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M ONTHLY REVIEW
O f Credit and Business Conditions

FEDERAL

RESERVE
A P R I L

BANK

OF

19 4 6

NEW

YORK
No. A

MONEY MARKET IN MARCH
The New York money market was rather tight during a
good part of March, chiefly because of the effects of Treasury
operations in connection with the retirement of substantial
amounts of Treasury securities on March 1 and March 15,
as well as quarterly income tax collections. The debt retire­
ments were accompanied by large-scale investment operations
by the banks and their customers, which involved substantial
purchases of securities from the Federal Reserve System Open
Market Account, and consequent losses of reserves to the
banks. Income tax payments ran substantially higher than
had been expected, and resulted in unusually heavy accumula­
tions of funds in Treasury balances with the Reserve Banks
toward the end of the month. Large-scale shifts of funds from
New York to other parts of the country occurred, especially
in the latter half of the month, partly in connection with
Treasury security redemptions and partly in connection with
tax payments. The net effect of all these transactions was to
necessitate heavy recourse by member banks to Federal Reserve
credit, largely through sales of Treasury bills to, and borrow­
ings from, the Reserve Banks.
The redemption of about 1 billion of an issue of somewhat
over 4 billion dollars of Treasury certificates maturing on
March 1 was accomplished with little effect on the banking
system as a whole. Treasury disbursements in connection with
the redemption and for other purposes exceeded receipts by
about 250 million dollars, and helped to compensate for some
unevenness in the impact on individual banks of the disburse­
ments and Treasury withdrawals from War Loan deposit
accounts. In New York City, however, the money market
position was rather tight owing largely to substantial pur­
chases of Treasury certificates from the Reserve System, partly
by the New York City banks and partly by out-of-town banks
and customers who were undertaking to replace their redeemed
securities through purchases of other securities. As a result,
the New York City banks found it necessary to sell Treasury
bills to the Reserve Banks and to increase their borrowings
moderately in the first week of the month.
In the following week there were heavy purchases of the
longer term outstanding Treasury certificates by the New York
City banks and, to some extent, by their customers in anticipa­
tion of the redemption of maturing Treasury notes and bonds




on March 15. As the certificates were supplied largely from
Federal Reserve holdings, payments for them involved a heavy
drain on the reserves of the New York banks. In order to
replace the lost reserves, the banks borrowed heavily from
the Reserve Bank, and sold considerable amounts of short
term Treasury securities in the market. The securities sold,
however, were largely absorbed by dealers who had to borrow
from the banks to carry them, so that the sales did not accom­
plish the purpose of supplying the banks (in the aggregate)
with additional reserves. Borrowings by the New York City
banks in this week rose above 500 million dollars, the largest
amount since last June.
Although the redemption of approximately 1,800 million
dollars of Treasury notes and bonds on and immediately after
March 15 was financed to a considerable extent by with­
drawals of Government deposits from War Loan accounts in
banks, it was met in part by the use of funds previously
accumulated in Treasury balances with the Reserve Banks, and
consequently provided the banks with a sizable amount of
additional reserves. As a large proportion of the maturing
securities were held by the New York banks, either for their
own account or for customers ( including correspondent
banks) the New York banks had the benefit of net payments
from the Treasury amounting to approximately 500 million
dollars. Part of this gain, however, was offset by a heavy
outflow of funds to other parts of the country where banks
sustained net losses of reserves through withdrawals of Treas­
ury deposits and tax collections. Some New York City banks
were able to repay a substantial part of their indebtedness at
the Reserve Bank, while others, as well as banks in other parts
of the country, found it necessary to sell Treasury bills to the
Reserve Banks in order to adjust their reserve positions. New
York banks also sold large amounts of short term certificates
and notes in the market, but considerable amounts of the cer­
tificates were acquired by dealers who carried them on funds
borrowed from the banks, so that no gain of reserves to the
New York banks as a group resulted. Some of the securities
were acquired by the Reserve Banks, and to that extent pro­
vided the banks with reserve funds.
In the latter part of the month there was again a heavy drain
on the banks’ reserves which resulted chiefly from income tax

30

MONTHLY REVIEW, APRIL 1946

collections. These collections ran well above earlier estimates
and resulted in an increase in the Treasury balances with the
Reserve Banks to nearly 1,400 million dollars on March 27.
The resulting loss of funds necessitated further heavy sales by
member banks of short term Government securities, including
Treasury bills and short term certificates and notes, some of
which again were absorbed by dealers, while others were
absorbed by the Reserve Banks. Holdings of Treasury bills by
the Reserve System rose to higher levels than ever before,
while the holdings of commercial banks were correspondingly
reduced. In the case of the reporting New York City banks,
Treasury bill holdings on March 27 fell to the lowest level
since 1939.
In view of the extraordinary accumulation of Treasury
deposits in the Reserve Banks, however, it became possible
for the Treasury, in making plans for the redemption of
approximately 2 billion dollars of Treasury certificates on
April 1, to reduce the amount of its withdrawal of funds from
War Loan deposit accounts in the commercial banks to a little
over 1 billion dollars. It is to be expected, therefore, that the
Treasury will make net disbursements of more than 1 billion
dollars on, or shortly after April 1, which should have the
effect of easing the reserve position of the commercial banks
considerably.
M e m b e r B a n k C red it

