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MONTHLY REVIEW
ofCredit andBusinessConditions
S e c o n d

F e d e r a l

R e s e r v e

D is tr ic t

Federal Reserve Bank, New Y ork

A p ril 1,1942

M o n e y M a r k e t in M a rc h
Throughout most of March, the situation in the money
market was dominated by the quarterly income tax
period operations of the Treasury. Beginning some
months ago, apprehension had been expressed that
Treasury operations during tax periods in 1942 might
produce a severe strain on the money market. A large
increase in the amount of income and excess profits taxes
was expected because of the rise in income and profits
during 1941, and because of the increases in tax rates
and changes in other provisions of the Revenue Act of
1941. The collection of taxes actually exceeded the
estimates, but the strain on the money market did not
occur because adequate preparation had been made to
prevent it. Income and excess profits tax collections
during the month of March, 1942 approximated
$3,000,000,000, or some $300,000,000 more than had
been estimated from the budget figures. This tempo­
rary drain on member bank reserves was
two and a half times the $1,200,000,000
collected in March, 1941. Various steps
were taken to offset its disruptive effect
on the money market.
The heaviest impact of the collection of
income taxes on the money market occurs
in a period of about ten days around the
quarterly tax date, and especially in the
few days immediately after the tax date—
this year in the period March 16 to March
20. It is during this period that the bulk
of the checks used in making tax payments
are presented to the banks on which they
are drawn and the proceeds transferred
from those banks to the Treasury account
with the Federal Reserve Banks. Remedial
action involves various devices for putting
Treasury funds into the market at this
period. The first such action took the
form of a sale, by the Treasury, of new
issues of Treasury bills in the latter part
of December, 1941, and the first part of

FO R

V IC T O R Y




Boy

United

January, 1942, the offerings being arranged so that the
bills would mature just after the tax date in March.
Payment of these maturing bills, which were not re­
placed by new issues of bills, put $450,000,000 of funds
in the market and constituted a substantial offset to losses
of reserves resulting from tax collections. A second step
taken by the Treasury was to allow its balances at the
Reserve Banks to decline to extraordinarily low levels
just before the tax date, without calling in funds from
commercial bank depositaries to replenish such balances.
There were two major types of payments from Treas­
ury deposits in the Reserve Banks, other than payments
for maturing Treasury bills, which helped to counter­
balance the effect of tax collections on member bank
reserves. The first of these was interest payments on
the public debt, ordinarily concentrated around the
quarterly tax dates, and which in March, over a period
of a few days around the middle of the month, re­
turned nearly $200,000,000 to member bank reserves.
The second and more important flow
of funds arose from the current high
rate of Government expenditures for war
purposes. During the first twenty-six
days of March, so-called National defense
expenditures averaged somewhat in excess
of $100,000,000 a day, and with expendi­
tures at this level the income taxes which
were being received into the Treasury
accounts at the Reserve Banks were rather
quickly paid out again, and thus returned
to member bank reserves.
Another factor in the situation was the
use of tax anticipation notes in payment
of taxes due in March. To the extent that
taxpayers used such notes, which they
had previously purchased, to meet their
income tax payments, no drain on mem­
ber bank reserves resulted. (The tax
anticipation notes— the Treasury notes of
the Tax Series— were placed on sale by
the Treasury last August.) Use of such
notes aggregated about $500,000,000 for

States

Savings

Bonds

and

Stam ps

26

MONTHLY REVIEW, APRIL 1, 1942

the month of March, or about 17 per cent of the total
taxes collected.
Treasury balances in the Eeserve Banks, which had
reached a relatively high level in the latter part of
February, owing to cash payments for the new issue
of Treasury bonds issued on February 25, were reduced
to $287,000,000 on March 4, and to only $60,000,000
on March 11, by the high rate of war expenditures.
In the first statement week during the peak of the
tax period, Treasury deposits showed practically no
net change. After the 18th, however, Treasury collec­
tions for a while ran ahead of Treasury disbursements,
and on March 25 a new issue of $150,000,000 of Treasury
bills was sold for cash, with no corresponding maturity
occurring on that day, and as a result Treasury balances
in the Eeserve Banks on March 25 amounted to
$472,000,000. In the closing days of March, however,
Treasury balances again turned downward, owing to
the continued large war expenditures.
In the New York District, income and excess profits
tax collections for the month totaled in excess of
$700,000,000, of which $130,000,000 was paid by the
use of tax anticipation notes previously purchased by
the taxpayers. All of the other Treasury transactions
which have been described as bearing on the National
money market situation also operated on the New York
money market. In particular, there were heavy holdings
in the New York market of maturing Treasury bills,
with the consequence that the reserve position of the
New York City banks was well insulated against the
drain of income tax collections. Excess reserves of the
New York City banks declined only from $975,000,000
to $935,000,000 during the week ended March 18. This
change reflected not only the net effect of Treasury trans­
actions which actually involved net disbursements in the
New York market, but also other transactions which
caused losses of reserves by the New York banks, chiefly
an outflow of commercial funds to other districts. In the
following week, that ended March 25, excess reserves
receded somewhat further to $880,000,000, or about the
same figure as on February 25. This movement was
primarily the result of a sizable withdrawal of bankers’
balances from New York banks, presumably induced by
heavy tax collections in other parts of the country.
There was also some outflow of other funds, and losses
in miscellaneous transactions, which exceeded a further
gain of funds in Treasury transactions and a large
decline in reserve requirements.
The excess reserves of all member banks throughout the
country also showed relatively moderate fluctuations dur­
ing the March tax period. In the week ended March 18
there was a decline of $100,000,000 and in the week
ended March 25 a further decline of $310,000,000 to
$2,850,000,000. This latter decline was due to the rise
in Treasury deposits in the Eeserve Banks, which,
after the statement date, declined again. Eeviewing
the month as a whole, it is evident that the operations
of the Treasury tax period were consummated without
any strain on the money market.
M e m b e r B a n k C r e d it

