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O f Credit and Business Conditions
V olu m e








No. 4

The pressure on the reserves of the commercial banking
system which was expected to result from the large excess of
Treasury tax collections over Government disbursements in the
first quarter of this year was more evident in March than in
either of the preceding months of the quarter. In January and
February, the banks’ losses of funds were offset to a greater
extent by the seasonal return flow of currency from circulation,
by gold inflows and foreign expenditures here, and, to a smaller
extent, by net purchases of Government securities from non­
bank investors by the Federal Reserve Banks and Treasury
investment accounts for the purpose of maintaining stability
in the market for such securities. Offsetting factors again were
sizable in March, but were not sufficient to prevent a substan­
tial net drain on bank reserves, especially in the latter half of
the month. These factors again included gold imports and
foreign disbursements, a considerable reduction in the required
reserves of member banks (due to the shrinkage in their
deposits caused by tax collections), and a further reduction in
the volume of currency outstanding to the lowest level in two
years, which reflected in part payments of income taxes with
The net losses of funds sustained by the commercial banking
system tended to be concentrated to a considerable extent on
the New York money market through heavy withdrawals of
funds from the large New York City banks by correspondent
banks in other parts of the country and by business concerns.
The net outflow in the four weeks ended March 24 amounted
co several hundred million dollars. In addition, the effects of the
increase at the end of February in the reserves which central
reserve city banks in New York City and Chicago are required
to maintain against their demand deposits carried over into the
early days of March.
As a result, conditions in the New York money market were
tight during most of March. This situation had its clearest
reflection in rates on day-to-day loans of reserve funds between
banks ("Federal funds” ) which were between 1 and 1*4 per

cent during most of the month, except during the week ended
March 10, and in the fact that such loans were frequently
unobtainable in substantial amounts. In periods of ease in the
money market, rates on "Federal funds” have frequendy fallen
as low as Vs or Va per cent.
The losses o f reserves by the New York City banks result­
ing from tax collections and withdrawals o f funds by cor­
respondent banks and others were pardy offset by several
factors, including Treasury interest payments on March 15,
deposits of the proceeds of security sales and redemptions by
their customers, foreign account disbursements, and the reduc­
tion in their required reserves that accompanied the shrinkage
in their deposits. Nevertheless, they found it necessary to
sell substantial amounts of Government securities during the
month, and on several occasions borrowed sizable sums from
the Reserve Bank pending the receipt of the proceeds of their
security sales or other funds. Banks in other parts of the
Country apparendy met the drain on their reserves in part
by similar methods, although in many cases they were able
to meet their needs to a considerable extent by the withdrawals
of funds from their balances with New York City banks, previ­
ously mentioned, or with Chicago banks.
In order to enable member banks to maintain their reserves
at the required levels, the Federal Reserve System purchased
considerable amounts of Treasury bills, certificates, notes, and
short-term bonds in the market, especially during the latter
half of the month. Nevertheless, as the accompanying table
shows, total holdings o f Government securities by the Reserve
Banks showed a net decline o f more than 400 million dollars
in the four weeks ended March 24 because of continued
redemptions by the Treasury o f maturing Treasury bills and
certificates held by the Reserve Banks, as well as of Treasury
bonds called for redemption on March 15. Further purchases
o f short-term securities indirectly from banks in need of
reserves were made in the closing days of the month, but for
the first quarter of the year as a whole Reserve Bank holdings



of Government securities were reduced by more than IV 2 bil­
lion dollars. In the same period, member bank reserves were
reduced by approximately 1 billion dollars.
C hanges in Federal R eserv e B ank H o ld in gs o f G ov ern m en t S ecurities
(In m illions o f d olla rs)



- 1 ,4 2 8



+ 66

+ 1 ,6 8 6

-5 7 3

Jan. 29 to Feb. 2 5 . . .



- 1 ,5 3 8


+ 1 ,1 2 7

-9 5 3

Feb. 26 to M ar.24. ..




+ 64


-4 2 7

Dec. 31 to Jan. 28. . .




* Includes redemption of 175 million of bonds on March 15.

