Factory workers Averages June 1946 and per cent change from year ago May 1946 + + + + + 3 + 1 +137 + 3 + 3 0 + 2 0 + 1 + 2 + 3 + 1 Hours and Wages June 1945 -22 - 7 -27 0 154 75 66 96 147 113 129 119 128 108 105 55 Local Business Conditions* Factory employment 125 84 62 44 p—Preliminary. ^ Unadjusted for seasonal variation. ! 3-month moving daily average centered at 3rd month. r—Revised. Increase of 1000% or more from the low level of a year ago. Percentage change— June 1946 from month and year ago Per cent Per cent June change from June change from 1946 1946 index May June index May June 1946 1945 1946 1945 128 130 4 + 4 + 4 + Payrolls TOTAL................................. Iron, steel and prods.. . Nonfer. metal prods.. . Transportation equip.. Textiles and clothing. . Textiles............................. Clothing........................... F ood products................. Stone, clay and glass. . Lumber products........... Chemicals and prods... Leather and products.. Paper and printing.... Printing............................ Others: Cigars and tobacco... Rubber tires, goods. . Musical instruments. Weekly working time* Hourly earnings* Weekly earnings! Aver age Ch’ge Aver Ch’ge Aver hours age age 38.7 37.2 40.4 40.5 39.3 40.2 36.7 41.5 38.0 41.6 39.6 38.8 41.9 40.8 38.4 42.8 43.7 * Figures from 2620 plants. -13 $1 .119 + 3 $43.27 -19 - 6 - 2 1.213 1.103 1.281 .910 .928 .858 .915 1.072 .869 1.209 .876 1.083 1.244 + 6 + 9 - 2 +12 + 12 + 8 + 9 + 12 + 10 +12 + 11 +16 + 14 45.21 44.51 51.83 35.72 37.37 31.94 38.60 40.59 35.87 47.90 34.30 45.54 50.79 -10 - 5 +13 .766 +15 1.222 +15 1.024 +16 29.43 52.29 44.78 - 9 -11 - 1 - 1 - 2 - 7 -10 - 5 -15 -10 t Figures from 2763 plants. Ch’ge -10 -14 - 1 -13 + 10 +11 + 7 + 2 + 2 + 3 - 4 + i + 9 +12 + 4 + 9 +31 Distribution and Prices Per cent change Wholesale trade Unadjusted for seasonal variation Month Year ago ago Sules Total of all lines...................... Drugs....................................... Dry goods............................... Groceries................................. Hardware................................ Jewelry.................................... Paper........................................ +1 - 4 - 5 - 9 — 7 + 2 +12 -15 + 3 + 33 + 102 + 20 + 45 + 174 + 34 0 + 6 —23 0 + 6 + 16 - 4 Adjusted for seasonal variation 1946 from 6 mos. 1945 June 1946 from + 49 + 85 + 36 + 32 + 19 +302 + 23 +24 +37 +80 +12 + 81 + 34 Basic commodities (Aug. 1939-100)___ Wholesale (1926=100)................ Form............................. Food.............................. Other............................. Lii ing costs (1935-1939-100) United States............. Philadelphia............... Food........................... Clothing..................... Fuels........................... Ilousefiirnishings.. . Other.......................... 197 + 3 + 7 + 97 113 140 113 106 + + + + + + + + + 51 + 130 + 68 + 32 133 133 144 156 115 159 + 1 + 1 + 3 + 2 + 3 + 2 0 + 2 0 + 7 + 5 + 10 + 3 125 6 7 5 6 + 4 1946 from 6 mos. 1915 May 1946 June 1945 229p 207 234 229p 243 222 204 238 207 226 167 153 171 175 168 61 66 134 123 100 156 150 136 89 163 290 193 111 148 2 137 104 123 98 97 105 92 77 97 36 91 110 121 + 65 226 217 135 3 232 201 RETAIL TRADE Satui* Department stores—District.......................... Philadelphia.................. Women s apparel.................................................... Men s apparel............................................................. Shoe................................................................................... b urniture........................................................................ 25 Ip 232 238 220 271 250 203p 223 228 182 186 r 176 198 157 157 165r + 7 161 + 5 232 + 14 68 0 + 10 + 8 + 9 - 8 + 25 — 2* + 37 + 35 + 37 + 31 45 + 53* + + + + + 26 24 32 31 40 Inventories Per cent change from June 1946 Month Year Aug. 1939 ago ago 2 2 l 2 June 1946 63 Month Year ago ago Source: U. S. Department of Commerce. Prices June 1946 fr jm June May June 1946 1946 1945 I89p 177 188? 179 279 ‘ 244 65 55 + 48 Inventories Paper.'