During the four weeks ended March 25, the total
loans and investments of the weekly reporting banks in




leading cities receded $162,000,000, but this decline was
more than accounted for by a drop of $283,000,000 in
Treasury bill holdings of the reporting banks which ac­
companied a net retirement of $350,000,000 of outstand­
ing Treasury bills in this four week period. There was
also a decline of $63,000,000 in loans to brokers and
dealers in securities, apparently reflecting a decline in
operations of Government security dealers during a
period when no major piece of Treasury financing was
done.
Meanwhile, commercial, industrial, and agricultural
loans of the reporting banks rose $106,000,000 further,
United States Government security holdings, other than
Treasury bills, rose $72,000,000, and miscellaneous secur­
ity holdings, including State and municipal as well as
corporate issues, increased $39,000,000.
The tendencies in bank credit referred to above were
common to the New York City banks and to banks in
other leading cities in the aggregate.
Adjusted demand deposits of the reporting banks were
reduced $555,000,000 in the two weeks ended March 25,
reflecting the income tax collections of the period.
United States Government deposits in the reporting
banks continued to rise, while interbank deposits showed
a considerable drop.
Money Rates in New York
M ar. 31, 1941 Feb. 28, 1942 M ar. 30, 1942
Stock Exchange call l o a n s ........................
Stock Exchange 90 day lo a n s .................
Prime commercial paper*—4 to 6 months
Bills— 90 day unindorsed..........................
Yield on % per cent Treasury note due
March 15, 1945 (tax exem pt)..............
Average yield on taxable Treasury notes
Average yield on tax exempt Treasury
bonds (not callable within 12 years). .
Average yield on taxable Treasury bonds
(not callable within 12 y e a r s )............
Average rate on latest Treasury bill sale
91 day is s u e ...............................................
Federal Reserve Bank of New York dis-

1

1

X -%
7
A

%
7
A

* Nominal.

%
7
A

0 .5 3

0 .4 5

0 .4 2

0 .8 5

0 .9 4

0 .9 3

2 .0 9

2 .1 5

2 .0 2

—

2 .3 9

2 .3 3

0 .0 6 5

0 .2 6 6

0 .2 0 3 f

1
Federal Reserve Bank of New York buy­
ing rate for 90 day indorsed bills . . .

1

1
3^

1
H

f 83 day issue.

G o v e r n m e n t S e c u r it ie s

Prices of Treasury bonds moved upward during March.
Strength among the partially tax exempt issues early
in the month was associated with favorable market inter­
pretations of Treasury tax proposals affecting this class
of Treasury securities, but prices of all types of Treasury
bonds firmed noticeably on March 23 following the
Treasury announcement that certificates of indebted­
ness (the maximum maturity of which is one year) would
be sold during April. This announcement was taken to
mean that a cash offering of long term Treasury bonds
would be deferred. The new certificates will carry no
exchange privileges.
The average yield on long term partially tax exempt
Treasury bonds declined from 2.18 per cent on February
18 (the highest level in 11 months) to 2.00 per cent on
March 23, the lowest since December 8, 1941 and only
0.12 per cent above the record low yield of last fall. The
net decline for the month as a whole amounted to 0.13
per cent. In similar fashion, the average yield on long

FEDERAL RESERVE BANK OF NEW YORK

term taxable Treasury bonds declined irregularly from
2.41 per cent on February 17 to 2.32 per cent on March
23, the lowest level since December 6, 1941. During
March the net decline was 0.06 per cent. More or less
parallel movements were shown by intermediate term
Treasury bonds in both the partially tax exempt and
taxable categories.
The average yield on three to five year taxable Treas­
ury notes, at 0.93 per cent on March 31, held close to
the level prevailing at the end of February. The yield
on the tax exempt % per cent Treasury note due March
15, 1945 declined irregularly from 0.45 per cent on Feb­
ruary 28 to 0.41 per cent (the lowest since late October,
1941) on March 17 and fluctuated little thereafter.
Accepted bids on the four weekly issues of Treasury
bills during March were tendered on average interest
bases of 0.222 per cent on the March 4 issue, 0.229 on
the March 11 issue, 0.195 on the issue of the 18th, and
0.203 on the issue of the 25th. Each of the four issues
was in the amount of $150,000,000. The 91 day issue
dated March 4 replaced a $200,000,000 maturity and the
two subsequent issues (also of 91 day term) each re­
placed a $150,000,000 maturity. Three issues of Treas­
ury bills, each for $150,000,000, matured on March 16,
17, and 19 without replacement, and conversely there
was no maturity on March 25 when the last new bill
issue of the month was issued. The Treasury bill issue
dated March 25 is of 83 day term and will consequently
mature on June 16, during the next quarterly income
tax collection period.
U n ite d States Savings B o n d s
Sales of United States Savings Bonds showed a sizable
recession during March, but since the first quarterly
payment of income taxes on 1941 income was due on
March 16, it is not unusual that there should be this
falling off in purchases of Savings Bonds by individuals
and corporations who had need for their funds for tax
payments.
In the Second Federal Reserve District, total sales
of all series of Savings Bonds, by all agencies other than
the post offices, amounted to $98,000,000 during the first
PER CENT

0.6
0 .5

0 .4

0 .3

0.2
0.1
0
JA N

FEB MAR APR MAY

JUN JU L AUG SEP

O C T NOV

DEC

M o n th ly R edem ption o f U nited S tates S a v in g s B onds as Percentage
o f O utstandin g A m o u n t, C urrent R edem ption V a lu e
(M arch , 1 9 4 2 , partly estim ated )