As this table indicates, Federal Reserve Bank purchases of
Treasury bonds in market stabilizing operations were greatly
reduced during the past month, amounting (after adjustment
for the redemption of 175 million of called bonds on March
15) to only about 160 million dollars. Part of that amount
was accounted for by purchases of bonds of relatively short
maturities which were sold by banks in need of reserves. Some
additional Treasury bonds were purchased for Treasury invest­
ment accounts at the support prices during March, but in this
case also the amounts were comparatively small.
The reduced need for stabilizing operations reflected the
growing firmness in the market for the longer term Treasury
securities. By the end of the month all such issues were selling
at least slightly above the Reserve Systems support prices.
Sales of such bonds had diminished to relatively small amounts
and were readily absorbed by other investors. The announce­
ment shortly after the middle of the month that a 12-month,
1J/8 per cent certificate of indebtedness would be offered in
exchange for the certificates maturing on April 1 was inter­
preted as indicating that there was to be no further rise in
interest rates on short-term Treasury certificates for the present,
and contributed to the firmness of the market for Treasury
securities generally. The Presidents recommendation of an
expanded national defense program was also a factor as it
resulted in some increase in confidence, in market circles, that
the present floor for prices of Treasury bonds would be main­

Redemptions of public debt obligations other than Savings
bonds and notes amounted to 4.4 billion dollars during the
first quarter of 1948, and since the beginning of the debt
redemption operations in March 1946 have reached an aggre­
gate of more than 38 billion dollars. As the accompanying
chart shows, it is estimated that of the redeemed securities,
about 14
billion dollars were held by commercial banks,
llVz billion dollars by Federal Reserve Banks, and over
12% billion dollars by all other investors. W hile it has been
the policy of the Treasury since the beginning of the debt
redemption operations to retire securities held largely by the
banking system, approximately one third of the securities
redeemed up to the middle of 1947 were held by nonbank
investors; about 45 per cent were held by commercial banks,
and 22 per cent by the Reserve Banks. Since last October,
however, approximately four fifths of the redeemed securities
have been securities held by the Federal Reserve Banks, reflect­
ing the policy in this period of using Treasury surplus funds
in a way that would keep some pressure on the reserves of the
commercial banks, and thus help to discourage unnecessary
expansion of bank credit. Retirements of securities held by
nonbank investors have been limited to those which the
holders elected to present for cash redemption, instead of
exchanging them for new issues of securities. Redemptions
of securities held by commercial banks have been small.
Cash Redemption of Marketable Government Securities by
Type of Holder*, Cumulated from February 28, 1946f

P u b l ic D e b t R e d e m p t io n s

As in several preceding months, most of the marketable
securities redeemed by the Treasury in March were securities
held by the Federal Reserve Banks. Total redemptions during
the month were approximately 1.4 billion dollars, including
about 900 million dollars of unexchanged Treasury certificates
maturing on March 1 and Treasury bonds called for redemp­
tion on March 15, of which the Reserve Banks held approxi­
mately half, and 500 million dollars of Treasury bills, all of
which were held by the Reserve Banks.

* Includes both scheduled retirement and unexchanged portions of called or
maturing issues.
t End-of-m onth figures.
# Includes U. S. Treasury trust accounts and agencies.
S o u rce : U . S. Treasury D epartm ent; distribution b y type o f holder esti­
mated by the Federal Reserve Bank of New York.


At the end of March the Treasury still had substantial
balances in its deposit accounts in the Reserve Banks and in
War Loan Deposit accounts in the commercial banks, which
can be used for similar purposes in the coming months, to the
extent that they are not needed to meet other Government
expenditures. Depositary banks were authorized, beginning
March 22, to transfer withheld taxes received from employers
from Withheld Taxes accounts to War Loan Deposit accounts
on their books, where the funds may be held until called for
payment. This procedure will help to facilitate a closer balance
between Treasury receipts and disbursements.
The first quarter of 1948 witnessed the gradual develop­
ment of greater stability in the bond market than had prevailed
for several months. By the end of the quarter the supply of
and demand for Government bonds were balanced at prices
generally somewhat above the Reserve Systems support prices,
corporate bonds had firmed moderately, and the market for
State and municipal bonds had demonstrated substantial
absorptive power although yields had risen somewhat further.
On the other hand, stock prices were weak during most of
the quarter, especially after the break in farm prices early in
February, which was interpreted by some observers as an indica­
tion that the postwar boom might have passed its crest.
Increasing international tension also appears to have been an
important influence tending to depress stock prices during
much of the period. In the latter half of March, however,
a sizable recovery occurred in the stock market following the
Presidents special message to Congress on the critical inter­
national political situation, which indicated the prospect of a
substantially expanded national defense program. Favorable
action by Congress on a tax reduction bill may also have been
a factor.
Bond M arket

