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MONTHLY REVIEW
o f C r e d it a n d
S e c o n d

B u s in e s s

F e d e r a l

Federal Eeserve Bank, New York

M o n e y M a r k e t in M a r c h
The feature o f the past month in the money market
has been the strength of United States Government and
other high grade securities. Prices fo r long term Treasury
bonds, high grade corporation bonds, and municipal
securities all rose, as the supply of funds available for
investment continued to increase and the outlets fo r
investment funds continued restricted.
The rise in prices o f Government bonds follow ed the
announcement on March 4 of the T reasury’s March
refinancing program. The rather general expectation
in the market had been that the refunding of Treasury
notes maturing on June 15 and o f the Treasury bonds
called fo r redemption on that date would be combined,
and that holders of these securities would be given
the option of exchanging them for either a new issue
o f Treasury notes or an issue of Treasury bonds o f inter­
mediate maturity. W hen the Treasury announced only
a new issue of five year notes in exchange for the notes
maturing in June and made no mention of the refund­
ing o f the called bonds, it became apparent that there
would be no reduction in the outstanding supply of
Treasury notes, and that no increase in the supply o f
Treasury bonds would result from the March refinancing
operation. Prices o f outstanding Treasury notes, which
had been strong during the first few days of the month,
declined moderately, but prices of Treasury bonds rose
rapidly as banks and other investing institutions went
into the market to purchase bonds in place of those which
they had expected to obtain through a refunding issue,
or the buying o f which they had postponed pending the
outcome o f the M arch refinancing operation o f the
Treasury.
In the three days beginning with March 5, after the
Treasury announcement was issued, the average price
o f long term Treasury bonds rose % of a point and
medium term issues also rose considerably. The rise con­
tinued at a more moderate rate until near the end o f the
third week in March, when the total advance fo r the long
bonds was close to 1 % points. A tem porary dip occurred
on March 20, which was attributed to professional sell­
ing induced by war news and the technical condition o f
the market, but on subsequent days the rise was resumed.
U nderlying factors in the strength of the market fo r
high grade securities in March were the further accumu­
lation of funds available fo r investment in banks and
other institutions, and the dearth of new additions to the
supply o f such securities. The volume of idle funds in
banks continued to increase and the large New Y ork
City banks added substantially to their investment port­




R e s e r v e

C o n d itio n s
D is t r ic t

April 1,1940

folios. Insurance companies, which have had a continued
accumulation of funds fo r investment, were also reported
to have participated in the buying movement of the
past month. E xcept fo r a few large issues, flotations o f
new corporation and State and m unicipal bonds have
remained relatively small in recent months, and a large
part of the securities that have been offered have been
fo r refunding purposes. Furthermore, no early offer­
ing o f Treasury securities to provide new funds for the
Government has been expected by the market, and the
high level o f income tax collections in March was ex­
pected to defer still further the need fo r such financing,
unless Government expenditures rise considerably above
those indicated by the budget estimates issued in J anuary.
In the face of these conditions o f demand and supply
in the market fo r high grade securities, the principal
restraining influence on the market has been the con­
tinued uncertainty as to the effects of the war in Europe
on the financial situation in this country. Reports from
E urope during the past month had alternately minor
stimulating and depressing influences on the bond mar­
ket, and usually the reverse effects on the stock and
commodity markets.
The most important immediate effect o f the war on the
banking position in the United States is through its
stimulus to gold shipments to this country. Despite the
restrictions adopted by a number of countries to curtail
transfers o f capital to the United States, which fo r
several years had been the largest factor causing gold
shipments to this country, the gold movement has con­
tinued in very large volume. A fte r diminishing gradually
from December to February, gold imports rose consider­
ably in March and w ill probably reach a total of about
$450,000,000, the largest amount fo r any month except
December since the war started. Substantial amounts o f
the incoming gold were placed under earmark for foreign
account, but the net increase in the United States gold
stock in March was approxim ately $250,000,000.
The continued inflow o f gold has been the principal
factor tending to raise the volume o f excess reserves o f
member banks to higher and higher levels. In the two
weeks ended March 13, excess reserves o f member banks
rose to new high levels, chiefly as a result o f additions to
the gold stock, the total volume o f excess reserves on
March 13 amounting to $5,780,000,000. In the week
ended March 20 a temporary reduction was occasioned
by the heavy income tax collections, which substantially
exceeded Government disbursements and gold imports
in that week, but in the follow ing week the growth in
member bank reserves was resumed.

26

MONTHLY REVIEW, APRIL 1, 1940
M on ey R a tes

The principal change in money rates during March
was the decline in yields on Government and other high
grade bonds. Y ields on Treasury notes also showed a
small net decline, despite the effects o f the Treasury
refinancing operation.
Other money rates remained
practically unchanged.
M oney Rates in New York
Mar. 31, 1939 Feb. 29, 1940 Mar. 28, 1940
Stock Exchange call loans.......................
Stock Exchange 90 day loans.................
Prime commercial paper 4-6 m onths. . .
Bills— 90 day unindorsed.........................
Average yield on Treasury notes (3 -5
years).......................................................
Average yield on Treasury bonds (not
callable within 1 2 yea rs).....................
Average rate on latest Treasury bill sale,
91 day issue............................................
Federal Reserve Bank of New York
discount ra te..........................................
Federal Reserve Bank of New Y ork
buying rate for 90 day indorsed bills..

1

1

*1 K

*1 H

1
X -5
A

X -H

he

%

0 .5 0

0.41

0 .4 1 f

2.31

2.33

2 .2 2

t

0.005

#

1

1

1

X

X

X

* Nominal.
t Increase of 0 .0 3 in average yield due to inclusion of the new issue of % per
cent Treasury notes, Series A, maturing March 15, 1945.
t Average price slightly below par.
# Sold at prices slightly above par, and at par.