27

30 days of March. Sales of the Series E Defense Savings
Bonds aggregated $48,000,000 during this period, and
although they were smaller than in any of the previous
three months, they were larger than in any month prior
to December, 1941.
For the United States, sales of all series of Savings
Bonds totaled $464,000,000 in the first 25 days of March,
an amount which, with the exception of December, 1941,
and January and February, 1942, was larger than in
any previous month.
The experience over the past four years, with respect
to the rate at which Savings Bonds are presented for
redemption, is that the level of redemptions tends to
rise as the total volume of Savings Bonds outstanding
increases. Relative to the volume outstanding, however,
redemptions have tended to diminish, and this tendency
has been especially pronounced since last August, as the
accompanying diagram indicates. The increased volume
of redemptions in March, undoubtedly associated with
needs for funds by some persons to make income tax
payments, is a repetition of the increase in redemptions
which occurred in March in each of the previous three
years. Since August of last year, monthly redemptions
of Savings Bonds have fluctuated between about 2/10
and 3/10 of one per cent of the amount outstanding, and
for the first three months of this year the percentage
of redemption has averaged about one-third less than a
year previous.
Security M a rk e ts
The irregular downward movement of stock prices, in
progress during most of this year, continued in the early
part of March, as the markets were affected by further
adverse war news and by the tax proposals of the
Treasury. On the 11th the Standard 90 stock price index
showed a net decline of 12 per cent from the January 5
level and was at the lowest point since April, 1933.
Slight firming of industrial share prices accounted for
the somewhat higher levels of the 90 stock index which
prevailed during the remainder of the month; railroad
and public utility stocks showed declining tendencies
throughout March. The 90 stock index was off 7 per cent
for the month as a whole. The volume of trading in
stocks on the New York Stock Exchange continued at a
low ebb during March.
In contrast to stock prices, quotations of domestic cor­
porate bonds were steady during March. Judging from
Moody’s Aaa index, the average price of high grade cor­
porate bonds fluctuated within a range of about % of a
point and showed little net change for the month as a
whole. Medium grade corporate bonds, classified as Baa
by Moody’s Investors Service, likewise moved narrowly
in March. The railroad bonds in this index were steady
to firm, apparently owing to the granting of an advance
in freight rates and the more favorable position of the
railroads from the standpoint of meeting interest pay­
ments. Prices of railroad bonds of lower grades rose
sharply in March. Bond trading in March was well
above the relatively low level of February and at the
highest level since September, 1939.
The general steadiness of corporate bonds in recent
months has contrasted with a sharp decline in price and

28

MONTHLY REVIEW, APRIL 1, 1942

tion of tobacco, gold and silver mining, and bakery
products, had larger net profits than in 1940. The
largest percentage gains over 1940 occurred in the
leather and shoe, coal mining, petroleum, meat packing,
shipping, aircraft manufacturing, and textile groups.
Of the 899 companies listed, 410 durable goods producers
showed a gain in net profits over a year before amount­
ing to 18 per cent, while 435 companies in the nondurable
goods and service fields gained 16 per cent and 54 com­
panies engaged in mining increased net profits 11 per
cent.
Reflecting a 22 per cent increase in the volume of
railway freight car loadings and also relative immunity
from the effects of the excess profits tax owing to the

PER CENT

HIGH GRADE
MUNI CIPALS

\
W

A a a <CORPOR/

Cc:

UJ

If

BAA CORF

^

i

i
1941

i

i

1

1

1

1

1— 1

...

(Net profits in millions of dollars)
1

-1 9 4 2

A v e ra g e Y ield on H ig h G rade M unicipal, H ig h Grade Corporation, and
M ediu m G rade Corporation B onds (M o o d y ’ s In ve sto rs Service
data for corporation bonds and Standard and P o or's Cor­
poration data for m un icip als; scale inverted to show
price ch an ges)

rise in yield on prime municipal bonds, as may be
seen in the accompanying chart. Prices of high quality
municipal bonds were at record levels last October and
November but declined more sharply than either the
high or medium grade corporate bonds after the sudden
entry of this country into the war. The subsequent price
recovery of prime municipal bonds was moderate and late
in January these issues were again subjected to severe
pressure following reports that the tax status of out­
standing State and municipal securities might be modi­
fied. These price movements are indicated on the chart
by changes in yields, plotted on an inverted scale. The
average yield on high grade municipal bonds, as measured
by Standard’s index, rose from 1.89 per cent (approxi­
mately the same as the average yield on partially tax
exempt long term Treasury bonds at that time) on
November 19,1941 to 2.63 per cent on February 18. The
market for corporation bonds, on the other hand, has been
relatively little affected by tax problems, and prospects
of active business and substantial profits before tax
charges have promoted relative steadiness in yields.
Although the near record levels of last fall have not been
regained, the average yield on high grade (Aaa) corpora­
tion bonds is still at a relatively low level— around 2.84
per cent. Meanwhile, the average yield on medium grade
(Baa) corporate bonds, which rose temporarily in De­
cember, is currently at a level only slightly above the
record low set last November.
B usiness Profits
During 1941, increases in wage and material costs and
much higher Federal taxes only partially offset the
effect on corporation profits of record business vol­
umes and, as a result, net profits of leading corporations,
as measured by this bank’s compilation of the net profits
of 899 commercial and industrial corporations, were 17
per cent higher than in the previous year and 18 per
cent above the 1937 level. As indicated in the accom­
panying table, all groups of companies with the excep­