Loans to brokers and dealers on Government securities by
New York City banks increased substantially during March
chiefly as a result of the heavy sales of Treasury certificates of
early maturities by banks and others, a large part of which were
absorbed by the dealers. Presumably these loans will be
largely repaid on, or soon after April 1, when the dealers will
receive payment from the Treasury for that part of their hold­
ings which is redeemed, and will sell the new certificates
received in exchange for the remainder.
Largely as a result of the two redemption operations in
March, Government security holdings of the weekly reporting
member banks in 101 cities declined about 2 billion dollars in
the three weeks ended March 20. Although the total holdings
of the weekly reporting banks in New York City are roughly
half those of the institutions reporting from 100 other centers,
the net reduction was the same for each group of banks, a
billion dollars, reflecting the pressure on New York City banks’
reserves, largely as a result of the outflow of funds to other
parts of the country.
The expansion of commercial, industrial, and agricultural
loans continued in March and lifted the total for all reporting
member banks to a new peak since this series was first compiled
in May 1937. In fact, the "commercial” loans of New York
City banks appear to be at the highest level since the peak was
reached in 1920 (precisely comparable records are not avail­
able). The total for banks in 101 cities on March 20 was
7,491 million dollars, a gain of 1,723 million or 30 per cent
over the low point in May of last year and of 1,336 million or
22 per cent over the corresponding week of 1945. At this




Percentage Increase in Business Loans of Weekly Reporting
Banks, by Districts (May 30, 1945 to March 13, 1946)
PER C E NT

0___
ALL

10

20

30

40

50

60

DISTRICTS

time last year, business loans were contracting, whereas this
year there has been a contraseasonal rise since the beginning
of the year. It appears, furthermore, that the expansion of
business borrowing has been fairly widespread as all but five
Federal Reserve Districts have shown gains of more than 30
per cent since last May, as illustrated in the accompanying
chart, based on data of weekly reporting member banks. The
increase was largest relatively in the St. Louis, Dallas, and
Richmond Districts, where the gains ranged around 48 per
cent to more than 55 per cent. The next four districts, Phila­
delphia, New York, Atlanta, and San Francisco, averaged close
to 35 per cent. In Minneapolis, the slight gain may be attri­
butable to seasonal factors affecting farm loans. In dollar
amount, the New York District accounted for approximately
45 per cent of the increase for all the districts.
Although large term loans to business have been an impor­
tant factor in the upswing in commercial loans, the extension
of smaller short term loans on a wider scale appears to be
assuming greater significance at least in New York City.
Reports from a dozen large City banks on new loans made in
the first 15 days of March indicated that an unusually large
number of short term loans (including renewals) were
granted, amounting in the aggregate to 216 million dollars,
the largest amount shown in any quarterly report since the
beginning of 1939 (when the series was first compiled). The
number of loans extended was considerably greater than in
either the first half of December or the first half of March 1945.
On the other hand, the long term loans (those maturing in
more than a year) made in the first half of March of this year
amounted to only 61 million dollars, the smallest total since
September 1943. The New York banks’ experience may not
be typical, however, as the latest available information for
banks in principal cities in other parts of the country (for
December 1-15, 1945) showed term loans at new high levels,
while short term credits granted were not as large as in some
earlier periods.

FEDERAL RESERVE BANK OF NEW YORK

N EW C O R PO R A TE FIN A N C IN G
New corporate financing in the first quarter of 1946
amounted to about one billion dollars (partly estimated),
compared with approximately 860 million in the correspond­
ing quarter of 1945. A decline in new offerings for refunding
purposes was more than offset by an expansion of 'new money”
flotations which, at 290 million dollars in the first three months
of this year, were more than double the 132 million of new
capital issues placed on the market in the same period of 1945.
Refunding issues amounted to 608 in the first quarter of 1946,
against 729 million dollars a year previous.
Both refunding and new capital securities offered in the
first three months of this year were well below the totals for
the last quarter of 1945; the decline for refundings was rela­
tively much greater than for new capital issues, but was less
than had been expected in view of the huge volume of re­
financing operations crowded into the latter part of last year.
Approximately three fourths of the securities floated in the
past three months to raise new capital were issues of indus­
trial concerns (all concerns other than railroads, public utili­
ties, and financial companies), but that was a somewhat smaller
proportion than in the previous two years. On the other hand,
railroad and utility securities accounted for about two thirds
of refunding issues, as against three fourths in recent years.
For the most part, the new securities issued during the first
quarter of the year were favorably received by investors,
although here and there, owing to the fact that an issue may
have been considered 'over-priced” in relation to outstanding
securities of comparable grade and maturity, the absorption
by investors proceeded rather slowly. Much discussion and
some uncertainty as to the future course of interest rates may
also have been a factor in the rather slow distribution of a
few long term issues in recent weeks. A falling off in new
Domestic Corporate Security Issues for Refunding and for
New Capital, Quarterly Totals*

* First quarter of 1946 partly estimated.
Source: Commercial and Financial Chronicle.