M e m b e r B a n k C r e d it

In the fou r weeks ended March 20, total loans and
investments of weekly reporting New Y ork City banks
increased $224,000,000, chiefly because of an increase in
security holdings, amounting to $177,000,000. The larg­
est increase was in holdings of Treasury notes. A fter
the Treasury announcement on March 4 of its refinancing
program, the price of Treasury notes m aturing in June
declined % to % of a point, and the New Y ork City
banks became large buyers of these notes, which they
subsequently exchanged fo r the new issue; fo r the four
week period the increase in the Treasury note holdings
o f the New Y ork City banks amounted to $108,000,000.
They also reported increases in investments of $48,000,000
in Treasury bonds, and $51,000,000 in securities other
than Treasury obligations, but reduced their hold­
ings of Government guaranteed securities by $36,000,000.
Total loans of these banks rose $47,000,000, largely
because of an upturn in commercial and industrial loans,
part of which apparently was seasonal in character, and
part of which reflected a few large term loans.
Reports from member banks in 100 other principal
cities throughout the country showed a decrease o f
$37,000,000 in total loans and investments during the
same period. There was an increase of $28,000,000 in
loans, which again was largely in commercial and indus­
trial loans, but this increase was more than offset by a
reduction of $65,000,000 in investments. The largest
decrease, amounting to $55,000,000, was in holdings o f
Treasury notes. There were also reductions of $12,000,000
in Treasury bond holdings and $20,000,000 in Gov­
ernment guaranteed securities, but these reductions were
partly offset by increased holdings of Treasury bills and
a small increase in other securities.
Demand deposits, exclusive o f interbank deposits, rose
somewhat further in the New Y ork City banks during the
fou r week period, despite the transfer of $50,000,000 to
time deposits, and the amount of deposits held for other
banks increased nearly $100,000,000 to a new high level.
In other cities covered by the weekly reports, demand




deposits, other than interbank deposits, showed some
net decline fo r the fou r weeks ended March 20, appar­
ently due to income tax payments, but in this case also
deposits held fo r other banks increased substantially.
G o v e r n m e n t S e c u r it ie s

Prices o f Treasury bonds showed a rising tendency
during the opening days of March, and, follow ing the
announcement that was made after the close of business
March 4 that a five year note issue would be offered by
the Treasury in exchange fo r the $738,000,000 of 1^2
per cent Treasury notes maturing June 15, 1940, the
Treasury bond market turned strong. Prices o f out­
standing long term Treasury bonds advanced on the aver­
age about % of a point on the follow ing three days, but
the price of the June 15 notes (rights) declined con­
siderably.
On March 7, the Treasury made a form al offering of
an issue o f % per cent Treasury notes due March 15,
1945, in payment fo r which only the Treasury notes
m aturing in June could be offered, and on March 9 the
subscription books were closed with 97 per cent o f the
June notes turned in fo r exchange into the new issue.
The stimulus to the market fo r Treasury bonds, provided
by the refunding o f the June notes only with a note
issue, carried through March 18, as many investors who
had deferred their operations until the terms o f the
refunding became known, came into the market. Reflect­
ing this demand, which included purchases by insurance
companies, savings banks, and commercial banks, the
average price o f long term Treasury bonds rose an addi­
tional % of a point in the period between March 7 and
March 18. A t the highs reached on March 18, the price
o f the 2 % per cent Treasury bonds of 1960-65, fo r
example, came within % o f a point of the high reached
in June o f last year.
F or a few days after March 18, however, buying inter­
est contracted considerably, apparently reflecting in part
the com pletion of investment program s by a number of
investors, and during this period prices o f long term
Treasury bonds eased about % o f a point. This decline
was quickly follow ed by a recovery, with the result that
prices near the end of March were on the average at the
m onth’s highs, and about 1 % points above the closing
quotations of February. The average price of 3 to 5
year Treasury notes showed a relatively minor advance
fo r the month.
Treasury bill financing during March was composed
o f fou r weekly issues, each in the amount o f $100,000,000
and o f 91 day term, which replaced similar maturities.
The bills dated March 6 were all awarded on par bids,
and accepted bids fo r the follow ing three issues were at
prices slightly above and at par.
C o m m e r c ia l P a p e r a n d B il l s

In conform ity with the usual experience in March,
commercial paper dealers were reported to have acquired
from a diversified list of industrial and commercial con­
cerns a somewhat enlarged amount o f notes fo r resale
to investors. The aggregate amount o f these acquisitions,
however, remained small as measured against the exist­
ing active investment inquiry, which continued largely
unfilled. Average grade prime fou r to six month com­
mercial paper again was sold at both % and % per

27

FEDERAL RESERVE BANK OF NEW YORK

cent, the level that had prevailed fo r some time prior
to the temporary small rise which follow ed the outbreak
o f war in September, and especially choice paper con­
tinued to be sold at % per cent. The m ajor portion o f
all sales was consummated at % per cent. A total o f
$226,400,000 of paper was outstanding at the end o f
February through commercial paper concerns reporting
to the New Y ork Reserve Bank. This compares with
$219,400,000 at the end of January and is the largest
amount outstanding since May, 1938.
Owing to continued limitation of supply in the face of
an active and largely unsatisfied demand, the bankers ac­
ceptance market continued inactive during March, with
rates quoted at previously reported levels. The amount
of acceptances outstanding increased slightly in Febru ­
ary to $233,000,000 and returned to approxim ately the
level that prevailed in December. The rise of $4,000,000
fo r the month resulted from increases in outstandings
o f export bills and bills based on goods stored in or
shipped between foreign countries, which exceeded a
decrease in im port bills outstanding. In comparison with
a year ago, the decrease o f $15,000,000 was due largely
to declines in bills based on foreign stored and shipped
goods, and in export bills, partly offset by increases in
several other classifications.
C a p it a l P o s i t io n o f N e w Y o r k C i t y B a n k s
There has been recurrent discussion in recent years
o f the rather general decline in ratios o f bank capital to
the volume of bank deposits. This tendency has been
clearly apparent in the published statements o f banks
in New Y ork City as well as in other parts o f the coun­
try. In the past five years the aggregate deposits o f 27
o f the larger New Y ork City banks have increased by
about $4,900,000,000, or more than 50 per cent, while
their aggregate capital funds have increased by less than
2 per cent. Recoveries on assets written down during
preceding years, and gradual accumulations o f undis­
tributed net profits, have only slightly exceeded repay­
ments o f capital obtained from the Reconstruction
Finance Corporation after the bank holiday o f 1933.
Consequently, as is shown in the first column o f the
accom panying table, the average ratio o f total capital
funds to total deposits fo r these banks has declined from
17.2 per cent at the end o f 1934, to 12.2 per cent at the
end o f 1939, owing to the continued large increase in
deposits.
D uring these years, however, the cash assets o f these
banks (cash in vault, amounts due from other domestic
banks, reserve balances in the Federal Reserve Bank,
and cash items in process of collection) have more than
doubled, increasing b y approxim ately $3,600,000,000.
Obviously, to the extent that assets held b y the banks
against their deposits are in the form o f cash or the
equivalent, no very great protection in the form o f bank
capital is needed by the depositors. In the last analysis
protection fo r depositors becomes important when their
deposits are employed in assets that are subject, poten­
tially at least, to shrinkage in value. In 1935 and 1936
there was a substantial increase in the amount o f funds
employed by the New Y ork City banks in loans and
investments, and consequently the ratio o f capital funds
to deposits less cash assets (second column in the table)
declined considerably. In the subsequent three years,