Corporation group
Advertising, printing and publishing................
Aircraft manufacture...............................................
Autom obiles.................................................................
Automobile parts and accessories.......................
Building supplies:
Brick, glass, and gypsum ...................................
C em ent......................................................................
Hardware.................................................................
Heating and plum bing........................................
Lumber and roofing products..........................
Paints and varnishes...........................................
All other...................................................................
Chemicals......................................................................
Containers (metal and glass)................................
Copper and brass fabricators...............................
Drugs, cosmetics, and soaps.................................
Electrical equipment................................................
Food and food products:
B akery.......................................................................
Beverages.................................................................
Confectionery.........................................................
Dairy products.......................................................
Flour milling and cereal products..................
M eat packing.........................................................
All other...................................................................
Household supplies:
Electrical..................................................................
Furniture and floor covering............................
All other...................................................................
Leather and shoes.....................................................
Machinery:
Agricultural.............................................................
Machine tools.........................................................
Store and office equipment...............................
Industrial machinery and accessories...........
Mining:
C oal............................................................................
Copper.................................................................... .
Gold and silver......................................................
All other................................................................. ..
M otion pictures..........................................................
Paper, pulp, and allied products...................... ..
Petroleum......................................................................
Railroad equipment..................................................
Retail trade:
Department and apparel stores......................
Food stores..............................................................
Mail order houses.................................................
Variety stores.........................................................
All other....................................................................
Rubber and tires........................................................
Steel and iron..............................................................
Textiles:
Clothing and apparel...........................................
Silk and rayon........................................................
A ll other....................................................................
Tobacco.........................................................................
Transportation:

No.
of
cos.

1937

1940

1941

13
13
13
53

14.1
6.3
250.6
54.8

17.8
42.5
240.5
65.2

18.8
65.4
260.1
81.0

15
10
7
14
10
6
7
35
8
8
20
32

40.1
6.8
7.4
27.9
11.7
7.2
8.8
188.1
42.7
6.7
56.6
128.6

37.2
8.3
7.3
23.0
12.1
7.9
6.9
180.2
39.0
12.0
60.9
131.7

38.5
11.2
9.4
24.1
15.9
8.7
8.4
193.9
40.8
17.5
70.8
131.8

9
20
9
5
9
8
14

9.1
54.0
18.9
19.5
16.1
9.6
37.6

8.7
61.6
19.6
22.5
19.7
21.6
47.9

7.9
69.0
20.9
25.0
22.3
33.6
48.8

12
9
14
11

12.4
13.9
9.5
4.9

9.0
13.2
8.9
4.8

9.9
15.1
9.7
8.4

8
12
15
77

66.4
9.6
40.5
72.7

47.6
15.0
28.0
69.6

61.3
19.6
38.5
94.2

20
7
11
16
7
34
42
18

6.7
88.6
33.7
86.5
8.8
27.0
216.7
48.3

15.0
74.8
27.6
67.3
13.0
29.0
134.3
36.9

25.2
85.2
24.9
70.1
16.0
37.2
209.4
47.9

16
15
5
10
14
9
4
54

26.9
11.3
53.9
59.4
8.7
26.5
0.1
244.4

34.6
15.6
62.1
49.2
9.0
38.9
8.9
289.4

35.9
18.1
62.1
52.0
12.6
49.7
10.0
335.9

23
15
16
18

5.3
11.7
2.8
92.3

7.7
14.8
12.4
93.8

13.0
17.0
21.3
83.4

1.6
1.6
38.5

4.3
6.4
37.3

4.3
9.9
45.5

6
5
38

-

Total, 54 groups................................................

899

2,351.2

2,372.5

2,767.1

Class I railroads, net incom e................................
Telephone companies, net incom e*....................
Other public utilities, net incom e.......................

137
33
59

98.7
189.0
241.6

185.1
202.0
253.6

501.7
196.0
264.5

* Excludes dividends received by American Telephone and Telegraph Co.

FEDERAL RESERVE BANK OF NEW YORK
M ILLIONS
OF D O L L A R S

29

F oreign E xch anges

1400

1200
1000

i*
I

800

600

400

200

§
1

0
-200
1928 ’ 2 9

’30

’ 31

*3 2

’3 3

’3 4

*3 5

*3 6

’37

*3 8

’39

’4 0

’4 1

A n n u al N e t Profits o f 167 Industrial and Com m ercial Com panies

large amounts of invested capital, net income (after all
charges) of Class I railroads in 1941 approximately
equaled the 1930 level and amounted to $502,000,000,
as compared with $185,000,000 in 1940. Net income of
33 telephone companies, all of which had gross incomes
in excess of $1,000,000, receded 3 per cent below the
level of 1940 but remained 4 per cent above 1937. Net
income of a group of other public utility companies
increased 4 per cent over 1940 and almost 10 per cent
over 1937.
A tabulation of pertinent profit and loss and balance
sheet data of 172 commercial and industrial corporations
which publish such figures indicates that gross sales for
these companies rose 36 per cent over 1940, cost of
goods sold (including State and local taxes) increased
33 per cent, and net profits before Federal taxes were
61 per cent higher. Deductions for Federal income and
excess profits taxes, which had averaged approximately
18 per cent of net profits before taxes in each of the
three years ended in 1939 and which had increased to
32 per cent in 1940, advanced further to 53 per cent of
net profits before taxes in 1941. As a result, the gain
over 1940 in net profits after all charges for this group
of companies was reduced to 12 per cent. Total cash
on hand as of December 31, 1941 for the same group,
plus holdings of tax anticipation notes (available for
payment of Federal taxes), increased 25 per cent over
the year, and inventories, reflecting the larger volume
of production and increased material costs, rose 23
per cent. Total Federal taxes, as estimated by these
corporations, were equal to 57 per cent of the cash and
tax anticipation notes available on December 31, 1941
whereas, at the close of the preceding year, Federal
tax liability was calculated at about 27 per cent of
cash holdings.
Fourth quarter profits of a restricted list of 167 com­
panies (which report profits on a quarterly basis) were
smaller than during the fourth quarters of either of the
two preceding years. The accompanying chart, based
upon the annual profits of this group of companies, shows
that their aggregate profits in 1941 were 21 per cent
lower than in 1929 although industrial production was
40-45 per cent higher in 1941 than in 1929.