31

stock flotations in the latter part of the quarter probably re­
flected the sizable decline in stock prices in February.
Most of the direct wartime influences on the corporate
capital market were ended with the completion of the Treas­
ury’s war financing program successfully concluded with the
Victory Loan, the relaxation of production controls after V-J
Day, and the removal of the excess profits tax effective January
1, 1946. Some of the changed conditions under which the
new issue market has been operating since the beginning of
the year and their effects upon the volume and types of securi­
ties likely to be offered are set forth below.
1. Wartime restraints on the flotation of securities for the
purpose of expanding plant, equipment, and working capital
have been* removed. Unlike W orld War I, the Government
placed no direct restrictions on the issuance of corporate
securities in World War II, but the Governments policy of
financing war plant expansion and the working capital re­
quirements of war producers with its own funds or through
the guarantee of bank credits to war contractors, together with
restrictions on the availability of equipment and shortages of
raw materials for nonwar industries was equally effective in
limiting the volume of corporation financing through new
capital issues. The removal of these indirect restraints has
cleared the way for an increased volume of new capital
investments.
2. The completion of the Treasury’s war financing program
which employed the mechanism of War Loan drives, during
which corporation security financing was largely suspended,
signalized the restoration of more even conditions in the cor­
porate new issue market, as corporate flotations need no longer
be concentrated in between-drive months. Consequently, the
peaks and valleys in the monthly totals of new issues since the
middle o f 1944 may well be replaced by more moderate
month-to-month fluctuations.
3. The elimination of the excess profits tax has removed
a powerful incentive for issuing refunding securities, although
it remains to some extent for those corporations with fiscal
years other than calendar years, since excess profits taxes are
still payable on that portion of net income falling within the
calendar year 1945.
While the heavy concentration of refunding operations in
1945 and the subsequent weakening of the ’'tax savings”
factor raised some question as to the prospects for the con­
tinuation of such operations on a large scale, the further de­
cline in yields on long term securities early this year gave new
life to refinancing activities. The margin between interest
on new securities and on the refunded issues had been narrow­
ing gradually, thus making it less profitable to refund out­
standing securities. This is shown in the accompanying table,
which gives for each quarter beginning in 1945 the average
coupon rate on new bond issues o f 10 million dollars or more
and on the securities which were retired out of the proceeds
of the sale of new issues. (Coupon rates only were used be­

MONTHLY REVIEW, APRIL 1946

32

cause of the lack of complete Information on offering prices,
particularly for privately placed new issues, but it is believed
that this does not materially affect the comparisons.) The
Interest Savings on Refunding Issues*
(Weighted averages of coupon rates, in per cent per annum)

Quarter
1945
S econ d ..........................................................
T h ird ............................................................
F ou rth ..........................................................
1946

New
issues

Refunded
issues

Interest
savings

3.26
2.97
3.05
2.93

4.44
4.03
3.75
3.65

1.18
1.06
0.70
0.72

2.72

3.72

1.00

* New fixed interest issues of 10 million dollars and over.

renewed decline in market yields on outstanding securities in
the opening months of 1946, however, tended to extend the
period in which worth-while savings could be obtained by
replacing outstanding securities with new ones. In fact, the
spread on actual refundings widened somewhat in the first
quarter of this year, but that was largely because one sizable
issue with a wide margin affected the average.
In a number of cases, recently issued securities have been
replaced with new securities bearing still lower coupon rates,
the repeated refinancing operations being made possible by
the continued decline in long term interest rates. Among the
most recent examples of this process were four issues of two
railroads aggregating 207 million dollars, which were placed
on the market in the first quarter of 1946, approximately six
months after the securities they were to replace were first
offered to the public. Thus, it would appear that the volume
of corporation refunding operations in coming months will de­
pend mainly upon the course of interest rates in the market.

CHANGING PATTERN OF DEBT
IN THE UNITED STATES
The pattern of indebtedness in the United States has been
vastly altered as a consequence of the war. The Treasury’s
wartime financial requirements were so large that they lifted
the Federal Government’s net debt1 to a level far surpassing
the aggregate net indebtedness of all other groups including
State and municipal governments as well as private debtors.
It is estimated that at the end of 1945 the Federal net debt
comprised more than 65 per cent of the aggregate national
indebtedness in contrast to 22 per cent at the end of 1940.
Private indebtedness fell from 68 per cent in 1940 to a little
over 30 per cent last year, and the net debt of States and local
governments from 10 to less than 4 per cent.
Total indebtedness in the United States, both public and
private, exceeded 350 billion dollars in 1945, at least twice
the prewar peak reached in 1930. This substantial increase
was accompanied by an equally marked decline in interest
rates, as a consequence of the abundance of funds resulting
1
Net after deducting such items as interagency debt, Government
securities held by trust accounts, and Government loans to private
enterprises and individuals.