over the period as a whole. Prices of "bank-eligible” bonds
rose moderately early in January, but fell again to the support
levels following an advance in Reserve Bank discount rates
and the announcement that required reserves of central reserve
city member banks would be raised late in February. A
renewed rise occurred in March. Until March, yields on longest
term Treasury issues continued unchanged at levels correspond­
ing to official support prices (an average of 2.45 per cent for
bonds which have 15 years or more to run); thereafter these
issues tended to rise slightly above the support prices. At
current price levels, yields on medium and long-term taxable
Treasury bonds are back to those prevailing in 1944.
Contrary to the decline in yields on corporate bonds, yields
on municipal issues continued during the first quarter their
postwar uptrend. Moody’s average yield on Aaa municipal
bonds rose in March to 1.96 per cent, the highest level since
1940, reflecting a large supply of new municipal issues and the
prospect of Federal income tax reductions. Foreign bond prices
showed marked declines as the political horizon clouded.
Lower grade corporate bonds, which fluctuate more closely
with stock prices than with high grade bond prices, remained
only slightly above the levels reached toward the close of last
year. Yields declined somewhat (prices rose) in the latter
part of March, however, in sympathy with the rally in stock
values. Nevertheless, some further widening of the spread
between the yields on highest grade and lower grade cor­
porate bonds took place during the past three months, and
yield relationships moved slightly further in the direction of
prewar patterns.
On the whole, the recent firmness in the prices of high grade
domestic bonds except for municipals appears to represent
the development of greater confidence in the prospect for
maintenance of reasonably stable long-term interest rates.
St o c k P r ices

In the first quarter of 1948 the decline in bond prices which
had been in progress for some months came to an end. Yields
on high grade corporate bonds and intermediate-term Treas­
ury bonds fell slightly in January from the levels reached early
in the month, and the gains in prices were extended sub­
sequently. Moodys average of yields on Aaa corporate bonds
fell from 2.90 per cent early in January to 2.83 per cent
toward the close of February and declined slightly thereafter.
Compared with the low point in April 1946, average yields of
highest grade long-term corporate bonds have risen about
of 1 per cent, net. From a long-range point of view, however,
they still remain low, since the rise of the last two years brings
them back only to early 1942 levels.
Prices of Treasury bonds lagged behind the upward move­
ment of long-term high grade corporate bonds during the first
quarter of 1948, but the market showed definite improvement



Stock prices declined gradually during most of the quarter.
The decline was slow during the first three weeks of January
and somewhat more rapid in the first ten days of February in
sympathy with the decline in commodity prices; thereafter,
through the middle of March, stock prices fluctuated within
a narrow range. On March 16, a new low for the year was
made in the Dow-Jones industrial average, which, however,
was only one quarter of a point lower than the year’s previous
low point reached on February 10. The decline in share prices
on March 16 was attributed to the international situation,
which, however, was the chief factor in the subsequent sharp
rise as the implications of a rearmament program for indus­
trial production were more fully realized. The volume of trad­
ing generally averaged less than one million shares, except on
days of sharply falling or rising prices, when the million share
level was exceeded.



Through March 17, as measured by Standard and Poors
weekly index of 402 stock prices, values fell about 9 per cent
(from the January 1 level). Public utility and railroad shares
showed greater resistance than the market as a whole, falling
2 and 6 per cent, respectively, while the industrials fell 10 per
cent. During this period, the coal and petroleum groups,
which had been among the outstanding market leaders during
1947, declined 7 and 10 per cent, respectively. The aircraft
manufacturing group, which rose 28 per cent between the end
of 1947 and March 17, 1948, reflecting expectations of large
military plane orders in view of the increased world political
tension, became the most active group. Shipbuilding shares,
which might also benefit from increased defense expenditures,
were among the few groups of stocks to advance in price dur­
ing this period; their rise amounted to 10 per cent. Air trans­
port shares rose 9 per cent, reflecting some improvement in
earnings resulting from higher mail and other rates.
On the other hand, stocks of consumer goods industries
and of some industries whose products were in short supply
until recently (leather, textile, fertilizer, cement, and paper)
recorded the largest percentage declines, running from 22
per cent for leather to 15 per cent for cement and paper
Beginning on March 17, the day of the Presidents special
message to Congress, there was a sharp reversal of trend in the
stock market. By March 27, average prices had risen about
5 per cent, to the highest level since early February. Some of
the groups, including the paper, textile, and fertilizer stocks,
which had shown the weakest trends during most of the quar­
ter, were among the leaders in the sharp rise in stock prices in
the latter half of March; other leaders were the distillery, air
transport, copper, and rubber and tire groups.