The only feature in an otherwise quiet foreign ex­
change market during March was the development of
some weakness in the Canadian dollar around the middle
of the month. After holding at somewhat below 12 per
cent in previous weeks, the unofficial discount on the
Canadian dollar began to widen on March 13 and by
March 17 had reached 13% per cent. This weakness
presumably reflected a repatriation, through the thin
unofficial market, of the proceeds of matured Canadian
bonds held by Americans. Although there was some off­
setting demand in anticipation of the coming tourist
season, this was not sufficient to absorb the offerings aris­
ing from the Canadian bond redemption. Some subse­
quent recovery was shown, but the unofficial discount
widened again to close the month at 13 per cent, as
against 11% per cent at the end of February.
Among the Latin American currencies, a firm tendency
was shown in the free or noncontrolled rates for Argen­
tine, Venezuelan, and Uruguayan exchanges. The free
rate for the Venezuelan bolivar on March 16 returned to
the high of $0.2825 which had been reached in the previ­
ous month, and closed March at $0.2815, while the
Uruguayan peso appreciated 20 points in the noncon­
trolled market to $0.5295. A small rise in the Argentine
peso brought the free rate at the month end close to the
year’s high of $0.2375 reached in January. The premium
on the Cuban peso, on the other hand, was reduced % per
cent further to 3/32 per cent.
N e w F inancing
Although the volume of corporate and municipal
financing increased considerably over that for February,
the March total, at $140,000,000, was less than half the
monthly average for the calendar year 1941. Corporate
financing amounted to $94,000,000, of which $62,000,000
represented “ new money” borrowing.
Temporary financing, not included in the $140,000,000
total, amounted to $215,000,000, most of which was

M o n th ly A v e ra g e V o lu m e o f D om estic Corporate Secu rity Issu es for
R efund in g an d for N e w C apital ( F ir s t quarter
1 9 4 2 data prelim inary)

MONTHLY REVIEW, APRIL 1, 1942

30

accounted for by three issues: $100,000,000 State of New
York 0.375 per cent tax anticipation notes maturing on
June 25, 1942, $60,000,000 City of New York 0.50 per
cent revenue bills maturing in April and May, 1942, and
$30,000,000 Federal Intermediate Credit Bank 0.60 and
0.70 per cent consolidated debentures maturing in Octo­
ber, 1942 and January, 1943.
As shown in the foregoing diagram, corporate flo­
tations averaged $113,000,000 a month during the first
quarter of 1942, or less than in any quarter of 1941.
Although the $68,000,000 monthly average of issues for
new capital purposes was smaller than that for either of
the last two quarters of 1941, it exceeded the monthly
averages of 1940 and 1939.
P rodu ction and T ra d e
Further steps were taken during March to speed war
production. In a move to widen participation in the
war production program, the President by Executive
Order on March 26 authorized the W ar and Navy
Departments and the Maritime Commission to guar­
antee or make loans to small business concerns and sub­
contractors. A directive was issued by the Chairman
of the W ar Production Board ordering the replacement
of competitive bidding by negotiation on future mili­
tary supply contracts to expedite the placing of such
contracts. In continuation of its conversion program,
the W . P. B. ordered production for civilian uses cur­
tailed or completely suspended in a number of additional
consumers’ durable goods industries.
Judging from preliminary data now at hand, it ap­
pears that industrial conditions in March were similar
to those which have characterized recent months. The
forward drive toward greater production of war goods
continued, while output of consumers’ durable goods
declined further. Accompanying some easing of the
scrap shortage, steel production advanced gradually
1941

1942

Feb.

Dec.

Jan.

Feb.

(100 = estimated long term trend)
Index of Production and Trade..................

105

Ill

114p

112p

Production......................................................

107

118

120p

120p

Producers* goods— total........................
Producers’ durable goods................
Producers’ nondurable goods..........

112
116
109

133
146
119

140p
151p
127p

143p
156p
128p

Consumers* goods— total.....................
Consumers* durable goods..............
Consumers* nondurable goods. . . .

100
101
100

101
74
110

97 p
68 p
107 p

92 p
51 p
106p

Durable goods— total............................
Nondurable goods— total.....................

111
104

124
114

127 p
115p

125p
115p

Primary distribution...................................
Distribution to consumer..........................
Miscellaneous services................................

97
106
100

110
98
111

109 p
103p
108p

IlOp
96p
IlOp

101

111

112

113

117

129

131p

56
87

64
93

63
89

Indexes o f Production and Trade*

Cost o f Living , Bureau of Labor Statistics
(100 =

1935-39 average)...............................

Wage Rates
(100 =

1926 average)......................................

Velocity o f Demand Deposits *
( 1 0 0 = 1935-39 average)
New Y o r k C i t y .................................................
Outside New York C ity .................................

p Preliminary.




^Adjusted for seasonal variation.