from the huge inflow of gold between 1934 and 1941, the great
expansion of Federal Reserve credit during the war, and the
vast monetary structure which was built upon these primary
bases of bank credit. Thus, although the aggregate volume of
debt more than doubled between 1930 and 1945, average
interest rates fell by about half, so that, even allowing for old
debt that has not been refunded at lower rates, the actual
interest burden apparently has not increased very much in
actual amount, and has diminished in relation to the gross
national product. The Federal Governments interest payments
were between seven and eight times larger in 1945 than in
1930, but interest payable on private debt had been reduced
substantially.
Changes in the total net debt and its major components over
the past 30 years are shown in the accompanying chart along
with the estimated gross national product. In general, as
illustrated in the chart, private and public debt have shown
little tendency to move together, and at times have moved in
opposite directions. However, debts of the States and muni­
cipalities, included in the public debt totals, have varied more
closely with changes in private debt, so that it has been the
Federal debt primarily which has fluctuated independently of
private debt. During both World Wars, of course, the total
outstanding obligations of the Federal Government rose much
more rapidly than private debt. But in peacetime, the Federal
debt first declined gradually during the prosperous business
conditions of the twenties while the expansion of the private
debt gained momentum, and then grew during the depression
of the thirties as a result of Government expenditures in con­
nection with unemployment relief and financial assistance to
business, agriculture, and home owners, while private bor­
rowers paid off or defaulted on many of their obligations.
Prior to America’s participation in World War I, the net
private indebtedness of the nation accounted for 92 per cent
Gross National Product and Net Indebtedness*

* T otal debt exclusive of duplicating debt and corporate short term debt
other than notes and accounts payable; 1945 estimated by the Federal
Reserve Bank of New York.
S ource: U . S. Department of Commerce and Board o f Governors o f the
Federal Reserve System.

FEDERAL RESERVE BANK OF NEW YORK

of the total net debt. This proportion declined during that
war and then rose during the twenties to 83 per cent at the
end of 1930. Thereafter a steady decline ensued until, in
1945, private indebtedness came to only slightly more than
30 per cent of all debts. In dollar terms, aggregate debt of
private individuals and business enterprises rose from 69
billion dollars in 1916 to 146 billion in 1930, and fell to
around 115 billion (preliminary) last year.
Most of the expansion of private debt during the first
World War (1916-19) came in the short term category,
chiefly bank loans to nonbank investors on Government securi­
ties and to war contractors for working capital purposes. But
the major factor in the subsequent expansion during the period
o f high level industrial activity and construction and of rising
property values in the twenties was the increase in long term
debt, which rose 88 per cent between 1919 and 1930, com­
pared with a 40 per cent growth in short term debt. (The
peak for the latter came in 1929 when it was 50 per cent higher
than the 1919 figure.) Reflecting the boom in construction,
as well as rising real estate values and building costs, urban
mortgage debts (o f noncorporate borrowers) increased over
215 per cent between 1919 and 1930. Long term debt of
business corporations rose more slowly (by about two thirds),
as corporate business tended to resort increasingly to equity
financing in this period.
Long term borrowings of farmers traced a somewhat differ­
ent pattern. The bulk of the expansion of farm real estate
debt occurred in 1919 and 1920 when agricultural prices were
at their highest. A slower rise continued through 1922 when
total farm real estate debt reached 10.8 billion dollars, a gain
of 3.7 billion dollars over the 1918 level, and then gradually
receded each year with but few exceptions through 1945.
Increased financing through the capital markets by corpora­
tions, ploughing back undistributed profits into business opera­
tions, and increased efficiency in transportation and inventory
control limited the expansion of short term business indebted­
ness between 1919 and 1930. Substantial growth of indebted­
ness of security brokers and dealers and their customers and of
consumers were the principal factors in the rise in short term
debt in this period.
Both short and long term private debt fell sharply between
1930 and 1933. The liquidation of the former was completed
in 1933, after which there was an irregular rise through 1941,
chiefly as a result of expanding consumer debt; the decrease
in long term debt, however, continued more slowly through
1936. In the six year period, 1931-36, corporate and farm
mortgage debt fell 18 per cent and urban mortgage debt 22
per cent. A minor increase in corporate long term debt in the
next few years was in part attributable to the growth of term
loans to business by banks.
In the first three years of World War II, urban mortgage and
short term debt rose markedly, while corporate long term debt
and farm mortgage loans continued to decline. After 1941 all
major forms of private debt fell as production controls and the