N e w I ssues

Conditions in the corporate new issue market improved
during the past quarter, reflecting the stabilization of bond
prices and more realistic pricing of new issues. It is estimated
that close to l }/2 billion dollars of new domestic corporate
issues were offered, compared with 2.2 billion in the last
three months of 1947 and one billion in the first three months
of last year. Nearly all the new offerings were “new money”
issues, while in 1947 refunding issues were still important
(more than one fourth of the total amount of new issues in
the first quarter).
In contrast to the experience in some previous months, there
were no major instances of congestion in the market. In a few
cases, after spirited bidding for new public utility bonds, invest­
ment bankers, in an effort to maintain an adequate spread for
expenses and underwriting risks, set offering prices to yield
returns which institutional investors considered too low. But

N ew D om estic C orporate and M u nicipal S e cu rity F lotation s
(In m illions o f d o lla rs)







T otal







T h ird ...............








* March estimated by the Federal Reserve Bank of New York.
Source: Commercial and Financial Chronicle.

shading of offering prices in such instances was followed by
quick sale to investors.
Yields on new bonds were above those available on com­
parable outstanding issues; the larger issues had to be offered
at somewhat better yields than the smaller ones in order to
attract sufficiently wide buying interest.
The marked decrease in the volume of new corporate secur­
ity flotations from the last quarter of 1947 was related to the
SEC requirement that audited financial statements not over
three months old be filed with registration statements by cor­
porations planning new issues. In order to avoid the added
expenses of a special audit, many companies postpone new
public offerings until their regular year-end audits are com­
pleted— usually in March. Thus, as in previous years, there
was a seasonal slackening in the flotation of new issues in
January and February.
The sharpest curtailment in the volume of new offerings
during the past quarter was in the utility issues, which are
offered for competitive bidding and require registration.
Because most of the offerings of industrial securities were
placed privately, and thus were exempt from SEC registration,
the decline in their volume was not as great. On the other
hand, railroad offerings, which largely took the form of equip­
ment trust certificates, expanded sharply reflecting large
reequipment programs. Such issues are under the jurisdiction
of the ICC and thus are exempt from SEC registration require­
ments. In recent years, capital expenditures of the railroads
have been financed largely from wartime accumulations of
cash and other liquid assets, but apparently these assets have
now been reduced to current working capital needs. The new
railroad offerings in the first three months of 1948 came to 60
per cent of the total for the entire year 1947. Thus, the rail­
roads now constitute a growing element in the demand for
funds from the new capital market.
The market for new municipal issues was especially active
during the past quarter. Two large State bonus issues accounted
for more than half of the estimated 925 million dollars of
new municipal offerings. Because of the generally high quality
of the new flotations and the attractive rates offered, most


issues were well absorbed by the market. The New York
and Ohio bonus issues, in the amounts of 300 and 200 million
dollars, respectively, went ‘ out the window,” and quickly
sold at premiums in open marKet trading. Commercial banks,
which had been practically out of the municipal market for
some time, apparently were large buyers of the intermediate
maturities of these issues.

Estimated Ownership of Demand Deposits of Individuals, Partnerships,
and Corporations in All Commercial Banks in the
Second Federal Reserve District
(Dollar amounts in millions)