62
90

Index of Production and Trade in the U nited S tates (Fed eral R eserve
B ank o f N ew Y o rk index expressed as a percentage o f estim ated
long term trend and ad ju sted for seasonal variation )

during March and by the end of the month it was esti­
mated that the mills were operating at virtually their
full rated capacity. It is reported that movement on
the Great Lakes of iron ore and coal is beginning much
earlier than usual this year. Output of bituminous coal
apparently declined considerably less than usual in
March, while electric power production, seasonal factors
considered, was maintained at the high rate of February.
Incomplete figures indicate that railroad loadings of
merchandise and miscellaneous freight increased over the
relatively high level of the preceding month, although
the gain does not appear to have been so large as in most
preceding years; loadings of bulk freight declined mod­
erately, more or less in line with seasonal expectations.
Transportation difficulties made themselves felt in
the petroleum industry in a number of ways during the
month. Apparently owing to this problem, the daily
rate of crude petroleum production during the first three
weeks of March was reduced from the high level of
recent months. The W . P. B. ordered a 20 per cent
reduction in gasoline deliveries to filling stations in 17
Eastern Seaboard States, Washington, Oregon, and the
District of Columbia, effective March 19, and, to relieve
threatened fuel oil shortages in certain Eastern indus­
trial regions, the Petroleum Coordinator on March 27
announced a five week emergency program designed to
increase East Coast fuel oil supplies by 5,000,000 barrels.
P r o d u c tio n a n d T ra d e i n F e b r u a r y

In February the seasonally adjusted index of produc­
tion and trade computed at this bank declined two points
to 112 per cent of estimated long term trend, following
an advance of 3 points in January. The index for
February, 1941, stood at 105. The failure of retail
trade to show its usual increase over the relatively high
level of January accounted primarily for the drop in
the general index in February.
Spurts in retail trade have been principally respon­
sible for the irregularities in the course of the produc­
tion and trade index since last summer. The produc­
tion component has tended upward with relative steadi­
ness, although divergent tendencies between the output

FEDERAL RESERVE BANK OF NEW Y ORK

of producers’ and consumers’ durable goods have become
more sharply drawn as further progress has been realized
in the conversion of industries formerly producing civi­
lian goods to war manufacture. The mounting output
of war materials was reflected in a further advance dur­
ing February in the component group index of produc­
tion of producers’ durable goods. On the other hand,
the complete suspension of passenger car production
early in the month accounted largely for a pronounced
drop in the consumers’ durable goods index.
As in recent months, the output of nondurable goods
in the aggregate remained practically unchanged between
January and February after seasonal adjustments. The
daily rate of railroad loadings of merchandise and mis­
cellaneous freight was somewhat higher in February
than in January, while the movement of bulk freight
continued at about its previous rate.
B u ild in g
The daily rate of construction contract awards turned
sharply upward during February according to data pre­
pared by the F. W . Dodge Corporation covering 37
Eastern States. The increase was due primarily to a
renewed expansion in the volume of Government con­
tracts for defense purposes, which amounted to more
than half of the month’s total. Private construction
rose more than seasonally but was substantially below the
level of February, 1941.
In New York State and Northern New Jersey the rate
of contract awards also rose sharply during February,
and, as in the case for the 37 States as a whole, an in­
crease in defense construction activity accounted for this
gain. As shown on the accompanying chart, comparing
the volume of contracts awarded in the Metropolitan
New York and Northern New Jersey area with that in
Upstate New York, the effect of the defense program and
the expansion of business activity during the past year
and a half has been particularly marked in the Upstate
New York region. Since the spring of 1940 the rate of
awards for that section has more than doubled and is
currently above the previous peak in 1939. Although
public construction has been of primary importance in
this expansion, acceleration in private residential build­
ing has also played an active part.
HOUSANDS
>F DOLLARS

THOUSANDS
OF DOLLARS

31

In the Metropolitan New York and Northern New
Jersey area, on the other hand, the rate of contract
awards showed little change during 1940, and the ex­
pansion in 1941 was relatively moderate. Here the volume
of public construction arising from the defense program
has expanded relatively less than in the Upstate area
and there has been a decline in the volume of private
construction.
E m p lo y m e n t and P ayrolls
Working forces at New York State factories increased
3 per cent during February and payrolls expanded 6
per cent. These increases reflected primarily seasonal
hiring in apparel lines and continued acceleration of war
production; in other industries there was, on the whole,
little change in employment between January and Feb­
ruary. While all branches of the apparel group took
on workers, the largest employment gains occurred in
the manufacture of women’s clothing and millinery. As
in previous months, shipyards and plants manufactur­
ing firearms, aircraft, tanks, and other war materials
enlarged their working forces. Compared with Feb­
ruary, 1941, total manufacturing employment was 17%
per cent greater and payrolls were 46 per cent larger.
Owing chiefly to seasonal activity in apparel firms,
New York City showed the largest employment and pay­
roll gains among the industrial areas of the State
between January and February. In the Utica district,
war industries and textile mills were responsible for
gains in employment and payrolls; the Rochester and
Albany-Schenectady-Troy areas also reported increases
over January.
Factory employment in the United States as a whole
rose slightly during February, and payrolls were 2 per
cent larger. Manufacturers of wearing apparel took on
additional workers for the busy season, and war indus­
tries continued to expand their forces. However, offi­
cial curtailment of production of certain consumers’
goods and conversion of plants to war work have resulted
in temporary layoffs in many lines, notably the automo­
bile industry, but in that industry the reduction in em­
ployment was less drastic than had been feared. Total
factory employment in February was 13 per cent higher
than in the same month last year, and payrolls were
40 per cent greater.
There was little change in the total number employed
in civil nonagricultural occupations in the United States
between January and February, according to Bureau
of Labor Statistics estimates. Although employment in fac­
tories and in government service was somewhat higher,
these gains were offset by decreased working forces in
wholesale and retail trade and in construction. Com­
pared with February, 1941, there were 2,400,000 more
persons engaged in civil nonagricultural pursuits.
C o m m o d ity Prices

politan New York and Northern New Jersey and in Upstate New
York Area, Adjusted for Seasonal Variation (Based on F. W .
Dodge Corporation data; 6 month m oving averages)




Disquieting war news and maximum price regulations
continued to restrain price advances during March.
There was a fractional rise in the Bureau of Labor Statis­
tics weekly “ all commodity” wholesale price index be­
tween February 21 and March 21, bringing to 30 per cent
the advance in this index since the outbreak of the war

