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BUSINESS
REVIEW
FEDERAL




RESERVE

BANK

OF

PHILADELPHIA

RETURN OF THE DEFICIT

AUaaj

For three fiscal years in succession
the Treasury had a cash surplus.
A cash deficit for fiscal 1950
now seems almost inevitable.
Spending is higher, receipts lower.
What the resulting deficit means, however,
depends on one’s point of view.
This article gives, in fundamental terms,
some of the arguments for and against
using the budget as an economic tool.

THE ROLE OF PUBLIC WORKS
The basic role of public works is
to render services. Public works alone
cannot eliminate the business cycle.
Yet, properly timed and coordinated
with other policies, they can help.
This is easier said than done,
for careful advance planning is needed.
Problems involved in using public works
to iron out fluctuations in business activity
are explored here in simplified fashion.

THE MONTH'S STATISTICS
Reports of business activity in July
still had a recessionary overcast.
Nevertheless, business sentiment
seems to be taking on a more optimistic hue.
Industrial employment and trade were off
but bank lending, coal mining and building
expanded.

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THE BUSINESS REVIEW

RETURN OF THE DEFICIT
The deficit is here again. Three fiscal years in a row__
1947, 1948, and 1949—produced a combined Treasury
cash surplus of $16.6 billion. To those looking ’way back
to 1930 for the next closest surplus year, it seemed like
old times. But it also seemed almost too good to last.
When President Truman’s revised estimates come out,
they will almost certainly show a cash deficit for fiscal
year 1950.
Whether the expected deficit is good or bad, however,
depends on one’s point of view. Some say the Federal
budget must be balanced the same as that of any well-run
business or orderly household. Others say it should be
used to stabilize business conditions, and so a deficit may
even be a good thing—sometimes. The aim of this article
is to examine the facts and figures, reconsider the pur­
poses of the budget, and then present some of the pointsof-view which are sure to be discussed when the new
budget figures are released.
FACTS AND FIGURES
A deficit, of course, simply means that the Government
is spending more than it is taking in. This is obvious,
and the fact that there are two types of budgets being
used today should not be allowed to confuse the issue.
One type is an administrative budget which shows trans­
actions of individual agencies of the Government and the
relationships among various branches and agencies of the
Government. The other is a cash budget which eliminates
intra-government transactions but covers all cash pay­
ments and receipts—including the trust funds—to and
from the public. Because of these differences, the ad­
ministrative budget showed for fiscal year 1949 a deficit
of $1.8 billion and the cash budget showed a surplus of
$1 billion. Both were right; they were just measuring
different things.
This year, fiscal 1950, both are almost certain to show
a deficit. The explanation is apparent in the chart. Gov­
ernment spending is increasing for two main reasons:
(1) the war and the unsettled conditions it produced call




for larger expenditures for defense, veterans, and foreign
aid; (2) the decline in business activity has automatically
meant greater expenditures for such things as farm price
support and unemployment benefits. At the same time,
with a lower national income, the Treasury’s cash re­
ceipts have been falling off. The result of these trends
is a cash deficit—how large will be indicated by the new
budget. How long it will last is anybody’s guess. A longerrun view reveals that over the stretch from 1789 to now
we have had, on the average, a budget deficit in two out
of every five years. Seventeen out of the last twenty years,
which include a major depression and a world war, have
produced deficits and these have totaled about $240
billion.
WHY A BUDGET?
A cynic confronting this past record will ask: “Why
have a budget anyway? Certainly no business could
run at a deficit for seventeen out of twenty years; it would
be on the rocks long before that.” But just because we
have deficits does not necessarily mean that the budget
is not doing its job. For there are at least three main
functions which the budget performs.
In the first place, the Federal Government, like most
business firms and some families, sets up a budget as an
administrative device. A budget is one way of seeing that
the Government spends for the things it intends to and of
accounting for the sources of funds to finance its expendi­
tures. In short, it provides a kind of yardstick against
which to measure financial performance. The budget
may serve this purpose whether the Government runs a
deficit or a surplus. A good budget, well administered,
promotes efficient management but, as the studies of the
Hoover Commission readily demonstrate, it cannot do the
job alone.
In the second place, the Federal budget forces the
Government to make the same kind of decisions we all
make as individuals in setting up a budget. Most of us
have only very limited incomes, but an almost unlimited

Page 103

THE BUSINESS REVIEW

THE BUDGET SITUATION AT A GLANCE

BILLIONSf

SPENDING IS UP
MOSTLY FOR...

1.0 .9

NATIONAL DEFENSE

-

.8 -

1949

VETERANS

1949

FOREIGN AID

949

AND AID TO FARMERS

I94B-

1940

CASH INCOME
IS DOWN

1949

A

1948

+ 2.0

+ 1.0

2.0

-


Page 104


CASH DEFICIT
INSTEAD OF
SURPLUS

THE BUSINESS REVIEW
number of things we should like to buy. A budget always
helps us decide what we want to buy most—the order of
our preferences. It usually forces us to scale down our
outgo to equal our income. But if we find we really must
spend more than we earn, a budget suggests that we look
around for the best place to borrow.
The Federal budget should do the same thing. It forces
economic choices. “Economy” in this sense is not the
same thing as “efficiency.” Fortune magazine, analyzing
the budget last January, summed it up: “Economics is the
art of alternative uses of resources. If we use our re­
sources for military expenditures, as we must, we cannot
use the same resources for vast public works and social
services, and we shouldn’t try. This choice . . . requires
us to cut our federal expenditures with . . . austerity. . ..”
The above statement applies to conditions of full em­
ployment. If resources are not all being used, a large
group of economists would say that we don’t have to cut
our outgo down to our income; in fact, we should spend
more and run a deficit if necessary to help promote full
use of resources.
They wouldn’t worry about a deficit for its own sake.
Concern about balancing the budget, they say, is a carry­
over from private finance. It is true that an individual
“goes broke” if for very long he spends more than he
earns. But Professor Alvin Hansen, perhaps the fore­
most exponent of this point of view, has said: “For the
public economy, expenditures ought to be weighed not
in terms of the profit and loss of the state itself, but
rather in terms of the effect of such expenditures on
the full and efficient functioning of the economy as a
whole. Fiscal policy is an important instrument for
maximizing the real income of the community and for
regulating the distribution of income and wealth. At
times it will be sound policy to balance the budget and at
times it would be disastrous to do so. Only in the event
that one applies the maxims of private finance to the
public economy will one be concerned per se with the
problem of balancing the budget.”
This point of view has spread rapidly in our time.
It was behind the fiscal operations of the ’thirties, was
the basis for the original draft of the full-employment
bill, runs through the recently introduced Economic Ex­
pansion Act of 1949, and will crop up again in some of
the discussions of the revised 1950 budget.
What kind of thinking can it be that produces such
a radical departure from orthodox principles of finance?
What do these economists have in mind?