Type of ow

The distribution of ownership of demand deposits of indi­
viduals, partnerships, and corporations in all commercial banks
in the Second Federal Reserve District has been resurveyed as
of January 1948 as part of a continued countrywide study by
the Federal Reserve System.1 On the basis of reports submitted
by 127 cooperating banks, the total of such deposits in this
District as of January 1948 is estimated at 21.7 billion dollars,
an increase of 1.1 billion or 5.4 per cent since February 1947,
the date of the previous survey. The over-all increase in such
deposits during the past eleven months arose primarily from a
heavy increase in loans to businesses and individuals, other than
loans for the purpose of purchasing and carrying securities.
Other factors of deposit increase, such as foreign purchases
financed by gold sales here, and direct or indirect sales to the
Reserve System of nonbank holdings of Government securities,
were outweighed by the opposite factors of net cash payments
to the Treasury and net transfers of commercial funds to other
sections of the country.
The rise in commercial bank loans and demand deposits
during the eleven-month period under review largely reflected
the increased requirements of business for funds to carry larger
and higher priced inventories, to carry a greater dollar volume
of receivables, and to pay wages and other costs of production.
The volume of demand deposits held in the several categories
of nonfinancial business accounts increased by from 8 to 10 per
cent, as shown in the accompanying table, except for accounts
of public utilities, transportation, and communications com­
panies, in which a decline of 11 per cent was recorded. In the
case of utilities, plant modernization and expansion programs
were so great that such corporations as a group drew down a
part of their existing cash resources in addition to utilizing
bank loans and a large volume of funds raised in the new
capital markets.

Feb.1947 to Jan.
balance Dollar
Jan.1948 change

Per cent

July 1945 to Jan.

Per cent


+ 8.0








- 3.1















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




+ 6.2



+ 3.4

Insurance com
Trust funds of banks.................................
All other financial business*.......................




+ 0.4

+ 362
— 95
+ 299


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




+ 7.7




Nonprofit organizations.............................
Personal (including farmers)......................
Foreign accounts......................................


+ 170
— 69

+ 4.4
+ 4.0
- 9.2

+ 154
+ 848
— 41

- 5.7

Total dem
and deposits of individuals, part­
nerships, and corporations...................... 21,694


+ 5.4


+ 9.9

anufacturing and mining........................
Public>utilities, transportation, and com
Retail and w
holesale trade and dealers in

JA N U A R Y 1948


All other nonfinancial #business, including
construction and services.......................




- 8.0

* Includes investment, finance, real estate concerns, insurance agencies, etc.

siderable uncertainty as to the future course of interest rates.
Trust funds of banks, on the other hand, declined 128 million
dollars or 20 per cent, owing to a reduction in trust account
balances which in some cases had been built up at the begin­
ning of the period for the redemption of securities.
Personal checking accounts, including balances of farmers,
rose only 4.0 per cent, a rate of increase less than half as great
as during the preceding thirteen months (January 1946February 1947) and approximately one-fourth the rate of
increase from January 1945 to January 1946. This reduction
in the rate o f accumulation of demand deposits in personal
accounts, together with the increase in instalment loans and
other bank loans to individuals, reflects the greater rise in con­
sumer expenditures than in incomes that accompanied the
growth in the volume of available consumer goods. Balances
of nonprofit organizations followed almost the same general
pattern of accumulation as personal accounts, but the reduc­
tion in the rate of increment was somewhat more pronounced.
Foreign account balances were drawn down 9 per cent as
payment for the record volume of purchases of goods in this
country apparently made it necessary, in addition to using
the proceeds of credits and of gold and security sales, to draw to
some extent against available dollar balances.

Demand deposit gains during the eleven-month period
were greatest in the larger banks of the District. Banks of all
Among the financial business accounts, deposit balances of
size groups shared in the rise in business balances, but the rise
insurance companies rose 351 million dollars or 43 per cent,
in personal accounts was greatest in the larger banks and in
owing mainly to sales of U. S. Government securities in the clos­
the aggregate was confined to banks with total deposits of over
ing months of 1947 and early in 1948, when there was con10 million dollars. In the smallest banks, those with deposits
under 1 million dollars, the over-all deposit increase was held
These surveys are now on an annual basis; prior to 1947 they
to virtually negligible amounts, as in these banks the increases
were conducted at approximately semiannual intervals.