32

MONTHLY REVIEW, APRIL 1, 1942

in 1939. Of the major group indexes, the largest increase
during March was shown for textiles, reflecting mainly
increased prices for clothing. Indirect control was ex­
tended over this field during March by freezing quota­
tions for cotton and rayon piece goods at levels prevail­
ing early in the month.
Mixed tendencies were apparent in quotations for
farm products during the month. The grain markets
were hesitant, reflecting in part seasonal factors and
in part uncertainties as to the future course of legisla­
tion which would curb the sale by the Commodity
Credit Corporation of Government-owned surplus crops
at prices below parity. Such legislation was passed by
the House of Representatives on March 13 in the form
of a rider to the agricultural appropriation bill. On the
other hand, prices of some farm products, including cot­
ton, wool, and steers, advanced sharply. Reflecting in part
shortage of shipping space from the Argentine, flaxseed
quotations increased substantially. Following a further
rise in the average price of hogs in Chicago, which reached
a 16 year high, a price regulation was issued by the
0 . P. A. for dressed hogs and pork cuts. Certain canned
fruits and vegetables were also placed under price control
early in March. As an aid to farmers in reaching the
1942 farm production goals, maximum prices were issued
for certain fertilizers.
The 0 . P. A. found it necessary during March to ex­
pand to a considerable degree its price controls in the
retail field. Thus, price regulations were issued govern­
ing retail sales of a number of consumers ’ durable goods,
including radios and phonographs, refrigerators, stoves,
new typewriters, vacuum cleaners, and washing and
ironing machines. Service station prices for gasoline also
were frozen in 19 States. Wholesale transactions in bed­
ding equipment and used typewriters were also placed
under price control. Moving into a new field, the 0 . P. A.
designated 20 communities as ‘ ‘ defense-rental areas’ 7 in
which rents must be reduced within 60 days to levels
prevailing on specified dates.
United States Bureau of Labor Statistics
W eekly Indexes of Wholesale Commodity Prices

and March than was the case a year ago. The year-toyear gain in sales for March is estimated at about 23
per cent.
In February, sales of the reporting department stores
in this District were 20 per cent higher than in February,
1941, but the average daily rate of sales decreased be­
tween January and February reflecting a subsidence of
the buying wave which occurred in January. Substan­
tial year-to-year gains were reported in sales during
February of mechanical refrigerators, radios, corsets,
and women’s coats and suits, while moderate reductions
were reported in the sales of cameras, pianos, and wines
and liquors.
Retail stocks of merchandise on hand in department
stores at the end of February continued substantially
higher than a year previous, and this bank’s seasonally
adjusted index of department store stocks rose 17 points
over January to a new high of 127 per cent of the
1923-25 average. Returns from a limited number of
department stores in this District indicate that outstand­
ing orders for merchandise purchased by the stores, but
not yet delivered, continued to grow during February,
and were about 2 % times as great as those at the end
of February, 1941.
Figures reported by a representative group of stores
in this District indicate that the proportion of cash
sales tended to be higher in January and February of
this year than in the same months of 1941.

Percentage changes from a year ago
Department stores

Net sales
Jan. and
Feb., 1942

+18
+22
+21
+25
+32
+11
+ 9
+20
+18
+27
+49
+21
+10
+29
+28
+36
+25
+30
+42
+19

+25
+30
+29
+34
+38
+25
+27
+32
+29
+39
+59
+33
+22
+40
+40
+45
+36
+41
+52
+30

+40
+43
+34
+38

New York C it y .............................................
Northern New Jersey................................
Westchester and Fairfield Counties. . .
Bridgeport..................................................
Lower Hudson River V a lley ...................
Poughkeepsie............................................
Upper Hudson River V a lley ...................
Central New York S ta te ..........................
Mohawk River V a lley ...........................

Index
Percentage change M ar. 21,
March
1942 compared with
21, 1942
(1926 = 100) Feb. 21, 1942 Mar. 22,1941

Northern New York S tate.......................
Southern New York S ta te.......................
Bingham ton...............................................
Western New York S ta te.........................

Farm products................................................
Foods..................................................................
Textile products.............................................
Chemicals and allied products.................
Housefurnishing goods.................................
Hides and leather products........................
Building materials.........................................
Fuel and lighting materials........................
Metals and metal products.......................
Miscellaneous..................................................

103.1
9 5 .5
9 5 .9
9 7 .1
10 4 .1
1 1 6 .6
1 1 0 .4
7 8 .2
1 03.7
8 9 ,7

+ 1 .2
+ 0 .7
+ 2 .3
+ 0 .2
0
+ 0 .4
+ 0 .6
— 0 .4
+ 0 .1
+ 0 .7

+ 4 2 .6
+ 2 6 .3
+ 2 2 .6
+ 2 1 .4
+ 1 4 .5
+ 1 2 .9
+ 1 1 .0
+ 7 .9
+ 6 .0
+ 1 5 .7

All commodities.....................................

9 7 .2

+ 0 .7

+ 1 9 .1

9 7 .6
9 2 .2
9 7 .9

+ 0 .4
+ 0 .3
+ 0 .8

+ 2 9 .1
+ 1 0 .3
+ 1 5 .9

Raw materials.................................................
Semimanufactured articles...................... ..
Manufactured products...............................

D e p a rtm e n t Store T ra d e
Average daily sales of the reporting department stores
in the Second District, to some extent as a result of the
earlier date of Easter, increased more between February




Stock on hand
end of month
February,
1942

February,
1942

Niagara F a lls ............................................

+49
+52
+51
+28
+36
+36
+43
+49
+55
+48
+37

A ll department stores...................