THE BUDGET AND BUSINESS
They think of economic activity as a circular flow of
funds—money going ’round and ’round. Incomes are
spent, become someone else’s income, and are spent
again. Business pays individuals for their efforts and
individuals pay business back for the goods it sells.
If we take the sum of business activity over a given
period, total incomes equal total expenditures; in fact,
they are really the same thing except viewed from op­
posite sides. Government takes part in the spending and
receiving along with consumers and businesses. But it
has only been quite recently that the Federal Government
has made up a budget to express its cash transactions.
For many years the budget was basically an administra­
tive budget. It is essentially the cash budget which econ­
omists have in mind when they think of the Govern­
ment’s role in the circular flow of funds.
Compensatory Policy. In this circular flow, all money
that is spent—either for consumption goods or for invest­
ment in more durable goods—becomes someone’s in­
come. But all money received as income is not neces­
sarily spent. Some may be “hoarded.” When this hap­
pens the level of income declines.
Greatly over-simplified, this is the background for
the theory of “compensatory” fiscal policy. When the
private economy is spending less than it takes in and
incomes tend to decline, it should be the responsibility of
Government (so the theory goes) to compensate for this
unbalance by spending more than it takes in. This will
help keep the level of incomes and expenditures stable.
A compensatory budget is a two-way street. The pri­
vate economy can spend more than its income in any
given period both by using money “hoarded” in the past
—by activating idle funds—and by creating new money
through the credit activities of the banking system. When
this happens incomes rise. This is ordinarily quite de­
sirable. But if incomes continue to mount after full
employment is reached, growing demand tends to raise
prices generally instead of encouraging more produc­
tion. Result: inflation. So it is the responsibility of the
Government in this case to spend less than it takes in,
either holding the cash surplus idle or using it to pay
off debt held by the Federal Reserve Banks and thus
retiring money. The Government can thereby compen­
sate for over-spending by consumers and businesses. In
fact, this is exactly what it did during the fiscal years
1947, 1948, and 1949.

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THE BUSINESS REVIEW
Principally because of wars and depressions, and per­
haps in some degree the acceptance of the compensatory
theory itself, Federal fiscal operations have embraced an
ever-widening sphere of activities. A glance at these
figures will demonstrate the point:
In 1929 In 1949
The Federal Government bought this part
of the gross national product.......... ... 1%
-9%*
Federal Government taxes took this share
of the total national income................ 4%
17%**
The public debt was this proportion of
total outstanding debt......................... 8%
57%t

The implications of these figures extend far beyond the
economic into the social and political phases of our life.
For the purposes at hand, they suggest how important
Government fiscal operations are for business activity.
Pump Priming. The theory thus far described gives
a good deal of the background for discussions of the
1950 budget. But it is much more complicated than this,
and these complications explain some of the fiscal poli­
cies which may be advocated in the future.
Government spending policies, for example, have at
times been directed not so much toward compensating
for ups and downs in private spending as toward stimu­
lating private spending. As mentioned before, people can
do several things with their income. They can spend it
for immediate consumption or they can save it. When
they spend for consumption, they contribute to someone
else’s income. When they save, they reduce the circular
flow of funds and reduce the level of income—unless they
spend for future consumption by investing directly in
investment goods or by turning their funds over to some­
one else to invest in new capital goods.
Many economists say, therefore, that a decline in the
level of income is caused by individuals and businesses
holding their savings as “hoards” rather than investing
them, thus reducing the circular flow. On the other hand,
they say, a rising level of income indicates that people
are “dishoarding” now what they “hoarded” in a pre­
vious period and are investing it. Or they are creating
new money by borrowing from the banking system and
are investing that.
“Pump priming” was conceived in an atmosphere of
too much “hoarding” and not enough spending. Business­
men were reluctant to invest because expectations for
* First half seasonally adjusted.
** Fiscal year 1949.
11947, latest data available.


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Federal Reserve Bank of St. Louis

profit were not good. Some savings were held idle and this
tended to reduce incomes. Because incomes were falling
and unemployment was rising, consumers were hesitant to
spend and there was not enough demand. This made profit
expectations bad. Here was a vicious circle which, it was
felt, the private economy could not break out of by itself.
The policy for Government, then, was to spend more,
insofar as possible for useful capital goods. So during
the 1930’s the Government engaged in huge public works
projects—buildings, roads, dams, and the like—to in­
crease investment and to maintain the circular flow.
But pump priming is intended to do more than that.
It is supposed to be contagious. Public works, for exam­
ple, involve spending in basic industries such as construc­
tion which, in turn, pay out money for wages and place
orders for materials. As this money spreads around, pri­
vate industry is expected to be stimulated and proceed on
its own again. A given expenditure has repercussions like
the widening ripples caused by dropping a pebble into a
pool of water. The total increase in incomes in the end
should be greater than the volume of the initial Govern­
ment expenditure. Economists have a seventy-five-cent
word for this—they call it the “multiplier.” Because the
multiplier may be greater with certain expenditures than
others, it is important in planning public spending to
get the maximum results with a given outlay.
Footing the Bill. How effective a spending program
may be, however, depends mainly on how it is financed.
In making up the budget, the Government must decide
what proportion of its outgo is to be met by taxing and
what proportion by borrowing. Moreover, it must decide
whom it is going to tax and from whom it will borrow.
Fiscal policy can stimulate or depress business only
if Government financing changes either the size or the
rapidity of the circular flow. The size can be increased
by borrowing from the banking system and decreased by
paying off debt held by the banking system. The rate of
circulation can be speeded up by tapping idle funds of
businesses and individuals, and by then paying them out
to people who spend rapidly. It can be slowed down by
drawing on funds which would have been spent anyway
and then either immobilizing them or paying them out
to people who spend more slowly.
When the Federal Reserve Banks buy Government se­
curities, they pay for them by increasing the Treasury’s
deposit account at the Reserve Banks. As the Treasury
draws out and spends these funds, the checks are depos-