in business balances were just about offset by slight percent­
age declines in personal accounts ( including those of farmers),
which constitute the greater part of the small banks’ deposit
The aggregate changes in the deposit balances of the dif­
ferent ownership groups during the whole postwar period
(July 1945-January 1948) are shown in the accompanying
table and chart, and the latter also shows changes during the last
two war years. Deposits of manufacturing and mining com­
panies showed a net decline of about 600 million dollars or 8.0
per cent in the postwar period and were virtually unchanged
between July 1943 and January 1948, as balances built up
during the war were largely disseminated in the immediate
postwar period for reconversion expenses. Public utility bal­
ances remained relatively stable during the war, rose sharply
in the immediate postwar period, reflecting the proceeds of
new capital issues, and have since been steadily reduced.
Accounts of wholesale and retail trade, "all other nonfinancial”
business (which largely represents construction and service
industries), and "all other financial” companies (consisting
of investment, finance, insurance agency, and real estate con­
cerns) rose with but minor interruptions throughout the late
war and postwar periods. Personal accounts ( including accounts
of farmers) and accounts of nonprofit organizations increased
Estimated Ownership of Business and Personal Demand
Deposits at All Commercial Banks in the
Second Federal Reserve District*


without interruption, but the rate of accumulation slowed down
in the postwar period. Insurance company deposits fluctuated
irregularly, showing a net rise of 315 million dollars from
July 1943 to date. Trust funds of banks were built up in 1945
and 1946 but have since been drawn down. Foreign accounts,
except for declines in 1943 and 1944, have fluctuated within
relatively narrow limits.

It is paradoxical that Canada, of all countries, should have
found itself during recent months in a serious economic
predicament. In the case of most of the former belligerents,
the current economic difficulties have resulted from the fact
that the war caused their output and reserves to fall below their
consumption and reconstruction requirements. But the
Canadian economy, far from having been shattered by the war,
emerged from the conflict greatly expanded and strengthened.
Canadas gross national product has more than doubled in real
terms since 1938; its living standards have markedly improved
as compared with prewar; and its labor force is fully employed.
Yet in the midst of its unprecedented boom Canada has been
going through a crisis in its international financial relations.
The roots of this crisis are rather complex.
The Canadian economy depends on foreign markets for the
sale of a large part of its total output. Even before the increase
in foreign demand for Canadian goods resulting from the
war, 27 per cent of Canada’s total output was sold abroad,
and all but about 8 per cent of these foreign sales went to pay
for imports. Although Canada’s present national product is
much larger than before the war, the distribution of this prod­
uct as between domestic and foreign markets has hardly
changed: in 1947, 28 per cent went into exports, and the export
surplus constituted only about 3 per cent of total exports.
What distinguishes Canada’s international economic posi­
tion, however, is not only the importance of foreign trade but
also the geographical distribution of that trade. The bulk of
Canada’s exports is usually sold in Europe (mainly Great
Britain), but most o f its imports come from the United
States. This multilateral arrangement gave no ground for con­
cern so long as Canada was able to use the proceeds of its
sales to Europe to pay for its purchases in the United States.
But in this respect the current situation differs radically from
that prevailing before the war. Since the war Canada’s European
customers have been largely unable to pay for badly needed
Canadian goods either by exports or by drawing on their
depleted gold and foreign exchange reserves.

* Except for latest interval, Feb. 1947-Jan. 1948, figures are semiannual since
July 1943.

Fully aware of this problem, Canada in the first eighteen
months after the war authorized credits to the extent of almost


2 billion (Canadian) dollars to its customers in Europe and
Asia. The recapturing of accustomed export markets not only
was essential for the long-run stability of the Canadian
economy, but also was a prerequisite for the maintenance of a
high level of income and employment during the critical recon­
version period. What was perhaps not clearly realized was the
close relation between the volume of exports and level of
income on the one hand, and the economy’s propensity to
import on the other. In value terms, Canada’s imports in 1947
were four times the 1938 level, and imports from the United
States were five times as large as before the war. Since Canada’s
total foreign trade was nearly balanced and since about one
quarter of the exports were sold on credit, about one quarter of
the imports had to be paid for out of previously accumulated
reserves. Moreover, since the excess of imports over cash
exports consisted mainly of purchases in the United States, the
only reserves that could be used to pay for the excess were gold
and United States dollars.
At the end of 1946, Canada’s holdings of gold and United
States dollars amounted to over 1.2 billion U. S. dollars. But
instead of forcing a rigid conservation of these international
liquid reserves, the Canadian Government, following the
example of the United States, abandoned virtually all war­
time foreign trade restrictions, thus opening the gate for
unlimited Canadian buying in the United States. Pressure
on the part of the Canadian business community appears to
have played a role in inducing this premature return to nor­
malcy. Equally important, perhaps, was the generally shared
expectation that Europe’s recovery would proceed very much
faster than it actually did, and that the European customers
of Canada would be in a position relatively soon to pay
for Canadian deliveries. The unprecedentedly large gold and
United States dollar holdings were therefore regarded as suf­
ficient to tide over the period of European insolvency, and
their rationing was thought to be superfluous. As a result, they
were used up very much faster than had been anticipated.
By the end of 1947 total Canadian gold and United States
dollar balances had declined to some 500 million U. S. dollars,
an amount barely sufficient for indispensable working balances.
The drain on Canada’s gold and United States dollar reserves
in 1947 alone amounted to almost 750 million dollars. Long
before the end of the year it had become obvious that the drain
could not be permitted to continue. It was not, however, until
November 1947 that the Canadian Government embarked
upon a dollar-conservation program. This program involved
the following measures to bolster Canada’s dollar position:
1. A credit of 300 million dollars was arranged with the
United States Export-Import Bank, maturing in 3 to 5 years.
2. Canadian residents traveling for nonessential purposes
in the United States were limited to an annual expenditure
of $150.