however, there was no further net reduction in this
ratio as the amount o f invested funds has shown little
change— an increase in security holdings being largely
offset by a reduction in loans— and the further substan­
tial rise in deposits has been paralleled b y the equally
large increase in cash assets. A t the end o f 1939, the
average ratio o f capital funds to deposits, less cash assets,
was 21.5 per cent as com pared with 26.3 per cent at the
end o f 1934.
From one viewpoint, perhaps the most significant capi­
tal ratio is the percentage o f capital funds to the total
o f all bank assets in which there may be shrinkage in
value under adverse conditions. Such assets comprise
all funds invested in loans, securities, and real estate.
This ratio fo r the New Y ork City banks also declined
in 1935 and 1936 (third column in the table) but showed
no further net reduction from the end o f 1936 to the
end o f 1939, although there was an intervening increase
in 1937, when there was a large reduction in the volume
o f loans and investments, and a subsequent decrease,
especially in 1939, when loans and investments increased
substantially. A t the end o f 1939 this ratio o f capital
funds to total invested funds was 17.3 per cent as com­
pared with 19.9 per cent at the end of 1934.
It may be concluded from this analysis that a decline
in the ratio o f bank capital to total deposits may not
necessarily indicate, and certainly does not accurately
measure, a lessening o f the protection afforded bank de­
positors by bank capital. Such protection depends upon
several other factors, including the proportion o f cash
held by banks against their deposits, the proportion o f
bank funds invested in assets subject to potential shrink­
age in value and the character o f such assets. There is
no single ratio o f bank capital to the volume o f deposits
or to the volume o f invested funds which can be con­
sidered satisfactory fo r all banks under all conditions.
A capital ratio which may be quite ample fo r a bank
with an adequate proportion o f liquid assets and with
other assets o f generally high quality, may be insufficient
fo r a bank that has a substantial part o f its funds
employed in loans, securities, or other assets involving
material risk o f depreciation. In general, it m ay be
said that the importance o f the decline in the ratio o f
bank capital to total bank deposits in recent years has
been exaggerated, and that other at least equally inform a­
tive ratios have not shown a proportionate decline.
Percentage of total capital to

End of December

Total deposits

1934
1935
1936
1937
1938
1939

17.2
14.9
13.6
14.7
13.9
1 2 .2

Total deposits
less cash assets
26.3
23.2
2 1.2

23.7
23.4
21.5

Total invested funds
19.9
18.3
17.1
18.8
18.5
17.3

S e c u r it y M a r k e t s
D uring March, fluctuations o f stock prices continued
to be within narrow limits, and, in fact, were even nar­
rower than in the other months since last September.
Reflecting this high degree o f stability, the Standard
Statistics Company index o f closing quotations fo r 90
stocks moved within a range o f only 2 per cent in March.
The volume o f trading in stocks also remained at a very

28

MONTHLY REVIEW, APRIL 1, 1940

low lev el; on only two days during the month did turn­
over on the New Y ork Stock Exchange reach as much
as 1 million shares. Tow ard the end of March, indus­
trial, railroad and public utility shares on the average
were fractionally higher than at the end o f February.
The medium grade corporate bond market continued
to show diverse tendencies during March. Prices o f pub­
lic utility bonds rated Baa by M ood y’s Investors Service
rose considerably further to the highest levels in recent
years, and industrial bonds of this grade continued to
firm, reaching the highest average level since early 1937.
Baa railroad bonds, however, receded slightly further and
toward the end o f March were quoted, on the average,
some 5 % points below the 1939 highs reached in March
o f that year, when the volume o f freight traffic was
somewhat lower than at the present time.
A ll groups o f high grade corporation bonds moved
higher in March, follow ing a slight easing in the latter
part of February from the peaks reached in the middle
o f that month, and toward the end of March this class
o f bonds again reached new high levels, about % point
above the February high, according to M ood y ’s Investors
Service average o f A aa bonds. H igh grade municipal
bonds also advanced in price during March, as is indi­
cated by a decline in the Standard Statistics Company
average yield on 15 such obligations from 2.65 per cent
on February 28 to 2.54 per cent on March 27. Prices
did not, however, advance as high as in the first part
o f January when the average yield reached a record
low of 2.49 per cent.
N e w F i n a n c in g
F ollow ing the announcement early in the month con­
cerning the T reasury’s M arch financing program, the
demand for long term Treasury bonds and also fo r re­
cently offered corporate and m unicipal issues quickened,
with the result that the remaining unsold portions o f
a number o f these corporate and municipal issues were
disposed o f by syndicates and selling groups. There
was, however, an absence o f additional large corporate
or municipal flotations such as have raised the totals
fo r recent months. The total o f new financing for March,
at $164,000,000, was the lowest fo r any month since
September, 1939, and the amount o f funds obtained from
corporate security issues fo r new capital purposes was
at a level close to the smallest amounts raised fo r such
purposes in any month in more than a year. The March
total was composed o f $89,000,000 o f corporate issues, o f
which the largest was in the amount o f $17,700,000, and
$75,000,000 o f m unicipal flotations, o f which the largest
was a $28,000,000 issue.
Tem porary financing accounted fo r an additional
$160,000,000 and included $45,000,000 New Y ork City
one month revenue bills, about $20,000,000 Federal
Intermediate Credit Bank debentures, and $41,000,000
New Y ork City H ousing A uthority six month tempor­
ary loan notes.
D uring the first quarter o f 1940, domestic corporate
financing averaged $170,000,000 per month, an amount
approximately the same as that o f the last quarter o f
1939, but more than 80 per cent greater than in the first
quarter o f either 1938 or 1939. The volume o f corporate