THE BUSINESS REVIEW
ited in commercial banks which, in turn, deposit them in
their accounts at the Reserve Banks. These accounts are
the reserves of the member banks and serve as backing
for about six times as much deposits, under present re­
serve requirements. A purchase of $1 billion of Govern­
ment securities by the Federal Reserve thus increases
bank reserves by a like amount but enables the member
banks to expand their own deposits by about $6 billion.
Borrowing from the Federal Reserve can have a tremen­
dous leverage power on the volume of deposits or money
available for spending.
When the Government borrows $1 billion from com­
mercial banks, however, only $1 billion of new money can
be created. To pay for the securities they buy, banks give
the Government the right to draw out $1 billion of de­
posits which never existed before. But this is apt to be
more stimulating than borrowing from other institutions
or individuals, because except for the Federal Reserve
Banks only commercial banks can create money. When
other institutions or when individuals lend to the Gov­
ernment, they merely transfer existing funds—they do not
create additional funds. Therefore, of the nonbank
sources, a more stimulating effect is achieved by borrow­
ing funds which otherwise would remain idle than funds
which would be spent anyway. Borrowing from people
in high income groups is apt to have a more stimulating
effect because they tend to hold larger idle balances than
people in the low brackets. If low-income groups redeem
their savings bonds and spend the money, they add a fur­
ther stimulus to business. Conversely, when they buy sav­
ings bonds in times of inflation, they are apt to help
dampen inflationary forces. The greatest anti-inflationary
effect, however, is obtained either by holding the Treasury
surplus idle or using it to pay off public debt held by the
Federal Reserve Banks, for both actions reduce the volume
of bank reserves and spendable money.
It is harder to decide where to tax than where to bor­
row. Taxes are a burden no matter who pays them, but
some are more of a burden than others. The point which
many make is that the less depressing taxes should be
used during depression and the more depressing taxes
during inflation.
Taxes impinge on both consumption and investment.
If incomes are declining because savings are being
“hoarded” instead of invested, a more progressive in­
come tax is likely to be advocated because most of the
saving is done by people in high-income groups. A sales




tax probably would not be proposed because it would
bear most heavily on low-income groups who could not
“hoard” much even if they wanted to. When inflation
develops, however, a consumption tax might be urged as
a weapon against rising spending and soaring prices. On
the other hand, the effect of taxes on business expansion
must be borne in mind. Tax rates and other tax provi­
sions can stimulate or discourage efforts to produce more
and make more profits. The decision as to which tax to
use is thus a difficult one, particularly in avoiding in­
equities and in striking a middle ground between too
heavy an impact on consumption and too great a detrac­
tion from the incentive to invest.
Summary. As a crude and over-simplified stream­
lining of a complicated subject, the following table shows
some of the major fiscal policies which one group might
advocate, depending on the business situation. Imperfect
as it is, this table should, nevertheless, provide some back­
ground for one side of the budget story—the side which
advocates using the budget as a stabilizing device.

IN DEPRESSION

IN INFLATION

Run a budget deficit

Run a budget surplus

Pay out for:
Public works
Public services and relief
Redemption of savings bonds held
by low-income groups

Take in by*
Less progressive income tax
Sales tax
Selling savings bonds to low in­
come groups

Take in_by:
Borrowing from—
Federal Reserve Banks
Commercial banks
High-income groups
More progressive income tax

Pay out for:
Retirement of debt held by
Federal Reserve Banks
Or hold surplus funds idle in
Treasury balances

SOME OTHER ASPECTS OF THE STORY
The gospel of using fiscal policy as an economic tool
has spread far and wide, but by no means has everybody
been converted. The views of the “disbelievers,” indeed,
are also widespread and perhaps more familiar.
Those who do not agree with the theory have a number
of objections. Some believe that the sound canons of
private finance apply equally well to public finance.
The budget should be balanced year in and year out,
and debt should be paid off regardless of business
conditions. Almost all view with alarm the rapid growth
in the influence of the Federal Government. They deplore
the trend toward a “welfare state,” of using the budget
for social reforms, of growing centralization of Govern­
ment activity. The rising taxes and debt which inevitably

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THE BUSINESS REVIEW
go with the new activities rest, they feel, like a dead
weight on the economy. Heavy taxes become inequitable
and destroy incentives to take risks and expand. Deficits
year after year have a damaging psychological effect
on the public. Government is interfering more and more
in narrow segments of the economy when it should, at
the very most, confine itself to broad over-all regulation
such as quantitative monetary controls. In short, this
group sees discretionary fiscal policy as a departure from
our traditional economic, political, and social systems.
Some who do agree with the theory see very little new
in it. For in the last analysis, they say, the important
things influencing the circular flow are the quantity of
money and its rapidity of circulation. This is language
“old-fashioned” economists understand. Their tools are
the well-tried tools of monetary policy.
Others who believe in the theory and its application
feel that now is not the time to use fiscal operations for
stimulating the economy. They point out that business
activity is, after all, still at a high level and if we are
unable to balance the budget now, when will we? This
opinion, of course, reflects a judgment not only as to the
current business situation but also future business condi­
tions. Prompt action is an essential part of the compen­
satory theory.
Still others agree with the principles of fiscal policy “in
theory but not in practice.” They approve the ends but
not the means. Forecasting economic trends, in the first
place, is a hazardous occupation. Until it becomes a more
exact science, they feel we had better devise a more auto­
matic compensatory mechanism, such as a tax structure
with “built-in” flexibility, than rely on imperfect judg­
ment for timing fiscal operations. Even if we could fore­
cast at all accurately, they say, it is very difficult to put
programs into effect soon enough or call them off quickly
enough. It simply takes time to get the machinery mov­
ing. Moreover, the theory deals only with broad aggre­
gates, while its application must be concerned with spe­
cific areas and sectors of the economy. It is no easy mat­
ter to channel Government spending into depressed areas.


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Federal Reserve Bank of St. Louis

Even if it were, there is great danger of propping up
something that should not be propped up, of preventing
needed economic changes from taking place.
These same critics feel that numerous administrative
difficulties, such as those discussed in more detail in the
following article, hinder the application of fiscal policy.
They stress the need for close coordination between the
Executive and Legislative branches of the Government,
such as was attempted in the Legislative Reorganization
Act in 1946. Greater coordination among the Federal,
state, and local governments is also needed. They point out
that the Hoover Commission recommended a “perform­
ance budget” to reveal the status of individual programs—
something which even experts are now often unable to
find out—and other changes in budgetary procedure
which are prerequisites for a successful fiscal policy.
Yet, they emphasize, there is a limit to efficiency. It
must not be pushed to the point where it disturbs our
democratic processes of government. Prompter action by
Congress is desirable, but not too much power in the
hands of the Executive. They doubt, therefore, that dis­
cretionary fiscal policy could be applied efficiently and
promptly without giving up something more desirable.
And democratic processes being as they are, compensa­
tory policy would probably prove to be a one-way street:
deficits in depressions but no surpluses in booms. The
result would be a constantly rising public debt.
#

*

*

*

Over the long-run, opposition to the theory has become
less widespread. Yet, the constructive critics supported by
several years’ experience have shown that compensatory
fiscal policy is not the panacea for all economic ills, nor
even the novel doctrine that its proponents often made it
out to be. Fiscal policy can hope to work only if it is
coordinated with monetary policy—a fact which has often
been lost sight of. And to be completely effective, many
administrative problems must be solved. Fiscal policy
will undoubtedly play a significant part in future efforts
to achieve a high and stable level of economic activity—
if placed in its proper perspective.