33

other restrictions imposed by the Government with the Ameri­
can entry into the war and the Treasury’s direct financing of
war plants effectively curtailed private plant expansion and
nonessential residential buildings, and as high corporate and
agricultural incomes enabled substantial repayment of funded
debt. Short term loans fell as nonessential businesses cur­
tailed operations and consumer borrowing was reduced for
lack of durable goods and because of restrictions on consumer
credit. In 1944 and 1945, however, a combination of increased
loans for purchasing Government securities and an upturn
in consumer debt (principally in charge sales) and in short
term business borrowing brought some expansion in short
term indebtedness.
In contrast to the fluctuations in net private debt, the net
Federal debt expanded from the almost nominal amount of 1.2
billion dollars at the end of 1916 to 25.5 billion in 1919,
declined to 14.8 billion in 1930, grew to 36.9 billion in 1940,
and then rose rapidly to about 250 billion dollars at the end
of 1945. In most years since 1930 a larger portion of the
nations money savings has been absorbed by the Federal
Government for public expenditure than by business enter­
prise or private individuals for capital expenditures or con­
sumption purposes.
State and local government indebtedness, which amounted to
4.6 billion dollars in 1916, rose slowly during the first war and
then more rapidly thereafter to a peak of 16.8 billion in 1933.
This growth came in response to sizable public works pro­
grams, necessitated first by some deferment of needed projects
during the first war, and then by such interrelated factors as
the growth of population, the more widespread use of the
automobile, the development of new suburban areas, and the
housing boom, involving extensive road building, street pav­
ing, sanitation, hospital, and educational projects. In the early
depression years, 1931-33, State and municipal debts continued
to rise as a consequence of heavy disbursements for relief. In
subsequent peacetime years, however, State and local indebted­
ness declined irregularly as the Federal Government took over
most of the relief burden, and then more rapidly during the
second war as public work projects were deferred because of
the all-out war production effort. The increased revenues of
regional and local governmental units enabled them to reduce
their outstanding debt by 3 billion dollars between 1941 and
1945 to a total of around 13 billion last year.
As shown in the accompanying chart, the gross national
product (the total value o f goods and services produced) and
the total debt of the nation have tended to fluctuate in the
same direction. During the war, however, the growth of the
gross national product fell considerably short of the increase in
the debt, owing to the growth in idle savings which accom­
panied the war financing. In the twenties also, when the
growth of private debt was the major factor in the increase
in the total, the gross national product rose less rapidly than
the debt, but the discrepancy was much narrower. It then
reflected largely an increase in certain types of indebtedness

31

MONTHLY REVIEW, APRIL 1946

such as bank loans for purchasing and carrying securities and
stock brokers’ loans to their customers trading on margin,
which made at best an indirect contribution toward increasing
the gross national product. Some portion of the increase in
debt in that period probably represented mainly a revaluation
of capital assets on the basis of a higher general price level
than before the war. A substantial growth of equity financing
was a limiting factor in the growth of private debt in this
period. On the whole, however, it would seem reasonable to
expect a relatively rapid growth in private debt and a decline
in public debt in years of rising prosperity ( except, of course,
in wartime), and the reverse movements in depression years.
This tendency is already apparent in the current postwar
period, although the reduction in public debt thus far repre­
sents only the use of some of the surplus funds raised in the
Victory Loan.
SU RV E Y OF O W N ER SH IP OF BUSINESS AND
PE R SO N A L D EM AN D DEPOSITS, JA N U A R Y 1946
The January survey of the ownership of business and per­
sonal demand deposits in all commercial banks in the Second
Federal Reserve District presents an opportunity to evaluate
the shifts which have occurred in various ownership categories
since the termination of the war. The outstanding develop­
ment between July 1945 and January 1946 was a decline of
nearly a billion dollars in balances of manufacturing and
mining concerns, following continuous increases since early
in 1944. In contrast, there were further increases of about
400 million dollars in retail and wholesale trade accounts and
350 million dollars in personal deposits, both of which were
much greater than in the previous six month period. Larger
increases than during the previous period were also recorded
in aggregate accounts of other nonfinancial businesses except
public utilities, and of financial businesses such as investment,
loan, insurance agency, and real estate concerns, as well as
nonprofit organizations and foreign accounts. Declines during
the past six months in place of gains during the period January-July 1945, were recorded for accounts of public utilities,
insurance companies, and trust funds of banks. Figures in the
accompanying table show that total demand deposits of indi­
viduals, partnerships, and corporations in all commercial banks
in the Second Federal Reserve District are estimated at 19,816
million dollars as of January 1946, only 72 million, or 0.4 per
cent, higher than in July 1945.
The current survey, which is the seventh of a series, includes
reports from 126 member banks which have about three
fourths of the total business and personal demand deposits of
all commercial banks in the District. The reporting banks
classified in ownership groups about 68 per cent of their
business and personal demand deposits; the accounts classified
were the larger ones with the minimum size classified varying
according to the size of the bank.
The 13 per cent decline in balances of manufacturing and
mining concerns during the half year ended January 1946