security issues fo r new capital purposes, however, re­
mained at a low level.
Forthcom ing issues announced or registered with the
Securities and Exchange Commission during March in­
clude the follow in g : $36,000,000 Inland Steel Company
3 per cent refunding bonds due in twenty-one years;
$14,750,000 Safeway Stores, Inc., 5 per cent cumulative
preferred stock; and 715,980 shares o f common stock
o f the Indianapolis Pow er and Light Company.
E m p l o y m e n t a n d P a y r o lls
Although factory employment and payrolls in New
Y ork State both rose about 1 per cent in February, the
increases were less pronounced than usual fo r this time
o f the year. In consequence, this bank’s seasonally
adjusted index o f employment was slightly lower than
in January, the first decrease since May, 1939, and the
adjusted payrolls index declined 1 per cent. Compared
with February a year ago, total factory employment
was 11 per cent higher and payrolls were 13 per cent
greater.
The apparel group reported large gains in both em ploy­
ment and payrolls as is usual in F eb ru a ry; w om en’s
clothing and m illinery firms each registered 10 per cent
increases in working forces.
Metals and machinery
plants and printing establishments, however, decreased
their working forces slightly and reported smaller p ay­
roll disbursements.
Although the number o f nonagricultural workers in
the United States as a whole declined by about 50,000
during February, there were approxim ately 1,000,000
more persons employed in such occupations than in
February, 1939, according to the Department o f Labor.
The usual seasonal reductions in employment in public
construction, retail stores, and wholesale firms contributed
largely to the decline from the January level, while
factories failed to increase working forces as they ordinar­
ily do at this time o f year. Private building construc­
tion and some form s o f mining reported slight em ploy­
ment gains instead o f the usual February losses.
F actory employment and payrolls in the United States
showed only minor changes from the middle o f January
to the middle o f February. Em ploym ent in durable
goods industries declined contraseasonally, while in non­
durable goods industries there was a less than seasonal
increase in working forces. A m ong the larger em ploy­
ment decreases were those at iron and steel mills, auto­
mobile factories, meat packing concerns, and textile
plants, while gains, largely seasonal in character, occurred
in the w om en’s and m en’s clothing industries. Total
factory employment was 8 per cent above the level o f
February, 1939, and payrolls were 14 per cent greater.
P r o d u c tio n a n d T r a d e
Available inform ation indicates that there was a
further decline in business activity during March, al­
though the extent o f the reduction appears to have been
less pronounced than in either January or February.
Steel mill operations, which had declined from an aver­
age o f 93 per cent o f capacity in November to 69% in
February, appear to have averaged about 63 per cent
in March. Mill sales o f cotton goods picked up tem­
porarily early in the month, but subsequently decreased
again to a level considerably below the current rate of

29

FEDERAL RESERVE BANK OF NEW YO R K

production. A ccom panying rather favorable reports of
retail demand for cars, automobile manufacturers main­
tained active production schedules throughout the month,
and electric power generation appears to have leveled off
after declining in February. D uring the first three weeks
o f March railroad car loadings of merchandise and mis­
cellaneous freight increased somewhat less than season­
ally while the movement of bulk freight appears to
have declined about as usual. Average daily sales of
department stores in this District during the first three
weeks of March showed somewhat more than the usual
seasonal rise from the February average, even after
allowing for the earlier date o f Easter this year.
In February, as in January, a number of seasonally
adjusted indexes o f industrial production and business
activity declined sharply, largely because of curtailment
o f output in a few important industries that are heavily
weighted in these indexes and because o f adjustments
fo r the usual expansion of activity early in the year,
which ordinarily follows a slackening o f activity toward
the end of the preceding year. Last fall a high rate of
production was maintained in a number of industries
until the closing weeks o f the year, so that the usual
seasonal expansion in the early months of 1940 was
hardly to be expected. Consequently, while the unad­
justed index of industrial production of the Board of
Governors o f the Federal Reserve System declined from
120 to 110 from December to February, the seasonally
adjusted index dropped from 128 to 109. The principal
factors in the decline in the unadjusted index were sub­
stantial reductions in the rate o f production of steel and
pig iron, wool manufactures and plate glass, and curtail­
ment, partly seasonal in character, in cement and lumber
production.
On the other hand, it is known that operations have
been well maintained or expanded in a number o f other
lines, such as shipbuilding, the production of aircraft,
machine tools, electrical equipment, railroad equipment,
and motor cars, and private construction work, a num­
ber o f which are not represented directly in the produ c­
tion index. E xp ort trade has shown a pronounced expan­
sion in recent months, and there has been little contrac­
tion in consumers’ goods industries taken as a whole.
Total factory employment declined only about 2 % per
cent, after seasonal adjustment, between December and
February, and factory payrolls declined less than 7
per cent. F actory payroll disbursements in February,
1940, were about 14 per cent greater than a year pre­
vious, agricultural income is estimated to have been well
above that of a year ago, corporation dividend disburse­
ments have been higher, and, in general, estimates o f
the national income indicate that consumer buying power
has been well maintained.
A comprehensive index o f production and trade com­
piled by this bank declined 6 points between December,
1939 and February, 1940, from 95 to 89 per cent o f the
estimated long term trend, and a part of this decline is
attributable to seasonal adjustments such as those dis­
cussed above. The February figure is about the same as
that fo r September, 1939, when a considerable rise had
already taken place from the relatively low level o f last
spring. This index, more comprehensive than others in
general use, includes measures o f factory production, the
number o f man-hours worked in m anufacturing indus-




Index of Production and Trade in the United States (Federal Reserve
Bank of New Y ork index, expressed as a percentage of estimated
long term trend, and adjusted for seasonal variation)

tries (to give representation to industries whose output
is not readily measured), mining, construction, railway
traffic, foreign trade, and retail trade.
(Adjusted for seasonal variations, for estimated long term trend,
and where necessary for price changes)
1939
Feb.

1940
Dec.

Jan.

Feb.

In d ex o f Production and Trade .......................

83

Production of:
Durable producers’ goods.......................
Nondurable producers’ good s ................

95

92 P

89 P

72
87

10 0

99

92 p
96 p

82p
92p

Durable consumers’ goods......................
Nondurable consumers’ good s...............

65
90

70
99

77 p

77 p

97 p

96p

Primary distribution....................................
Distribution to consumer...........................

76
89

92
97

89 P
93p

85p
93p

68

129
87
85
94
99

107

12 2
12 1

110
110

Industrial Production

Autom obiles...................................................
Bituminous coal............................................
Crude petroleum ...........................................
Electric power r ............................................
Cotton consum ption....................................
W ool consumption........................................
Meat packing................................................
Tobacco products.........................................