”

t

THE BUSINESS REVIEW

THE ROLE OF PUBLIC WORKS
Government has always undertaken to perform certain
essential economic services. As the preceding article
pointed out, the idea of what is the proper area for gov­
ernment activity has been expanded and government ex­
penditures have increased. In this article we are concerned
with that segment of government spending which falls
under the heading of “public works.” Some of the tech­
nical problems will be reviewed, and their relationship
to the budget will be discussed in more detail than in
the preceding article. Two points should be emphasized
at the outset. First, the primary function of public works
is not to give employment; they are needed for the1 serv­
ices they render. Second, public works programs alone
cannot be expected to solve problems of inflation or defla­
tion. Some of the limitations of such programs will be
pointed out.
The theories of compensatory government spending
and of pump priming have been described in the previous
article. If the government chooses to spend more to com­
pensate for lower private spending it must have something
to spend for. It could increase operating expenses—
hire more people for routine tasks. But that would be
wasteful. It could spend more for defense, but pre­
sumably such expenditures should be adequate at all times
anyway. It could give direct relief payments, but,
although there is frequently no alternative, this usually
has not been regarded as the most desirable procedure
for many reasons. Almost always, discussions of com­
pensatory fiscal policy and “deficit spending” are asso­
ciated with useful public works expenditures.
COMPENSATORY PUBLIC WORKS SPENDING
The idea of compensatory public spending has usually
been associated with public works such as the construc­
tion of highways, bridges, public buildings and such util­
ity facilities as have come to be regarded as properly
within the government domain. More recently it has been
extended to include other public expenditures such as
low-cost housing. It could also include, and, in fact, in the
days of the WPA, did include certain services. Sewing




projects of the 1930’s furnished millions of garments to
needy persons, art and drama projects provided education
and entertainment for millions, and research work pro­
vided material for scholars. At the time, many considered
these projects “relief” rather than “public works.” But
the exact line between the two—and it is a rather arbi­
trary one—seems to be shifting as ideas about govern­
ment’s function are shifting. It would seem that any proj­
ect, efficiently executed, which provided useful services
would have the same status and the same effects as the
more familiar highway and building programs. A discus­
sion of how public works can fit into budget policy should
not exclude this type of public expenditure.
The idea of compensatory public works spending (as
distinguished from many other aspects of fiscal policy)
is not at all new. It was well stated in this country in
1921 in the report of the President’s Conference on Un­
employment, led by Herbert Hoover, then Secretary of
Commerce. The Conference recommended that the method
of making appropriations for roads, public buildings,
and other public works be changed “so that the per­
centage of the total authorized appropriation to be ex­
pended in any one year may be determined by Executive
Order, based upon the condition of private industry and
employment; in years of normal industry a minimum
program, in a year of depression a maximum program of
public works resulting from previous accumulations being
thus effected.”
The principle involved in this recommendation, ignored
by legislators at the time it was made, but revived at the
onset of the 1930 depression, has wide acceptance among
proponents of compensatory finance. It has been incor­
porated in the Housing Act of 1949, recently passed,
and in other pending legislation.
The reasoning behind the Conference proposal and its
predecessors is this. Over a long period of years a certain
amount of public works must be undertaken. Highways,
water works, perhaps research and other projects which
have come to be regarded as “public” or government
undertakings will be completed. How much public con­
struction will, in fact, be undertaken—how much in the

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THE BUSINESS REVIEW
way of productive resources the public feels it can afford
to divert from the activities of the private economy—
will depend upon the criteria governing the choice be­
tween “public” and “private” production, which the
nation adopts. But whether it is a large or a small
amount, a good part of it can be done a few years sooner
or a few years later without too much difficulty. Urgent
community needs must be met when they arise. Vital
services cannot be curtailed. But there is a good bit of
leeway in the timing of many projects. Since they are not
bound by the prospect of monetary profit or loss, govern­
ment officials can afford to consider other timing factors.
Private investors, however, the argument continues,
have little leeway. In fields where demand is steady and
predictable, as in certain utilities, long-range plans are
executed with some degree of flexibility; but for the
most part, private profit opportunities require that the
investor “strike while the iron is hot” When poor earn­
ings are in prospect, investment incentives are weak.
Consequently, private capital investment has a tendency
to fluctuate widely over a period of years. And the same
is true of the purchase of housing and, to some extent, of
durable goods by individual consumers.
Assuming that other business and government policies
will not be completely successful in stopping the ups
and downs of private business activity, public works
timing should be such that men and materials are freed
for work on private undertakings in prosperous times,
and absorbed on public projects in periods of slump.
The stability of the construction industry, which might
be accomplished in this way, and the employment of other
available workers on non-construction programs would
thus contribute toward economic stability and help to
minimize the waste of cyclical unemployment.
THE GREAT DEPRESSION
Compensatory public works spending has many limita­
tions and raises many problems which are not immediately
apparent from this description. Public works policy dur­
ing the depression illustrates some of them. The creation
of the RFC in 1932 was the first concrete effort to stimu­
late public works expenditures, though their importance
was recognized earlier by the Administration. In fact, the
Federal Employment Stabilization Board had been set up
to do some planning in 1931. There followed, in 1933, the
Public Works Administration, which provided funds for


Page 110


Federal agencies and state and local governments to un­
dertake construction projects on a private contract basis;
the Civil Works Administration and the Federal Emer­
gency Relief Administration which provided work relief
by putting workers directly on the Federal pay rolls; and,
in 1935, the Works Projects Administration. The final
report of the last agency revealed that in the eight years
of its life it employed more than 8 million different per­
sons, built 78,000 bridges, 4,100 utility plants, and thou­
sands of schools, airports, and playgrounds. It provided
millions of school lunches, put on plays, gave concerts.
Yet, for all the vast administrative machinery that was
set up and for all the bridges and schools, the public works
programs of the ’thirties did not carry out the compensa­
tory spending idea—not because the Federal Government
did not try it, but because its requirements had not been
fully appreciated.
The accompanying table gives the record of construc­
tion expenditures during the ’thirties. The course of pri­
vate construction is, of course, quite consistent with the
fluctuation of business during that period. What is parNEW CONSTRUCTION EXPENDITURES
IN THE UNITED STATES, 1925-1939
(Millions of dollars)

Year

Total
Construc­
tion

Private
Construc­
tion

1925-1929
(average)
1930.........
1931.........
1932.........
1933.........
1934.........
1935.........
1936.........
1937.........
1938.........
1939.........