carried the deposits of that group to a point lower than any
heretofore shown in these surveys which go back to the spring
of 1943, although the current level undoubtedly remains much
higher than that prevailing before the war. The shrinkage in
these deposits may have been due to expenditures for recon­
version of plants to peacetime production, together with pay­
ments for labor, materials, and other expenses incident to
accumulations of goods in process of manufacture. The large
rise in balances of retail and wholesale trade concerns partly
reflects seasonal trends such as the peak sales of the holiday
period and consequent year-end depletion of inventories, par­
ticularly for retailers. The continued large increase in personal
accounts during the past six months, despite a decline in factory
payrolls, suggests that aggregate individual incomes have been
relatively well maintained and that many individuals were
still showing a preference for cash over investments in Gov­
ernment or other securities.
During the year ended January 1946, the over-all rise in
business and personal demand deposits in this District is
estimated at 1,190 million dollars, or 6.4 per cent, compared
with 1,856 million, or 10.7 per cent, between February 1944
and January 1945. The rate of accumulation in personal
accounts slowed down only slightly during the past year,
amounting to 14.4 per cent compared with 15.0 per cent in
the previous period. Total financial accounts, accounts of non­
profit organizations, and accounts of miscellaneous nonfinancial
businesses also showed only slightly slower rates of increase.
The growth in wholesale and retail trade deposits, however,
slowed considerably between the two periods, to 19.6 per cent
during the last year in contrast to 31.4 per cent during the
preceding eleven months.
The estimated changes in business and personal demand
deposits of all commercial banks in the District since July
Estimated Ownership of Demand Deposits of Individuals,
Partnerships, and Corporations in All Commercial Banks
in the Second Federal Reserve District
Millions of dollars
T ype of owner
Dollar
balance
Jan. 1946

Percentage change

Dollar
change
July 1945

July 1945

Jan. 1946

Jan. 1946

to

Jan. 1945
to
Jan. 1946

to

Manufacturing and m ining...........
Public utilities, transportation,
and communications...................
Retail and wholesale trade and
dealers in com m odities...............
All other nonfinancial business,
including construction and
services..........................................

6,346

— 966

— 13.2

— 7.2

1,454

— 16

— 1.1

+ 6.5

3,017

+ 39 7

+15 .2

+ 19 .6

1,142

+ 10 6

+ 10 .2

+ 11 .4

Total nonfinancial...............

11,959

— 479

— 3.9

+

Insurance companies......................
Trust funds of ban ks......................
All other financial business*.........

749
586
1,360

— 64
— 22
+ 156

— 7.9
— 3.6
+ 13 .0

— 5.2
+ 19 .8
+25 .3

Total financial.................

1.8

2,695

+ 70

+ 2.7

+ 14 .0

Nonprofit organizations.................
Personal (including farm ers).........
Foreign accounts..............................

516
3,879
767

+ 80
+ 35 5
+ 46

+ 18.3
+10.1
+ 6.4

+24.6
+ 14 .4
+ 8.9

Total demand deposits of
individuals, partnerships, and
corporations..................................

19,816

+ 72

+ 0.4

+ 6.4

* Including investment, loan, insurance agency, and real estate businesses, etc.

35

FEDERAL RESERVE BANK OF NEW YORK

IN S U R A N ICE
COMPANI E S

FRUS T FUNDS

1

1943

1944

4945

1946

1943

1944

z

FI N A N C
BUSINESS A
C

O >
O r
c

Ownership of Business and Other Demand Deposits
Estimated for All Commercial Banks in the
Second Federal Reserve District*
1
rs

ALL
0i T H E R
T I N A f sIC 1 A L

OF B A N K S

I

(945

1946

* On semiannual survey dates since July 1943.

1943 are shown for various ownership groups in the accom­
panying chart. The total increase in such deposits during
the entire two and one-half year period amounts to nearly
2,400 million dollars, or 14 per cent. The bulk of the
increase was in retail and wholesale accounts which rose more
than one billion dollars, or 52 per cent, and personal accounts
which increased about 900 million, or 30 per cent. Large
percentage gains also were recorded for nonprofit organiza­
tions, trust funds of banks, and the "all other” group of
financial businesses which includes investment, loan, insur­
ance agency, and real estate businesses. Manufacturing and
mining company balances showed a net decline of 5 per cent
between July 1943 and January 1946, reflecting the sharp
reduction during the past six months, and net declines also
were recorded in insurance company and foreign accounts.
D E P A R T M E N T STORE T R A D E
Pre-Easter buying began unusually early this year because of
the exceptionally warm weather during March. This factor,
together with the continued demand for homefurnishings and
men’s wear, resulted in another sharp gain in the seasonally
adjusted sales index. Since the close of 1945 this indicator of
trade activity for the Second District has established a new
record each month. The indicated rise of 15 per cent in this
index between February and March extended the gain for the
first three months of the year to 30 per cent, the largest increase
on record for any such short period. The March index is 25




per cent above that of March 1945 which was the peak month
of last year.1
The New York District is approaching its prewar position
in the total United States department store sales. During the
war period this District experienced the smallest increase in
dollar sales volume recorded for any of the twelve districts,
and its share of the United States total dropped from 16 per
cent to 13 per cent. W ith the shift to a peacetime economy,
however, it is currently reporting one of the largest year-toyear gains, although the upward trend in department store
sales has been accelerated throughout the country since the end
of the war.
The dollar volume of department store sales in New York
City accounts for about one half of the District’s total, while
Newark, the second largest city, represents a little under 10
per cent. The small increases in these cities accounted for the
lag in total Second District sales during the early years of the
war period.2 Although sales in New York City moved upward
1 The adjusted index makes allowance for the shifting date of
Easter as well as for variations in the number of shopping days. This
year Easter comes three weeks later than in 1945, and the calendar
month of March has one less shopping day. The actual total sales for
March were about 15 per cent higher than in the corresponding
month of last year.
2 Seasonally adjusted indexes of department store sales in six cities
of this District have recently been completed. Tabulations of the data
from 1925 to date for the six cities shown in the chart are available
upon request.
Department and Apparel Store Sales and Stocks, Second Federal
Reserve District, Percentage Change from the Preceding Year
Net sales
Locality