77
81r
87
91
96r
105

88

94
93
99p

84
96
89P
94p
97 p

106
95 P
109P
103P

85
87

116
104
95

lllp
103
85

88

97
94

97
91

95p
87 p

110

88

E m ploym ent

Employment, manufacturing, U. S. r . .. .
Employee hours, manufacturing, U. S ....

80

Construction

Residential building contracts r ................
Nonresidential building and engineering
contracts r ..................................................

46

38

42

42

66

95

45

57

79
70r
80

93
85
98
94

86

89
106

84
79
107p
69 p

P rim a ry Distribution

Car loadings, merchandise and misc........
Car loadings, oth er......................................

66

86

Distribution to Consumer

Department store sales, U. S.....................
Department store sales, 2nd D istrict. . . .
Chain grocery sales r ...................................
Other chain store sales................................
Mail order house sales.................................
New passenger car registrations...............

108
108
73

81
99
97
97
75p

85
74
99p
94
99
89p

60

64

59

58

35

35

27

25

146

147
114

147
113p

148
113p

85
77 r
94
93
94
67

92
83
10 1

88

Velocity o f D eposits *

Velocity of demand deposits, outside New
York City (1919-25 average = 100). .
Velocity of demand deposits, New York
City (1919-25 average = 1 00).............
Cost o f Living and W a ges *

Cost of living (1913 average = 10 0 ) . . . .
Wage rates (1926 average = 100)............
p Preliminary.

r Revised.

111

! N ot adjusted for trend.

30

MONTHLY REVIEW, APRIL 1, 1940

Building
During February construction contracts in the 37
States covered by the F. W . Dodge Corporation survey
were awarded at a daily rate 11 per cent above the com­
paratively low January figure, but 9 per cent below the
rate in February o f last year. Increases over the pre­
vious month were registered in each o f the three m ajor
building categories, partly in reflection o f seasonal gains
usual at this time o f year. P artly offsetting decreases
occurred in the heavy engineering types of construction,
although these reductions from the January levels appar­
ently were o f less than seasonal proportions. W ith the
exception o f commercial and industrial building, which
was nearly 50 per cent above the level of a year ago,
all the m ajor construction classifications contributed in
some measure to the decline in total contracts from the
February, 1939 level, although the decline in residential
contracts was small.
F or the New Y ork and Northern New Jersey area the
comparisons o f total construction contracts for February
with those awarded in the previous month and in F eb ­
ruary, 1939, were less favorable than fo r the country
as a whole. The rate of contract awards in this dis­
trict showed a decrease o f 6 per cent from the January
level and a 32 per cent decline from February o f last
year. Contracts fo r residential building were 5 per cent
above the January level, but were 35 per cent below the
February, 1939, volume. On the other hand, commer­
cial and industrial building, while showing a decline of
10 per cent from the previous month, registered an
advance o f 31 per cent over a year ago.
D uring the first three weeks o f March the daily rate of
construction contract awards in the 37 States was 16
per cent higher than the February average, but 5 per
cent below the corresponding weeks o f March, 1939.
Contracts fo r residential building were higher than in
February but slightly less than a year ago. Awards o f
heavy engineering projects showed increases over the
previous month and also over a year ago, while non­
residential building awards were below the rate of
February and o f March o f last year.
C o m m o d i t y P r ic e s
The irregular movement o f commodity prices continued
during the first part of March, but subsequently, accom­
panying the termination o f Russo-Finnish hostilities and
the tem porary revival o f hopes fo r an early general peace
in Europe, there was a decline in prices, and the Bureau
o f Labor Statistics indexes o f wholesale com modity prices
receded to the lowest levels since early September. Later
in March, the decline in com modity prices was arrested,
apparently reflecting the diminishing prospects fo r an
early peace in Europe.
E xcept fo r a dip o f about 3 cents a bushel in midMarch in response to peace rumors, wheat prices moved
m oderately upward throughout the month, and cash
wheat at Kansas City showed a net rise o f 3 % cents to
$1.07 a bushel on March 26, the highest level since early
January. Corn fluctuated in sympathy with wheat, but
was little changed fo r the month as a whole. Reflecting,
at first, weakness in foreign cotton markets and, later,
decreased gray goods sales by domestic mills, the average
price o f cotton at ten Southern markets lost the greater




part o f the previous m onth’s % cent gain. Raw silk
touched $2.85% a pound, a new low point since early
September, representing a 16 cent decline from the end
of February. Domestic wool prices likewise were at the
lowest levels in half a year. Hides receded % cent to
12% cents a pound, while the price o f rubber remained
around 18% cents a pound.
The principal metal markets turned reactionary dur­
ing the latter part o f March. Scrap copper declined %
cent a pound and custom smelters reduced their price a
like amount to 11% cents a pound, but prim ary p ro ­
ducers continued to quote 11% cents. Tin rose about 1 %
cents to 49 cents a pound by March 11, the highest level
since the end o f December, apparently as the result o f
new British exchange restrictions, but declined 3 % cents
subsequently. Lead was reduced 20 points to 5.05 cents
a pound, but zinc remained unchanged at 5 % cents a
pound. Scrap steel quotations resumed their declining
tendency toward the end o f the month.
B u s in e s s P r o fit s
Annual profits fo r 1939 of the 1,015 industrial and
mercantile companies whose figures are included in the
accom panying table, showed an increase o f 68 per cent
over the com paratively low 1938 level, but remained 15
per cent less than in 1937. A ll o f the groups o f com­
panies listed in the table showed aggregate net profits in
1939. W ith respect to individual companies, 61 per
cent of the total had larger net profits in 1939 than in
1938, 17 per cent that had suffered deficits in 1938
reported net profits in 1939, and 6 per cent reported
smaller deficits in 1939 than in 1938. The number of
companies reporting deficits in 1939 was slightly more
than 9 per cent o f the total, as compared with 2 4% per
cent in 1938, and slightly less than 9 per cent in 1937.
In general, companies producing durable goods showed
the largest percentage increases in profits between 1938
and 1939, but on the other hand profits o f such companies
remained between one-fourth and one-third less than
in 1937, according to reports of 535 concerns in the dur­
able goods lines. Profits of 480 companies producing
nondurable goods or in the service lines, on the whole,
rose less from 1938 to 1939, follow ing a more moderate
decline in profits between 1937 and 1938, but they were
much closer to the 1937 level in 1939 than were profits
o f companies in the durable goods lines. E xcluding
petroleum companies from the classification of companies
in the nondurable goods and service lines, the remaining
432 companies showed aggregate net profits which were
higher than in 1937.
A m ong the nondurable goods and service concerns,
the advertising, printing and publishing, drug and cos­
metic, various food and food products, soap, leather and
shoe, department, apparel, and food store, mail order
house, rubber and tire, textile, and clothing groups all
had larger profits in 1939 than in 1937. In the durable
goods lines, only the aviation, cement, and shipping and
shipbuilding groups had larger profits in 1939 than in
1937.
Net income o f Class I railroads fo r 1939 amounted to
$95,000,000 (after payment o f all charges), which com ­
pares with a deficit of $121,000,000 in 1938 and net
income of $99,000,000 in 1937. The net income of the
Class I railroads during the last quarter o f 1939 reached