10,670
8,207
6,225
3,523
2,545
3,653
3,758
5.946
6,395
6,350
7,050

8,400
5,430
3,648
1,729
1,200
1,479
1,908
2,730
3,507
3,162
3,530

Federally
Total Public Financed
Construc­
Construc­
tion*
tion*
2,270
2,777
2,577
1,794
1,345
2,174
1,850
3,216
2,888
3,188
3,520

199
307
422
460
647
1,380
1,234
2,335
2,043
2,085
2,206

State and
Locally Fi­
nanced Con­
struction*
2,071
2,469
2,156
1,334
707
794
616
881
845
1,103
1,314

* Includes work relief construction beginning 1933.
Source: U. S. Department of Commerce and National Resources Planning
Board.

ticularly significant about the table is that total construc­
tion showed the same movement. Public construction out­
lays did not begin to compensate for the decline in private
building. Not until 1936, and then with the help of about
a billion dollars of work relief each year, did total public
construction reach the level of 1930. Two main factors
were responsible. First, the ability to “telescope” several
years’ public works into one, as called for by the compen­
satory spending idea, presupposed the existence of elabo­

THE BUSINESS REVIEW
rate plans—several years’ worth of blueprinted projects
ready to be “telescoped.” In 1929 such plans did not exist,
and it took months, in some cases years, to get building
projects off the drawingboards. Second, although the Fed­
eral Government did manage to expand its outlays stead­
ily, the state and local governments, which had been doing
the bulk of public works building, contracted theirs. Their
outlays shrank from nearly $2.5 billion in 1930 to $616
million in 1935, after which they increased slowly. Thus,
during the crucial early years of recession, the efforts of
the Administration in Washington to expand public works
were frustrated, and a decline in total Government con­
struction outlays, in fact, contributed to the deepening of
the depression.
ADVANCE PLANNING
The advance planning of public works presents many
difficult problems. One of the most important of these is
the coordination of Federal and local efforts. This in­
volves the formation of planning agencies for states, cities,
and towns, and the passage of enabling legislation. More­
over, the authorization of a project and a blueprint for it
may not be enough. The acquisition of sites for building
is sometimes time-consuming and may have to be done in
advance. Contract bidding procedures may have to be
overhauled and speeded up. Financing arrangements
should be considered in advance. Inadequate tax rev­
enues and inflexible debt limitations forced curtailment of
many local projects during the depression and might do so
again at the wrong time unless adequate provision is
made. Proper timing is essential if public works are to
help stabilize the economy. Delays in putting men to work
once an accelerated public works program is decided upon
may result in a vital loss.
Even a large “shelf” of public works blueprints does
not guarantee the best possible timing unless the plans are
flexible. Weather—as simple a thing as that—may delay
certain types of construction for months. Alternatives
should be available. Trouble may develop in stopping
projects at the proper time, as well as in starting. Aside
from political considerations which make it difficult to cut
off a program once started, the engineering requirements
of certain projects may be such that a time-consuming
proeess cannot be curtailed without great loss, and the
work must therefore go on into a boom period. Projects
of short duration should be available when called for in




the event of what appears to be a temporary dip in em­
ployment and for mixture with longer-term plans. The
“shelf” should be flexible, too, with respect to the employ­
ment effect of various projects. Some types of public
works, for instance reforestation, require more direct “on­
site” workers than others, give greater initial stimulus to
particular areas. Others require quantities of complex
equipment, spread expenditures throughout the nation,
and take longer to work through the economy. Both types
should be planned for use at different times and places.
There is much more involved in a compensatory public
works program than merely turning it on and off like a
faucet. It is obvious that the difficulties of planning, ad­
ministration, and timing suggested here are serious limita­
tions on its effectiveness. Judgments must be made at
many stages—as to the business outlook, as to engineering
problems, and so on—which, by their nature, have a wide
margin of error. For this reason and for others, it is appar­
ent, too, that reliance on public works alone as a business
stabilizer is unfounded. The construction industry—
which has the largest part of any public works program—
cannot be expected to undergo the violent expansions and
contractions which would be called for if it alone were to
fill the whole gap caused by declining private expendi­
tures during a recession. It might not even be able com­
pletely to fill the construction expenditure gap. Workers
and equipment are not that mobile; textile workers can­
not be put to laying bricks or driving bulldozers; home­
builders cannot erect bridges. Other types of public
works projects may be undertaken—public health serv­
ices, education, and so on; but the useful range of these
on a temporary basis is limited. A compensatory public
works program can only be a part, albeit an important
one, of an over-all fiscal policy for economic stability.
PUBLIC WORKS SINCE THE WAR
The Federal Government’s early wartime building,
which raised public construction activity to record levels
in 1941,1942, and 1943, cannot properly be considered a
public works program. It included extraordinary amounts
of construction for the military and large outlays for warrelated industrial facilities. From 1940 until the end of
the war, annual highway expenditures declined. Educa­
tional, hospital, and recreational building was at a low
level. Much-needed conservation and development work
dropped off after 1942. The Federal Government was a

Page 111

THE BUSINESS REVIEW
big employer during the war, but in terms of community
facilities provided, only a bare minimum could be done.
New construction activity of both the Federal and state
and local governments reached $2.5 billion in 1939. In
1945, at current prices, it was about $2.1 billion. These
construction figures do not include all public works out­
lays, but they do represent the largest part of such expen­
ditures and are probably an accurate indicator of trends
for this period.
State and local governments began to increase their
public works programs sharply in 1946. Highway and
utility construction spurted, and school buildings began to
ESTIMATED NEW PUBLIC CONSTRUCTION
ACTIVITY IN THE U. S.
(Millions of dollars)

1940
Public Total.........................................
Federally Financed Total...........
State n nd Locally Financed Total
Nonresidential structures.................
Industrial..........................................
Educational......................................
Hospital and Institutional...........
Recreational.....................................
Administrative and General....
Miscellaneous..................................
Military Establishments..................
Highways..............................................
Conservation and Development. . .
Sewer......................................................
Water.....................................................
Other Public.........................................
Miscellaneous Federal..................
Miscellaneous State-Local...........