Stocks on
hand
F e b .28,1946

Feb. 1946

Jan.through
F e b .1946
+ 27
+ 26
+28
+ 27
+ 21
+14
+ 29
+28
+35
+63
+ 10
+28
+20
+15
+32
+37
+23
+26
+13
+25
+ 29
+ 8
+22

+ 9
+ 9
+10
+11
+ 15
+ 16
+ 10
+ 4
+10
+ 14
+ 6
— 1
+ 1
— 3
— 2

Niagara F alls.....................................
Rochester............................................

+ 27
+27
+29
+27
+28
+ 19
+26
+ 26
+ 36
+65
+ 11
+26
+22
+18
+ 27
+28
+24
+26
+ 11
+24
+26
+ 9
+23

Apparel stores (chiefly New Y ork C ity).

+24

+24

+ 6

Department stores, Second D istrict. ..
New Y ork C ity ......................................
Northern New Jersey...........................
Westchester and Fairfield C ounties..
Bridgeport...........................................
Lower Hudson River V alley..............
Poughkeepsie......................................
Upper Hudson River V alley..............
S chenectady.......................................
Central New York State.....................
M ohawk River V alley.....................
Syracuse..............................................
Northern New York S ta te.................
Southern New York S ta te..................
Bingham ton........................................
W estern New Y ork S ta te...................

—

+ 6
+ 4
+10
+ 8
+10
+ 4
+12

Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1935-39 averages 100 per cent)
1945

1946

Item
Feb.

Dec.

Jan.

Feb.

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

137
165r

307
179r

155
194r

174
210

Stocks, unadjusted...........................................
Stocks, seasonally adjusted............................

144
153

136
150

144
162

156
166

r Revised

36

MONTHLY REVIEW, APRIL 1946
Indexes of Department Store Sales in Selected Cities in the Second Federal Reserve District, 1940-46
(Adjusted for seasonal variation, 1935-39 average=100 per cent)

1940

S ource:

1P 41

19 4 2

194 3

1944

1945

1946

Federal Reserve Bank of New York.

throughout the period, but rather gradually until 1944, it will
be noted that sales in Newark leveled off in the spring of 1942
and did not turn upward again until early 1944. Currently,
however, the large gains in these cities are the principal factor
in the better-than-average increases reported for this District.
In contrast, Bridgeport, Buffalo, and Syracuse department
store sales moved sharply upward until the spring of 1942, at
rates exceeding slightly that for the United States as a whole,
but, as the charts indicate, their records subsequently have been
less favorable. In Bridgeport sales declined irregularly in both
1943 and 1944, and although they increased moderately in
1945, this city currently is showing relatively small increases.
Sales in Buffalo continued upward after 1942, but the rate of
gain began to taper off in 1944 and the increases since then
have been below average. In Syracuse year-to-year gains have
continued fairly constant, and this city now shows the largest
increase over the prewar level of any city in the District. Sales
in Rochester have also moved upward at a fairly constant rate,
although the total gain over the period has been considerably
less than that for Syracuse. The last plotting shown on the
chart is for February; indexes for all the cities were at record
levels for that month, and preliminary reports indicate that
new highs were reached in March.
In spite of the exceptionally high level of sates since the
beginning of the year department stores in this District have
been able to build up their inventories moderately. The season­
ally adjusted index of stocks at the end of February was 10 per
cent higher than at the close of last year, but remained 5 per
cent below the peak reached last summer. Compared with
February last year stocks were 9 per cent higher, a considerably
smaller increase than in sales, however.
During February, department stores continued to place




exceptionally large orders for merchandise, and outstanding
orders at the close of the month were at a new high, 10 per
cent above January and 20 per cent above the year earlier
level. The dollar volume of orders plus stocks on hand are the
equivalent of sales for the next six months at the level ( season­
ally adjusted) of the first quarter of this year. This ratio of
orders plus stocks to sales is about 50 per cent above the
prewar (1940) ratio.

Indexes o f B usin ess
1946

1945
Index
Feb.
Industrial production*, 1935-39 = 100........
(Board o f Governors, Federal Reserve
System)
Electric power output*, 1935-39 = 1 0 0 . ...
(Federal Reserve Bank of New York)
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank of New York)
Sales of all retail stores*, 1935-39 = 100. . .
(Department of Commerce)
Factory employment
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100...............
(New York State Dept, of Labor)
Factory payrolls
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100...............
(New York State Dept, of Labor)
Incom e payments*, 1935-39 = 100...............
(Department of Commerce)
Wage rates, 1926 = 100..................................
(Federal Reserve Bank o f New York)
Consumers’ prices, 1935-39 = 100................
(Bureau of Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve Bank o f New York)
New York C it y .............................................
Outside New York C it y .............................
* Adjusted for seasonal variation.