FEDERAL RESERVE BANK OF NEW YORK

$128,000,000, the largest amount for any quarter since
1930; this net profit, together with that earned in the
third quarter of the year, substantially exceeded the
deficits accumulated during the first half of the year.
Net operating income of telephone companies and net
income of 74 other public utilities for 1939 each increased
14 per cent from the 1938 level, and were, respectively,
5 per cent and 1 per cent higher than in 1937.
(Net profits in millions o f dollars)

Corporation group

No.
of
Cos.

1937

1938

1939

15
15
60
17

13.7
256.9
58.4
5.6

1 1 .1

102.9
2.9
9 .0

16.3
227.3
51.9
17.1

12

39.8

13
7
16
9
7
7
37

8 .1

16.8
4 .7

31.4
9 .7
3 .9
18.2

Building supplies:

9 .8
5 .8
184.3
44.5
7.1
35.7
127.7

3 .4
4 .3
5 .0
2.9
108.1
30.8
— 2 .4
32.6
54.4

9 .7
4 .8
171.0
43.9
7 .1
3 8.8
9 2.3

22

21.3
64.6
17.2
21.7
17.6
19.2
46.7

24.8
62.0
15.7
23.3
24.0
— 5 .5
38.1

23.2
68.9
19.5
2 7.8
24.6
26.7
47.3

18
9
4
14
17

12.7
13.9
25.2
15.6
14.6

5.9

9 .4
13.8
3 6.5
11.5
16.2

10

75.0
30.3
82.4

10
10

18
31
Food and food products:
Bakery ..............................................................
B ev era g es.........................................................
Confectionery............................ .......................
Dairy products.................................................
Flour milling and cereal products................
Meat packing......... ..........................................
All o t h e r ...........................................................
Household supplies:
E lectrical............................................................
Furniture and floor coverings.......................
Soaps...................................................................
All o t h e r ...........................................................
Leather and shoes................................................
Machinery:
Agricultural .....................................................
Store and office equipm ent............................
Industrial machinery and accessories..........
Mining:
C oa l.....................................................................
C opper................................................................
Gold and silver.................................................
All other.............................................................
M otion pictures....................................................
Paper, pulp, and allied p r o d u c ts ....................
Petroleum...............................................................
Railroad equipment.............................................
Retail trade:
Department and apparel stores....................
Food stores........................................................
Mail order houses............................................
Variety stores...................................................
All other.............................................................
Rubber and tires ..............................................
Shipping and shipbuilding..................................
Steel and iron ........................................................
Textiles:
Clothing and apparel......................................
Silk and ra yon ..................................................
All other.............................................................
T o b a cco..................................................................
Miscellaneous.........................................................

4 .8
29.2

0 .8

13
31
9
8
10

14

13
104
19
11

18
11

5
44
48
22

16
13
5
10
21

14
8

52

10 .0

1 .2

26.5
8 .5
8 .0

38.7
12 .8

29.0

8.9
123.3
39.7
74.6
19.8
30.1
214.5
52.4

— 1.7
54.4
34.3
47.3
11.3
15.0
108.6

25.0

23.4
12.3
45.7
50.0
4 .8
23.5

10 .8

53.9
60.9
10 .8

2 7.2
0 .4
236.7

0 .8

2 .0

— 4 .4

8 .2

32.5
13.6
53.9
4 .3
8 6.5
34.6
6 1.0
13.2
24.0
125.1
19.5
29.5
18.5
67.4
56.2
9 .6
4 1.0
4 .1
151.0
9 .7

12

6 .1
8 .2

18
18
41

4.1
94.7
13.7

2.3
3 .8
— 8 .6
89.2
10.4

8 .5
9 2.2
14.9

Total, 52 groups...........................................

1,015

2,435.2

1,224.7

2,058.6

Class I railroads, net incom e.............................

138

98.7

— 121.3

9 4.6

29

10 .8

Telephone companies, net operating income ..

90

226.8

209.8

238.7

Other public utilities, net in co m e .....................

74

289.1

256.2

290.9

— Deficit.

F o r e ig n E x c h a n g e s
Largely as the result of the announcement on March 9
of new British exchange regulations, which became
operative on M arch 25 and had the effect of curtailing
materially the commercial demand fo r the pound sterling
in the outside, or free, markets, New Y ork rates fo r the
pound sterling underwent during March the most p ro­