1942

1945

1948

2,652
1,597
1,255
200
556
164
132
50
18
133
59
385
882
310
67
127
125
35
90

10,405
9,544
861
545
3,653
3,437
116
32
5
47
16
5,016
616
350
59
100
86
50
36

2,092
1,558
534
71
652
470
59
85
9
15
14
690
386
130
37
60
66
11
55

4,212
1,339
2,873
85
1,057
20
567
219
58
73
120
137
1,585
597
269
212
270
30
240

Source: General Service Administration.

go up. As the table shows, public construction outlays
doubled between 1945 and 1948, bringing the dollar total
to a peacetime record. In the first six months of 1949,
public construction activity was estimated to be over 35
per cent ahead of the same period in 1948. All commun­
ity-facility types of building continued to show large
gains. There is no doubt that 1949 will see another dollar
outlay record. When making comparisons with earlier
years, however, it should be borne in mind that today’s
building is being done at price levels which are about
double those of the late ’twenties, and higher still than
those of the depressed ’thirties.
Private building activity rose much more rapidly than
public after the war. From a level of $2.7 billion in 1945,
it advanced to $14.6 billion in 1948, led by residential
construction. Thus far in 1949 it has receded from the
peak along with other lines of business activity. But the
great increase in public works has not only served to pre­

Page 112


vent a decline in total construction activity, it has caused
a continued increase and has made the construction indus­
try a tower of economic strength in a difficult period of
readjustment.
It would seem that this course of events had been
planned that way—in accordance with the principles of
compensatory public works spending. And to a large ex­
tent it had been. Many projects were planned during the
war and were held in abeyance until materials and men
were available. But, although there was widespread ac­
knowledgment of the necessity for long-range post-war
planning and postponement of desirable public works,
actual conformance was in part forced by the war. The
big question not yet answered is, will we be prepared, on
our own initiative, to utilize public works expenditures to
the maximum to help deal with serious unemployment,
should it arise in the future?
That there is plenty of public construction that needs
doing is an undisputed fact. The war interrupted many
necessary programs that were under way and left virtually
every community with a backlog of community needs for
an expanded population. Mr. Jess Larson, Administrator
of General Services, has placed the estimate of necessary
state and local government construction over the next 15
years at $100 billion. Of this total, highways probably
will call for well over half, schools about 10 per cent, sew­
erage and water systems a little less, and hospitals about
8.5 per cent. The remainder is spread over airports,
buildings, public service plants, and recreational facilities.
A very rough estimate for Federal construction over the
same period, mainly for reclamation, flood control, and
river and harbor work, might add something like $20 bil­
lion or $30 billion worth of work to the total.
This $120—$130 billion, however, is estimated from a
vague listing of necessary and desirable projects. How
much is actually planned, and blueprinted? How much is
on the shelf? State and local governments have about $2.5
billion of projects ready to go, some prepared with the aid
of Federal funds, some in those few states including New
Jersey and Pennsylvania which made provision for them
with state funds. The Federal Government has blueprints
in reserve to the extent of about $2 billion. That comes to
about $4.5 billion. Add to it the amount of public housing
that can be quickly authorized and the total is still no
more than one year’s supply of plans at the current rate of
public construction—not much to “telescope.” The pres­
ent reserve shelf of community projects does not seem to

THE BUSINESS REVIEW
be adequate to sustain an effective accelerated public
works program should it be desirable. In 1944, the War
Mobilization and Reconversion Act authorized the Federal
Works Administration to advance funds to state and local
governments to meet planning costs. This authorization
expired in June 1947 at which time an estimated $2.4 bil­
lion worth of construction plans had been approved, and
the stock of plans was growing. Since that time, some of
the plans have been executed. New plans to replace them
are difficult to make because of lack of funds for the pur­
pose. The reestablishment of an advance planning fund
has been proposed in Congress.
THE “DISTRESSED AREAS” PROGRAM
In recent weeks, Federal Government agencies have
been instructed to give what aid they can through pro­
curement, loans, or construction to certain areas in which




unemployment has reached serious proportions. Since
both the special channeling of Federal purchases and RFC
loans are blocked by legal restrictions, public works may
seem to be an attractive remedy. Two points should be
noted in this regard. First, public works should not be
used merely to provide relief. Unless the particular proj­
ect is justified by the long-term needs of the community or
unless it will strengthen the community’s economy, it
should not be undertaken. “Pyramid building” will only
hide basic problems. Second, the employment effects of
most types of public works are diffused. Payments for
equipment and materials and even for skilled labor will
leave the “distressed area.” The cost of putting men to
work in particular areas by means of public works may be
very high. Subject to these qualifications, compensatory
public works spending, primarily designed to cope with a
national problem, may also be helpful in individual cities
and towns which have developed adequate plans.

A limited number of
additional copies of
the Business Review
will be available upon
request.

Tsgt 113

THE BUSINESS REVIEW

THE MONTH'S STATISTICS
The latest statistics reveal further business declines in July. Manufacturing production, employment, pay rolls and de­
partment store sales were below the levels of both the preceding month and the corresponding month a year ago. The
outstanding exceptions were increased activity in construction and coal mining.
The major declines in industrial output occurred in the industries manufacturing durable goods such as rubber and metal
products. Producers of nondurables, especially foods and textiles, encountered only fractional declines. Smaller indus­
trial production was accompanied by reduced employment and pay rolls in Pennsylvania’s factories—especially among
producers of durables. Average weekly earnings were $50.51 in July.
Retail trade, judged by department store sales, dipped considerably and latest reports indicate continued declines in
August. In July, sales in economy basements were off to about the same extent as in the main stores; for seven months
of this year, however, basement store sales held up better than main store sales.
The lifting of regulation W on June 30 apparently did not have much effect on department store instalment sales which
declined further in July. However, consumer instalment loans by commercial banks increased considerably.
Over the past month further reductions have been made in the reserve requirements of member banks. In part the funds
released have been used to purchase United States Government securities, particularly those of short term, many of
them coming from holdings of the Federal Reserve System. Third District figures show an upturn in loans of banks in
leading cities, mostly in accommodation extended to business concerns, which may indicate that the low point early in July
marked the bottom of the recent decline in business borrowing.

Third Federal
Reserve District

United States

Per cent change

Per cent change

7
mo 3.
1949
from
year year
ago ago

7
mos.
1949
from
year year
ago ago

July 1949
from

July 1949
from

mo.
ago

mo.
ago

OUTPUT
3* —15* _ 9*
Manufacturing production....
Construction contracts............. + 9 -27 -15
Coal mining.................................. +12 -14 -23

TRADE**
Department store sales..
Department store stocks
BANKING
(All member banks)
Deposits...........................
Loans................................
Investments....................
U. S. Govt. Securities
Other..............................
PRICES
Wholesale.
Consumers
OTHER
Check payments. . . .
Output of electricity