Dec.

Jan.

Feb.

236

164

160

154p
184p

206

187

187

231

181

183p

193

211

228p

162

122

123

118p

144

118

119

112p

334

215

217 p

290

224

227

245

234

232p

169

168

170p

127

130

130p

85
74

99
84

101
79

p Preliminary.

206p

91
79

FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, APRIL 1916

General Business and Financial Conditions
(Summarized by the Board of Governors of the Federal Reserve System)

P

and employment at factories declined in February but advanced in the first
three weeks of March, reflecting mainly the influence of the steel strike. The value of
retail trade reached new record levels. Wholesale prices of a number of commodities
increased.
RODUCTION

In d u s t r ia l P r o d u c t io n

1940

1942

1944

1946

1940

1942

1944

1946

Indexes of Physical Volume of Industrial
Production, Adjusted for Seasonal Variation,
1935-39 Average = 100 Per Cent (Groups
shown are expressed in terms of points
in the total index)

Output of durable goods declined considerably further in February, while production
of nondurable goods and minerals continued to increase. Production of steel, automobiles,
and machinery has advanced sharply since the settlement of wage disputes in these industries,
and the Board’s index of industrial production, which declined from 160 in January to 154
per cent of the 1935-39 average in February, will show a considerable rise in March.
Steel mill operations in February were at an average rate of 19 per cent of capacity
as compared with 50 per cent in January. Output at steel mills has increased rapidly
since the middle of February, and during the week ending March 23 is scheduled at 89 per
cent of capacity— the highest rate since V-J day. In February production of nonferrous
metals, machinery, and transportation equipment also declined, reflecting chiefly the direct
or indirect effects of work stoppages. Lumber production, after advancing in January,
showed little change in February. Plate glass production increased sharply to the highest
level since November 1941.
Production of most nondurable goods continued to advance in February, partly reflecting
increases in working forces. Output at textile mills rose further and was at a rate slightly
above the level of a year ago. Activity in the meat packing industry increased sharply
in February following settlement of the wage dispute at major plants and was 20 per cent
higher than a year ago. Flour production likewise showed a substantial gain for the month.
In March a Federal program was instituted to reduce domestic consumption of wheat in order
to increase exports for relief purposes. Output of automobile tires in February rose to the
highest rate on record.
Output of coal was maintained at exceptionally high levels in February and early March.
Crude petroleum production showed a gain in February, but declined in March.
Em

Indexes of Value of Department Store Sales and
Stocks, Adjusted for Seasonal Variation
(1935-39 average = 100 per cent)

ploym ent

Employment continued to advance from the middle of January to the middle of February
in most lines of activity except at manufacturing plants closed by industrial disputes. After
February 15, with the settlement of the steel strike, there were large increases in employment
in the durable goods industries and by the middle of March employment in private non­
agricultural establishments is estimated to be about lYz million larger than last September,
after allowing for seasonal changes. Unemployment increased from January to February
by about 400,000 to a level of 2,700,000 persons.
D

is t r ib u t io n

Department store sales in February, after allowance for seasonal changes, were the
largest on record by a considerable margin, and in the first half of March sales continued
to show marked increases over a year ago. Total retail trade in February was probably close
to one-fourth higher than in the same month last year.
Shipments of most classes of railroad freight increased from the middle of February to
the middle of March and almost the same number of cars were being loaded in the first two
weeks of March as during the same period last year, when shipments of war products were
at peak levels.
Indexes of Wholesale Prices Compiled by Bureau
of Labor Statistics (1926 averages 100 per
cent; latest figures are for week
ended March 16)

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

The general level of wholesale commodity prices advanced one per cent from the middle
of February to the middle of March, reflecting increases in most groups of agricultural and
industrial products. Since last September wholesale prices have advanced 3.3 per cent,
according to the Bureau of Labor Statistics’ index. Price control regulations permit manu­
facturers and distributors to pass on to consumers only part of the recent advances granted
in maximum wholesale prices.
B a n k C r e d it

Retirement of 2.8 billion dollars of United States Government obligations during
March was reflected in a decline of about the same amount in Treasury balances during the
four weeks ended March 20. Holdings of Government securities by both Federal Reserve
Banks and member banks declined, accompanying reductions in Treasury deposits at these
banks. Deposits, other than those of the Treasury, at member banks showed little change.
Member banks’ required and excess reserves also changed little during the period.
Member banks increased their borrowings at the Reserve Banks to over 700 million dollars
on March 13, but reduced them somewhat in the following week.

Member Bank Reserves and Related Items
(Latest figures are for March 20)




Commercial and industrial loans at member banks in leading cities continued to increase
between the middle of February and the middle of March. Loans on Government securities
to brokers and dealers fluctuated considerably in connection with the Treasury retirement and
refunding operations, while those to others continued to show a slow decline.