Certain goods that had been supplied almost exclusively
by the United States were either entirely barred from further
importation or placed under a quota system.

4. The production of many goods for which raw materials
had to be imported from the United States was discouraged
by discriminatory excise taxes.
5. Tax inducements and direct subsidies were introduced
to increase Canada’s gold output.
6. Britain’s right to draw on its credit line in Canada was
limited during the first quarter of 1948 to about 30 per cent
of the value of British net purchases from Canada.
This program appears already to have yielded valuable
results. During December 1947 and January 1948, the first
two months of the programs operation, the trade deficit with
the hard-currency area amounted to 84 million dollars, or 24
million less than in the corresponding two months in 1946-47.
This relatively small saving does not wholly measure, however,
the impact of the dollar-conservation program. There can be
no doubt that in the absence of the program the deficit would
have been much larger, if only because of price increases in
the United States. At the same time, Canada’s gold and United
States dollar holdings have not only ceased to decline but have
started to rise. From a low point of 461 million dollars in the
middle of December 1947, they increased to 527 million dol­
lars at the end of February 1948. While this increase, too, is
not very great, the situation would have been a great deal
worse but for the restrictions adopted in November.
The Canadian emergency regulations gave rise to a con­
siderable amount of criticism in Canada as well as in the
United States. One of the main arguments leveled against
them was that Canada had resorted to methods that violated
the spirit if not the letter of the nondiscrimination clauses of
the Bretton W oods agreements and of the agreements nego­
tiated in connection with establishment of the International
Trade Organization. However, the circumstances faced by
the Canadian Government called of necessity for resort, at
least temporarily, to strong measures of this sort. An over-all
curtailment of imports would have damaged the economy of
Canada as well as of other countries, while helping very little
in solving Canada’s U. S. dollar problem.
Moreover, it is generally recognized that free international
trade on a nondiscriminatory basis is hardly possible under
present world economic conditions. Such exception as may be
taken to Canada’s postwar foreign economic policy must rather
be based on the ground that it was tardy in dealing with the
balance-of-payments difficulties. Had similar restrictions been
adopted a year earlier, they would certainly have deprived
Canada of some nonessential imipbrts, but they would probably
have saved it the necessity of negotiating a loan and would



have rendered its U. S. dollar position considerably stronger
than that position is today.

ended this past February. The index figure for February was

However that may be, the chances now appear good that

one-fifth above a July 1947 low, and was approximately back

Canada will be able to reach an equilibrium in its balance of

to the postwar peak level reached at the end of February 1947.

250 per cent (1935-39 average equaling 100 per cen t), or fully

payments within a relatively short time. The adoption of

This enlargement of stocks occurred exclusively in stores

the European Recovery Program, which provides for large

outside New York City. In contrast to stores in the rest of the

"offshore” purchases outside the United States, should contri­

District, the value of whose inventories on the average

bute materially to an improvement in Canada’s dollar position.
What is more important, however, a successful implementation

increased by 7 per cent, New York City stores held 5 per cent
less merchandise, measured in dollars, at the end of February

of ERP may also lead to the general recovery of the Western

than they had held one year previously. These divergent move­

European economy, which is a prerequisite for the normaliza­

ments in stocks reflect more liberal buying on the part of out-

tion of international trade. For it is only within the framework

of-town store managements and the continued maintenance

of reestablished international economic relations that Canada

by the New York City stores of a cautious buying policy.

can resume its traditional triangular commerce with the United

Sales experience has not differed greatly between the City stores

States and across the Atlantic, and maintain its economy at a

and those elsewhere in the District. In both groups, dollar

high level of employment and income.

sales volume increased at much the same rate during 1947.