-

2*

-

3*

12

*
-12*

- 7*
- 4*

-12

Check
Payments

0
-38
- 1

Sales

Stocks

Per cent
chfinge
July 1949
fr om

Per cent
cha nge
July 1949
frc m

Per cent
ch*mge
July 1949
from

Per cent
chtmge
July 1949
from

year
ago

mo.
ago

year
ago

mo.
ago

mo.
ago

mo.
ago

- 3

6
- 4
-15

Payrolls

mo.
ago

LOCAL
CONDITIONS

Employ­
ment
Per cent
cha age
July 1949
frc m

-13

- 6

-13

— 6

-40 i—50

-51

— 6
— 9

year
ago

year
ago

year
ago

-

-

6

-10

- 5

-11

0
-2 +
1
+
+2 +
+ 3 -

0
0 +6
1
0 - 3
1 - 4
4 + 3

It - 3t
-8-7
-2-1

Gi­
- 3
- 2

2
- 3
-

0
2
+ 3
+ 3
+ 4
-

-10
-10

6

- 1 +5
- 1
0 -5
0
6
0
+6 +2

-12

-16

- 7

- 3

- 7

Lancaster............................. - 3

-12

- 2

-10

- 8

-11

- 7

-10

-12

-13

-11

- 2

- 9

-36

-10 - 8

-10

-10

- 7

Reading.............................. - 2

- 9

- 3

-11

-14

- 4

-11

-11

- 8

- 3

- 3

-12

- 3

-14
-26

—12

— 6

—11

Wilkes-Barre..................... - 3

-12

+1

-14

-20

- 7

- 6

-14

-10

-22

+ 7

-11

+11

- 6

— 3

-12

- 2

— 7

0

— 3

+ 1

0

-15

- 2

-22

-

l-9
1-3
-10

-

-12

Philadelphia...................... - 2

- 3
- 3

- 5
- 2

- 4

5

0
0

* Pennsylvania. ** Adjusted for seasonal variation, t Philadelphia.


Page 114


Department Store

-34

SUMMARY

EMPLOYMENT & INCOME
Factory employment.................
Factory wage income................

Factory*

York....................................

6

-10

-10

- 6

-12

- 5

-21

* Not restricted to corporate limits of cities but covers areas of one or more counties.

THE BUSINESS REVIEW

MEASURES OF OUTPUT

EMPLOYMENT AND INCOME
Per cent change
Julv 1949
from

7 mos.
1949

Pennsylvania
Manufacturing
Industries*
Indexes
(1939 avg. =100)

month
ago

year
ago

year
ago

- 3
- 4
- i

-15
-19
-11

- 9
-10
- 9

Foods...........................................................
Tobacco.......................................................
Textiles.......................................................
Apparel.......................................................
Lumber.......................................................
Furniture and lumber products..........
Paper...........................................................
Printing and publishing.........................
Chemicals...................................................
Petroleum and coal products...............
Rubber........................................................
Leather.......................................................
Stone, clay and glass..............................
Iron and steel............................................
Nonferrous metals...................................
Machinery (excl. electrical)..................
Electrical machinery...............................
Transportation equipment (excl. auto)
Automobiles and equipment................
Other manufacturing..............................

- 1
- 7
- 1
- 6
- 5
- 1
+14
+ 1
0
- 1
-27
- 3
- 3
- 6
- 4
0
- 4
- 7
+ 4
0

- 9
-12
-20
- 3
-11
-22
-10
- 2
-16
- 3
-37
- 3
-15
-18
-16
-27
-17
- 3
-15
-17

- 5
-12
-19
- 7
- 8
-21
-13
- 2
- 5
- 1
-21
-10
-11
- 7
-14
-15
-10

COAL MINING (3rd F. R. Dist.)f. .
Anthracite..................................................
Bituminous................................................

+12
+19
-27

-14
- 7
-51

-23
-24
-16

CRUDE OIL (3rd F. R. Dist.)ft___

- 7

-18

-u

MANUFACTURING (Pa.)*................
Durable goods industries.......................
Nondurable goods industries................

CONSTRUCTION — CONTRACT
AWARDS (3rd F. R. Dist.)**..........
Residential.................................................
Nonresidential...........................................
Public works and utilities.....................

+ 9
- 7
+15
+20

-27
-25
-39
- 8

-30
-15

-15
-13
-31
+ 9

* Temporaryseries—not comparable with former production indexes.
** Source: S.W. Dodge Corporation. Changes computed from 3-month
moving averages, centered on 3rd month,
t U. S. Bureau of Mines, ff American Petroleum Inst. Bradford field.

All manufacturing..
Durable goods
industries...............
Nondurable goods
industries...............
Foods........................
Tobacco...................
Textiles....................
Apparel....................
Lumber....................
Furniture and
lumber products..
Paper........................
Printing and
publishing.............
Chemicals................
Petroleum and coal
products................
Rubber.....................
Leather....................
Stone, clay and
glass........................
Iron and steel........
Nonferrous metals.
Machinery (excl.
electrical)..............
Electrical
machinery............
Transportation
equipment
(excl. auto)...........
Automobiles and
equipment..............
Other manufacturing

Employment
July
1949
(In­
dex)

Per cent
change
from
mo.
ago

year
ago

Average
srage
Weekly
ekly
Earnings

Payrolls
Per cent
change
from

July
1949
(In­
dex)

mo.
ago

July
1949

year
ago

Average
Hourly
Earnings

chg.
from
year
ago

%
chg.
from
year
ago

July
1949

112

-

2

-12

251

- 3

-12 $50.51

132

- 3

-14

278

- 4

-14

54.84

0

1.466

+

2

- 9

220

8

45.10

+ 1

1.185

+ 4

6
-11
-17
- 4
- 8

250
184
174
207
195

- 4

+
+
+

-21
- 5

94

-

117
84
70

-

86
86

73
113

2
- 4

-3
- 1
+ 4
-

1

+4

-

-

2

-

6

+ 1 $1,340

+ 5

- 1
- 7
- 6

47.64
28.99
44.13
34.19
42.12

+
+

-19
- 7
- 5

2
1
2
- 3
+ 4

1.152
.775
1.191
.917
1.087

169
253

- 1
+14

-23
- 2

42.54
48.17

- 3
+ 3

1.016
1.202

6

+

-10

-

6
2
2

- 4
+ 7
- 1
8

132
106

- 1
1

- 4
-14

286
226

+ 1
- 1

+

-14

61.16
50.50

+10
0

1.648
1.301

+

145
115
84

- 4
- 7
- 2

- 6
-21
- 3

324
199
179

- 1
- 4

+ 3
-30
+2

68.17
43.09
36.57

+ 9
-12
+ 5

1.685
1.444
1.016

+ 7
+ 4
+ 3

114
121
111

- 1
- 4
- 5

-14
-12
-18

244
250
237

-

- 3
6
- 5

-14
-13
-13

48.80
55.44
55.59

0
- 1
+ 5

1.264
1.535
1.410

+ 3
+ 7
+ 3

165

-

2

-21

352

+ 1

-21

53.99

+ 1

1.411

+

-14

391

- 4

-16

56.57

-

2

1.514

+ 1

- 1

452

+ 3

60.35

+ 4

1.576

+ 7

-19
-15

282
219

- 7

64.03
40.78

+14
+ 3

1.553
1.159

+ 9
+ 5

-

193

121
112

+ 1
+2

-20

+ 7
+ 2

6

-12

+11
6

6

* Production workers only.