.................................... Indexes* 1935-1939—100 +24 + 14 +33 Not adjusted I’er cent ch inge + + + + + + + 35 35 54 57 19 58 24 FREIGHT-CAR LOADINGS Total................................................................................. Merchandise and miscellaneous...................... Merchandise—I.c.l.................................................. Coal................................................................................... Ore............................ ........................................................ Coke.................................................................................. Forest products.......................................................... Grain and products............................................... Livestock....................................................................... 130 120 100 174 132 147 91 142 108 96 102 92 87 77 42 95 119 133 146 133 89 181 198 207 97 171 121 MISCELLANEOUS Life insurance sales.................................................... 222 220 132 Business liquidations Check payments........................................................... * Computed from unadjusted data. Source: (J. S. Bureau of Labor Statistics. 215 201 234 p—Preliminary. + 18 +100 + 72 +249 - 4 + 20 - 19 + 1 14 + 17 -j- + 21* _ 11 9 + 12 4 — 33 — 29 — 6 — 17 11 68 - 18 - 17 + 5 - 11 - 55 - 46 - 8 - 8 - 194 — 60* 33* + 46* — 84* 40* +507* + 7 - 8 + 5 110 17 252 r—Revised. BAN KING STATISTICS MEMBER BANK RESERVES A NO RELATED FACTORS Changes in— Reporting member hanks (Millions $) July 2!. 1946 +* 99 + 6 - 19 + 14 + + 4 39 Total loans.................................. t 607 +*17 —$79 + +45 -52 + 2 - 3 - 5 - 8 + +15 + 2 + 2 - 2 + 1 - 2 - 8 + 3 - 2 - 6 + 11 - 8 4-TQ — - 5 - 8 + + 65 + 69 -131 3 Uses of funds* Member bank reserve deposits.................................................... -*390 + -19 +38 -22 419 Total.................................................................................................. +40 + 4 -25 + 8 - 8 +*139 Government, securities............ $1686 Obligations fully guar’tced.. Other securities........................... 196 + 8 + »7 -55 1 +*21 + 7 - 18 + 3 Sources of funds* _ ^ Reserve Rank credit extended in district................................ Commercial transfers (chiefly interdistrict)............................ 1« + One year Changes in five weeks o> — n M Assets Commercial loans...................... $ 303 Loans to brokers, etc............ .. 50 Other loans to carry secur... 43 Loans on real estate................. 47 1 163 Other loans.................................... Five weeks Changes in weeks ended— June July July July July 26 3 10 17 24 Third Federal Reserve District (Millions of dollars) Total investments................... *1882 Total loans & investments. $2189 Riwerve with F. R. Bank.. . 429 31 Cash in vault............................... Balances with other banks.. 89 Other assets—net...................... 44 Liabilities Demand deposits, adjusted.. $1812 Time deposits............................... 267 326 U. S. Government deposits.. Interbank deposits.................... 358 Borrowings.................................... 5 Other liabilities............................ 24 260 Capital accouut........................... 6 —*73 —$56 - 6 - 1 + 1 -*10 + 26 - 60 - 19 + 4 - 2 - 1 3 18 -$372 -*233 + 14 + 2 + 12 2 +*104 + 57 - 382 8 + 2 + 7 + 13 Member bank reserves (Daily averages; dollar figures in millions) Phila. banks 1945: July 1-15.. 1946: June 1-15. . June 16-30. . July 1-15.. Country banks 1945: July 1-15.. 1946: June 1-15. . June 16-30. . July 1-15.. Re Hold quired Ex cess Ratio of excess to re quired $407 421 425 423 $394 409 414 415 *13 12 11 8 3% 3 3 2 $339 376 380 377 $262 319 323 324 $77 57 57 53 29% 18 18 16 Federal Reserve Bank of Phila. (Dollar figures in millions) Changes in— July 24. 1946 Five weeks Disc, and advances.. $ 19 Industrial loans......... 1 U. S. securities........... 1629 +* 6 Total............................. *1649 Fed. Res. notes.......... 1636 Member bk. deposits 796 U. S. general account 46 Foreign deposits.... 71 Other deposits............ 4 Gold certificate Res.. 911 Reserve ratio............... 35.7% +*67 + 17 - 8 + 27 + 28 + 1 + 5 - 0.7% + 61 One year +$ 15 — l + 71 +* 85 + 101 + 69 5 - 22 + + 73 1.0% Page 87 E N THE THIRD FEDERAL RESERVE DISTRICT
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