31

nounced reaction since the outbreak o f the European
war and touched the lowest levels since A pril, 1933. The
French franc dropped proportionately.
A ccording to the new regulations, exports from the
United Kingdom o f rubber, tin ore and concentrates
and smelted tin, jute and jute manufactures, whisky,
and fu r skins to certain specified countries, including the
United States, must be paid fo r either with one o f five
designated currencies (U nited States dollars, belgas,
guilders, Netherlands East Indies guilders, or Swiss
francs) or in sterling purchased after September 3, 1939
at the official rate with one o f these five currencies. B e­
sides shipments to the United States, the Philippine
Islands, and all territories under the sovereignty of the
United States, shipments to the follow ing destinations
are also affected by the new measure: Latin America,
with the exception o f Argentina, Uruguay, and British
and French colonies; Belgium and Belgian colon ies; the
Netherlands and the Netherlands East In d ie s; and
Switzerland. Australia imposed virtually similar restric­
tions on all exports to these countries.
Because of market rumors o f the impending change
in the British exchange control, free rates in New Y ork
fo r the A llied currencies began to be affected even prior
to the actual announcement. A fte r ending February at
$3.92% , the unofficial quotation fo r the pound sterling
moved irregularly lower during the first part of March,
accom panying foreign liquidation of sterling balances,
and by March 8, sterling had reached $3.89% . Follow ­
ing the publication on March 9 of the new regulations,
the depreciation o f the free rate fo r the pound was
greatly accentuated in an active and extremely erratic
market. A fte r declining sharply to $3.69% on March
15, quotations firmed tem porarily to $ 3 ,771/2 on March
18, but then turned downward again, breaking 15 cents
in the trading on March 26 and an additional 8 % cents
on March 27, to reach a new seven year low o f $3.44%
during the day. This rate was 4 7% cents below the level
prevailing at the end of February and was about 14
per cent below the official rate in London. On March 28,
however, the free rate had recovered to $3.60.
The French franc seemed to have been little affected
by the resignation of the French Cabinet under Premier
Daladier and the form ation o f a new cabinet under
form er Finance Minister Eeynaud. A fte r closing the
preceding month at $0.0222%, the franc declined, along
with the pound, to reach a new low o f $0.0196 on March
27, follow ing which the rate firmed to $0.0204. The
free rate for the French currency bears about the same
relationship to the official rate as does the free rate fo r
sterling. A m ong the currencies o f the other belligerent
countries, the Canadian dollar showed considerable
weakness in this market during the past month, reaching
on March 12 a maximum discount o f 20 per cent from
its parity with the United States dollar, and ending the
month at a discount o f about 18 per cent. New Y ork
dealings in this currency continued small, with the
result that rates were particularly sensitive to changes
in supply, and in the demand, which reportedly was
almost totally lacking on many days.
The belga rate im proved during the month from
$0.1687 to as high as $0.1708, while the other leading
European neutral currencies— the guilder and the Swiss

32

MONTHLY REVIEW, APRIL I, 1940

franc— held near $0.5310 and $0.22421 ? respectively.
/2
The Cuban peso showed a weaker tendency, being quoted
at a discount of about 12 per cent at the end of March,
as against about 8 per cent at the end of February.
G o ld M o v e m e n ts
Im ports of gold into the United States during March
were considerably heavier than in January and Febru­
ary, and apparently in about the same large volume as
in December. D uring the past month the amount of
gold held under earmark for foreign account at the
Federal Reserve Bank of New Y ork increased about
$215,000,000, follow ing a reduction of $77,000,000 in
the two preceding months, with the result that the total
so held rose to about $1,300,000,000, thus reattaining the
peak of last July. The gold stock of the United States
increased about $250,000,000 during March, as com­
pared with the maximum monthly addition for the war
period of about $285,000,000 which occurred in Sep­
tember, December, and January.
Gold imports into the United States during the four
weeks ended March 20, as reported by the Department
of Commerce, totaled $221,600,000, of which $68,800,000
came
from
Canada,
$36,900,000
from
Sweden,
$24,400,000 from the United Kingdom, $22,900,000 from
Switzerland, $21,600,000 from the Union of South A frica,
$10,800,000 from
India, $5,800,000 from
Japan,
$5,500,000 from Italy, $4,100,000 from Australia,
$4,000,000 from the Philippines, $3,700,000 from the
Netherlands, $3,300,000 from Mexico, $2,900,000 from
H ungary, and $2,900,000 from H ong Kong.
F o r e ig n T r a d e
F or the short month of February, the value o f this
cou n try’s foreign merchandise trade was smaller than
in January, but considerably above the figures o f a year
ago.
Exports, amounting to $347,000,000, showed a
gain of 59 per cent over February, 1939, and imports,
at a value o f $200,000,000, increased 26 per cent. The
resulting excess of exports of $147,000,000 in February
of this year was the largest export balance since Novem­
ber, 1928.
A wide variety of individual exports during F ebru­
ary, especially of the wholly and partly manufactured
types, showed large increases in both quantity and value
as compared with a year ago. Exceptionally large gains
occurred in exports of aircraft, iron and steel products,
metal working machinery, industrial chemicals, paper
products, lubricating oil, copper, and aluminum. In
addition, exports of raw cotton were nearly three times
the small volume of a year previous, owing in consider­
able measure to heavy shipments to France and the
United Kingdom . On the other hand, exports o f tobacco,
crude petroleum, and crude foodstuffs continued to be
below the levels o f a year ago. E xports of passenger
automobiles were also less than in February, 1939,
although the value of motor truck shipments was slightly
higher.
W ith respect to imports, receipts o f both rubber and
silk continued to be substantially larger in value than a
year ago, although considerably less than in January.




Large percentage gains compared with February, 1939,
were registered also in imports of wool, sugar, copper,
burlap, w oodpulp, newsprint paper, hides and skins,
undressed furs, inedible expressed oils, and tin. Small
decreases occurred in receipts of such products as edible
vegetable oils, beef cattle, diamonds, and flaxseed.
D e p a r tm e n t S tore T r a d e
F or the three weeks ended March 23, total sales o f the
reporting department stores in this District were about
6 per cent above the corresponding period o f 1939, and
even after allowing fo r the earlier date o f Easter this
year, the average daily rate of sales fo r this portion of
March appears to have shown somewhat more than the
usual seasonal rise from the February average.
Total February sales o f the reporting department
stores in this District were about 2 % per cent higher
than in February, 1939, as compared with a year-to-year
gain o f 14% per cent in J a n u a ry ; in both months there
was one more shopping day than in 1939. Department
stores in most localities reported smaller increases in
February than in the previous month, and fo r the D is­
trict as a whole the daily rate o f sales was below the
January average, whereas usually some advance occurs.
February sales o f the leading apparel stores in this D is­
trict were about 2 % per cent lower than a year ago,
despite one more shopping day.
Stocks o f merchandise on hand in the department
stores, at retail valuation, were about 5 % per cent higher
at the end o f February than a year ago, while apparei
store stocks were about 6 % per cent lower. Collections
o f accounts outstanding continued somewhat slower than
a year ago in the department stores, but continued
slightly better than last year in the apparel stores.
Per cent of
accounts
outstanding
January 31
collected in
February

Percentage
change
February, 1940
compared with
February, 1939

Locality
New York and Brooklyn

Net
sales
.........................