TRADE
Third F. R. District
Indexes: 1935-39 Avg. =100
Adjusted for seasonal variation

Per cent change
July
7 mos.
1949 July 1949 from
1949
(Index)
from
month
year
year
ago
ago
ago

SALES
Furniture stores.........................
STOCKS
Department Stores...........
Women’s apparel stores..........
Furniture stores.........................

261
230

- 3
-10
—22*

-10
- 7
-14*

224
190

- 3
- 6
- 5*

-11
-15
-17*

Sal es

Departmental Sales and Stocks of
Independent Department Stores
Third F. R. District

- 5
- 2
- 6*

Stocks (end of month)

% chg. % chg. % chg. Ratio o sales
July
7 mos. July 31,
(moiith’s
1949
1949
1949
supi3ly)
from
from
from
Ju ly
year
year
year
1949
ago
1948
ago
ago

Week
Week
Week
Week

ended
ended
ended
ended

August 6.. . .
August 13 ..
August 20..........
August 27. .

* Not adjusted for seasonal variation.




Per
cent
change
from
year
ago
-16
-21
- 9
- 5

-IS

- 5

-11

3.6

Main store total............................................
Piece goods and household textiles.....................
Small wares................................................
Women’s and misses’ accessories.........................
Women’s and misses’ apparel...................... .
Men’s and boys' wear.............................................
Housefurnishings..................................................
Other main store..................................................

-13
-12
-11
-13
-15
- 3
-16
-18

- 6
- 5
- 3
- 4
- 1
- 2
-12
-10

—11
-16
- 6
- 6
- 5
- 8
-15
-14

4 1
4.0
4.8
3 9
2.6
4 3
4.8
3.8

4.7
3.6

Basement store total.........................................
Small wares................................... .
Women’s and misses’ wear..............
Men*8 and boys’ wear....................................
Housefurnishings..................................................

-14
- 9
-12
-14
-25

-

3
4
1
3
7

-11
—11
- 6
—19

2.1
2.2

2.0
2.3

Nonmerchandise total.............................................

Recent Changes in Department Store Sales
in Central Philadelphia

Total — All departments................... .

- 5

—

2

-21

1.4
2 3
3.7

3.5

4.2
4 5
3 6
2 4

9 R
3.5

Page 115

THE BUSINESS REVIEW

BANKING

CONSUMER CREDIT
Receiv­
ables
(end of
month)

Sales

Sales Credit

% chg. % chg.
July
7 mos.
1949
1949
1949
from
from
from
yearago yearago yearago

Third F. R. District

Department stores
-14
-11
-11

- 5
- 1
- 6

-14
- 6
-14

-11
-13

+
-

4
4

Furniture stores

MONEY SUPPLY AND RELATED ITEMS
United States (Billions $)

July
27,
1949

Money supply, privately owned......................................
Demand deposits, adjusted............................................
Time deposits......................................................................
Currency outside banks...................................................
Turnover of demand deposits..........................................

Changes in—•
four
weeks

year

166.7

+i.i

+ .7

83.3
58.6
24.9

+i.i
+ .2
- .1

0
+1.3
- .6

18.5*

-1.1*

-3.1*

Loans made

Loan Credit

+

7

Loan
bal­
ances
out­
standing
(end of
month)

% chg. % chg. \tgJuly
7 mos.
1949
1949
1949
from
from
from
year ago yearago yearago

Consumer instalment loans
+19
- 7
+ 2
+11

+ 2
- 7
+ 5
+13

+22
4- 2
4- 8
4-23

114.7

+1.0

0

U. S. Government securities..........................................
Other securities..................................................................

40.4
64.5
9.8

- .8
+1.5
+ .3

+ .3
- .8
+ .5

Member bank reserves held..............................................

Third F. R. District

Commercial bank earning assets.....................................

0

17.5

- .5

0

Required reserves (estimated).......................................
Excess reserves (estimated)............................................

16.6
.9

- .8
+ .3

- .1
+ .1

Changes in reserves during 4 weeks ended July 27
reflected the following:
Effect on
reserves
Decline in Reserve Bank holdings of Governments:
Net payments by Treasury...........................
Return of currency from circulation..........
Increase in loans to member banks...........
Change in reserves......................................

-1.0
+ .1
+ .1
+ .3
- .5

* Annual rate for the month and per cent changes from month and year ago
at leading cities outside N. Y. City.
‘At- H
Changes in—

PRICES

OTHER BANKING DATA

Percent change
from
July
1949
(Index) month
year
ago
ago

August
24,
1949

four
weeks

year

190
218
204
179

Weekly Wholesale Prices—U. S.
(Index: 1935-39 average =100)


Page 116


-

+
+

All com­ Farm
prod­
modi­
ties
ucts

189
189
188
188
189

Source: U. S. Bureau of Labor Statistics.

- 9
-15
-14
- 4

169
168
195
184
143
192
153

Consumer prices

- 1
- 2
- 1
0

216
216
211
210
213

1
1
2
2
0
4- l
0

Foods

203
204
204
204
205

3
3
7
5
5
3
3

Other

179
179
179
179
179

12.9
2.0
4.2
.2
4.1

0
0
+ .i
- .1
+ .i

-1.9
+ .5
4- .3
- .1
+ .3

Total loans—gross....................................................
Investments.....................................................................
Deposits...........................................................................

23.4
42.1
74.1

+ .i
+1.7
+1.4

- .9
+3.0
+ .8

Third Federal Reserve District (millions $):
Loans—
Commercial, industrial and agricultural................
Security............................................................................
Real estate.......................................................................
To banks..........................................................................
All other...........................................................................

473
33
97
3
283

+ 16
- 1
+ 3
- 5
+ 2

- 57
+ 1
+ 12
+ 1
+ 16

Total loans—gross....................................................
889
Investments..................................................................... 1,752
Deposits............................................................................ 2,918

Index: 1935-39 average <=*100

Weekly reporting banks — leading cities
United States (billions $):
Loans —
Commercial, industrial and agricultural................
Security............................................................................
Real estate.......................................................................
To banks..........................................................................
All other................................. .........................................

+ 15
+ 39
+ 45

- 27
+128
+ 37

-1.0
- .7
+ .i
0
0

-1.2
-3.7
+ .9
- .7
-1.4

- 50
- 4
- 40
+ 23
+1.3%

-334
- 32
- 68
+139
+9.5%

Member bank reserves and related items
United States (billions $):
Member bank reserves held.........................................
Reserve Bank holdings of Governments..................
Gold stock..........................................................................
Money in circulation......................................................
Treasury deposits at Reserve Banks.........................

16.5
17.8
24.6
27.3
.5

Federal Reserve Bank of Phila. (millions $):
Loans and securities....................................................... 1,221
Federal Reserve notes.................................................... 1,604
Member ba • k reserve deposits....................................
764
1,250
Reserve ratio .................................................................. 50.8%


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102