+20

+28

+47

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

+23

+25

+36

Indexes of Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)
1941

Sales (average daily), unadjusted.
Sales (average daily), seasonally
Stocks, unadjusted.............................
Stocks, seasonally adjusted............

r Revised.

1942

February

December

79

194

104

94

97

107

132

116

80r
86r

105
107

lOOr
HOr

119
127

January

February

FED ER A L RESERVE B A N K OF N E W Y O R K

M O NTH LY REVIEW, A P R IL 1,1942

General Business and Financial Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
activity increased further in February and the first ha lf of
March. Retail trade was sustained at high levels and commodity prices
continued to advance.
P roduction
In February the Board’s seasonally adjusted index of industrial production
rose from 171 to 173 per cent of the 1935-39 average. As in other recent months,
activity in the durable goods manufacturing industries, where the m ajority o f
m ilita ry products are made, continued to advance, while in industries making
nondurable goods and at mines activity was maintained at about the levels
reached last autumn.
Steel production rose to 96 per cent of capacity in February and increased
further to 98 per cent in the th ird week of March—which corresponded to an
annual rate of nearly 87 m illion net tons. Lumber production also increased,
following less than the usual seasonal decline during the previous two months.
In the machinery and transportation equipment industries, now engaged mainly
in armament production, activity continued to advance rapidly as plant utiliza­
tion increased and capacity expanded. Conversion to armament production in
the automobile industry, where output of civilian products was discontinued in
early February, is apparently being effected much more rapidly than had been
anticipated earlier.
There were further Increases in output at cotton textile mills and at
chemical factories, reflecting an increasing amount of work on m ilitary orders.
A t meat packing establishments activity was maintained near the high rate
reached in January. Shoe production increased by less than the usual seasonal
amount. Anthracite production rose sharply in February and bituminous coal
production was maintained near the high rate of other recent months. Output
of crude petroleum, which had been at record levels in December and January,
declined somewhat in the latter part of February and in the first h a lf of March,
reflecting transportation difficulties.
Construction
Value of construction contract awards increased considerably in February,
according to figures of the F. W. Dodge Corporation, owing mainly to a sharp
rise in awards fo r public projects. Total awards in February were h a lf again
as large as last year, and public awards were about three times as large.
In nonresidential building, awards fo r public projects increased materially,
while those fo r private projects continued to decline. There was a slight rise
in awards fo r public u tility construction.
In residential building, contracts fo r private work changed little from
January, while those fo r publicly financed projects increased sharply and
amounted to about h a lf of the total fo r the first time on record. For the past
six months there has been a noticeable s h ift in privately financed housing
activity from building fo r owner-occupancy to building fo r sale or rent; in
February, awards fo r the former constituted only about one fifth of the smallhomes total. This sh ift is attributable mainly to the activity in defense areas
and to legislation enacted last spring making possible the insurance of mort­
gages taken out by builders.
D istribution
Value of retail trade continued large in February. Sales at general mer­
chandise stores and variety stores increased more than seasonally, while sales
at department stores declined. In the first h a lf of March department store
sales increased by about the usual seasonal amount.
Freight car loadings, which in January had been unusually large for this
time of year, declined somewhat in February owing to smaller shipments of
coal, grain, and miscellaneous freight.
Commodity P rices
Wholesale prices continued to advance from the middle of February to
the middle of March, particularly those fo r finished consumer goods such as
meats, fru its and vegetables, shoes, clothing, and household items. Temporary
maximum price orders were issued covering wholesale prices of some of these
products, including pork, canned fru its and vegetables, finished cotton and
rayon fabrics, cotton rugs, and bedding equipment. These orders, according to
statute, used as maximums the prices prevailing w ithin five days prior to
issuance. They are effective fo r only 60 days and may be replaced by regular
schedules.
T reasury F inancing and B an k Credit
In March income tax receipts by the Treasury fo r the first time reflected
the higher schedule of rates. The effect o f these receipts on the money market
was largely offset by redemption of Treasury bills previously issued to mature
during the tax collection period, by tax anticipation notes turned in on pay­
ment of taxes, and by continued heavy Treasury expenditures. As a consequence
a record volume of Treasury operations was effected with little influence on
conditions in the market. Excess reserves of member banks showed no large
change and on March 18 amounted to about $3.2 billion.
United States Government obligations held by member banks in leading
cities showed little change during the first three weeks of March following a
sharp rise in February. Commercial loans increased further.

I N D U S T R IA L

Index o f P h ysical V olu m e o f Industrial Produc­
tion, A d ju ste d for Seasonal Variation ( 1 9 3 5 1 9 3 9 a v e r a g e = 1 0 0 per c e n t; subgroups
show n are expressed in term s o f
poin ts in the total index)

PERCENT

C
r

\jfT

,

S /
U|V
A\a/J

O
T
H
IE
R
*
___n ----allC
O
M
M
O
D
ITIE
S
In
'A
^V\i F
A
R
M
P
R
O
D
U
C
T
S

jr."" i“” ‘"".I
1936 1937 1938

1939

1940

1941

1942

Indexes o f W h o lesa le P rices Com piled b y U nited
S ta tes B ureau o f Labor S tatistics
( 1 9 2 6 a v e r a g e = 1 0 0 per cen t)

FACTORS USING RESERV E FUNDS
1-----------------------MEMBiER BANK
RESERVE BALANCES
rv -i,
V

i

J

ty

S

MONEY 1
CIRCULATI o n /

TREASURY CAS\
AND OEPOSITS

A
X ^N O NM EM B ER ^
DEPOSITS
I
1940

1941

1942

1940

1941

!9 4 2

M em b er B an k R eserves and R elated Item s

W ednesday Figures for Reporting Member Banks
in 101 Leading Cities (Latest figures
are for March 11)