Syracuse..............................................................
Northern New Jersey......................................
Elsewhere...........................................................
Northern New York State.........................
Southern New Y ork S tate..........................
Central New York S t a t e ............................
Hudson River Valley D istrict...................
Westchester and Stam ford.........................
Niagara Falls.................................................

+ 1.8
+ 6 .4
- [ - 7 .4
+ 1 0 .2
+ 0 .4
+ 1 0 .4
+ 6 .7
+ 3 2 .7
+ 4 .0
+ 9 .9
+ 7 .3
— 1.4
+ 1 3 .3

Stock
on hand
end of
month

1939

1940

+ 4 .3
+ 6 .8
+ 7 .6
+ 1 1 .9
+ 9 .6
— 0 .8
+ 7 .3

45.6
42.1
54.0
37.3
38.4
3 5.8
30.6

47.0
44.0
51.6
38.5
34.7
35.8
30.8

All department stores..............................

+ 2 .6

+ 5 .5

43.0

42.6

Apparel stores...........................................

— 2 .4

— 6 .4

40.9

41.8

Departm ent Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)
1939

1940

Feb.
Sales, unadjusted...............................................................
Sales, seasonally adjusted................................................
Stocks, unadjusted.............................................................
Stocks, seasonally ad justed .............................................
r Revised

Dec.

Jan.

Feb.

71
87 r
72
77

172
95
76
77

74
94
69
77

86

69
76
81

FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, APRIL 1, 1940

Business Conditions in the United States
(Summarized by the Board of Governors of the Federal Eeserve System)
TNDUSTRIAL activity showed a further sharp decline in February and a
less marked reduction in the first half of March. Wholesale commodity
prices generally were steady, following some decline in January and early
February.
P r o d u c t io n

In February the Board’s seasonally adjusted index of industrial produc­
tion was 109 per cent of the 1923-1925 average as compared with 119 in Janu­
ary and 128 in December. A further decline at a slower rate is indicated for
March on the basis of data now available. In August, 1939, the month prior
to the outbreak of war, the index was 103.
Steel production, which had risen sharply in the latter part of 1939 and
then decreased considerably in January, showed a further marked reduction
in February to 69 per cent of capacity. In the first half of March output was
steady at a rate of about 65 per cent. Plate glass production declined further
in February and output of lumber, which had dropped sharply in January,
showed less than the usual seasonal rise. Automobile production in February
was maintained at the high level prevailing in January. Dealers’ stocks of new
cars rose to high levels in this period, notwithstanding the fact that retail sales
of cars were in large volume for this time of the year. In the first half of
March output of automobiles showed less than the customary sharp increase.
In some industries not included directly in the Board’s production index, par­
ticularly the machinery, aircraft, and rayon industries, activity continued at
high levels.
Changes in output of nondurable goods were largely seasonal in February
except at textile mills and sugar refineries. At cotton textile mills activity
declined somewhat from the high levels prevailing since early last autumn.
Activity at woolen mills, which had decreased considerably in December and
January, declined further in February and output of silk products was reduced
to an exceptionally low level. Sugar refining showed less than the sharp rise
usual at this season.
Mineral production declined in February, owing chiefly to a considerable
reduction in output of anthracite. Bituminous coal production declined some­
what, following a rise in January, while output of crude petroleum increased
to new high levels.
Value of construction contract awards in February showed little change
from the January total, reflecting a further decrease in contracts for public
construction and a contraseasonal increase in private contracts, according to
figures of the F. W. Dodge Corporation. The increase in private residential
awards nearly equaled the decline that occurred in the previous month when
severe storms curtailed building operations in many areas.

Index of Physical Volume o f Industrial Produc­
tion, Adjusted for Seasonal Variation (1923-25
average
100 per cent; durable manufac­
tures, nondurable manufactures, and
minerals expressed in terms of points
in total index)

Index o f Total Loadings o f Revenue Freight,
A djusted for Seasonal Variation (1923-25
average = 100 per cent; miscellaneous,
coal, and all other car loadings expressed
in terms o f points in total index)

D is t r ib u t io n

Retail distribution of general merchandise showed little change from Janu­
ary to February and remained somewhat below the high level of the latter part
of last year, with due allowance for seasonal changes. Sales at variety stores
and mail order houses showed about the usual seasonal rise in February, while
at department stores, where some increase is also usual at this time of year,
sales remained at about the January level.
Freight car loadings declined considerably from January to February,
reflecting for the most part a sharp reduction in coal shipments and some
further decrease in loadings of miscellaneous freight.
F o r e ig n T r a d e

Exports of United States merchandise in February declined less than
seasonally from the high levels reached in December and January. The princi­
pal decreases were in shipments of cotton, copper, and aircraft, which had been
exceptionally large in previous months. Exports to Japan fell sharply and there
were declines also in shipments to the United Kingdom, the Netherlands, and
Russia, while exports to Belgium and the Scandinavian countries increased.
There has been little change in the rate of gold inflow. The monetary gold
stock increased by $246,000,000 in February and by $109,000,000 in the first
two weeks of March.

Index of W holesale Prices Compiled by the
United States Bureau of Labor Statistics
(1926 = 100 per cent)

C o m m o d i t y P r ic e s
PER CENT

PER

4

4

TES R BNS
RAlJY OD
(2YF adoe )
1 EI n vr
.AS

!\v As,

Prices of nonferrous metals advanced from the middle of February to the
middle of March, while steel scrap and textile materials declined somewhat
further. Most other commodities showed little change and in the week ended
March 9 the general index of the Bureau of Labor Statistics was at 78.3 per
cent of the 1926 average as compared with 78.5 a month earlier.
G o v e r n m e n t S e c u r it y M a r k e t

• f
*
•
a

RSRE BN
EEV AK
D.CUT RT
S ON A
V I k »I
*
j ' %\
V*j s
S* R
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1934

1935

1936

1937

1938

f
.

1939

M oney Rates in New York City




Following a relatively steady market during February, prices of long term
Treasury bonds increased sharply after the announcement by the Treasury early
in March that its operations during that month would be limited to the issuance
of a five year note to refund a note maturing next June.

\ A

B a n k C r e d it

1940

Total loans and investments at reporting member banks in 101 leading
cities rose during the six weeks ended March 13, largely as a result of
increases in investments at New York City banks. Following a reduction dur­
ing January, commercial loans increased, mostly at banks in cities outside New
York. Bank reserves and deposits continued to increase during the period.