Sa l e s T r e n d s


M a jo r D epartm ents

Sales in selected departments during the first and fourth
Daily average sales in Second District department stores
during March are estimated to have been slightly greater than
in March 1947. But when daily average sales are adjusted for
the difference in the date of Easter, it is not certain that there

quarters of the fiscal year ended January 31,1948 are compared
in the accompanying chart with those during the corresponding
periods of the previous fiscal year. Sharp differences in relative
year-to-year changes in sales by departments occurred between

has been any increase at all. Although sales increased seasonally
between February and March, the increase appears to have been
smaller than might have been expected on the basis of the
early date of this year’s Easter and other seasonal factors.

Department Store Sales for Selected Departments, Second
Federal Reserve District (year-to-year percentage
changes for first and fourth quarters, fiscal
year 1^46 to fiscal year 1947*)

During the first half of March, the dollar volume of sales
averaged only 1 per cent more than during the corresponding
period of 1947. Merchants who had expected a much more
active trade in view of the early Easter attributed this disap­
pointing result largely to unfavorable weather. In many areas
outside this District, where the weather was more favorable,
sales during the first two weeks of the month were reported
to have been well ahead of those of a year ago. Sales in District
stores improved following a turn to warmer weather around the
middle of the month, and gains over last year were particu­
larly large in the few days just before Easter.
Department store stocks, measured by their retail value,
increased during February by more than the usual percentage.
After adjustment for normal seasonal variation, the aggregate
value of stocks was 7 per cent greater at the end of February
than at the end of January. The seasonally adjusted index of
the dollar value of stocks, computed by this bank from informa­
tion furnished by merchants throughout the Second District,
rose almost without interruption during the seven months

* First quarter includes February, March, and April. Fourth quarter
includes Novem ber, December, and January of the follow ing y e a r; thus the
fourth quarter of 1947 is the three-month period from Novem ber 1947 through
January 1948,


the opening and closing quarters of the past fiscal year. In
both periods the basement store made a relatively better show­


Department Store Sales and Stocks for Selected Hard Goods Departments,
Second Federal Reserve District
(Percentage changes, January 1947 to 1948)

ing than did the main store, but between the two periods
the year-to-year rate of increase for the basement store declined
from 21 per cent to 13 per cent. In contrast, sales in the
main store increased between the two periods by a stable but
much lower rate, 4 per cent. Total store sales, owing wholly
to the declining rate of expansion in basement sales, made a




M ajor household appliances..............................................

+ 2


Radios and phonographs....................................................




+ 3




+ 2

somewhat lesser year-to-year gain in the fourth quarter than
in the first quarter.
The improvement in womens apparel sales shown in the

department showed much the same changes, though to a lesser

chart reflects the success of changes in styles. In the first quar­

extent. The trend for men’s furnishings was the reverse as men

ter of the fiscal year, the year-to-year comparison was distinctly
unfavorable for the womens coat and suit department; by the

gradually refilled their wardrobes; gains were substantial in the
early part of the year and later tapered off.

last quarter, however, this department was recording marked

There has been no uniform trend in homefurnishings depart­

gains over the corresponding period a year earlier. The dress


Furniture sales, which bulk largest among home­

furnishings, tended to show strong improvement at the fiscal
year’s end, as did sales of floor coverings and many other
Department and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year

household goods. Sales of major household appliances— refri­
gerators, washing machines, and similar items— were unable to
maintain the extremely high year-to-year increases of the first

Net sales

Stocks on
Feb. 29, 1948

quarter. A large drop from the unusual gains of the first quar­

Feb. 1948

Jan. and
F e b .1948

Department stores, Second D istrict-----

+ 8

+ 6


last quarter, appliance sales were making gains no better than

New Y ork C it y ......................................
Northern New Jersey...........................
N ewark................................................
Westchester C ounty..............................
Fairfield C ou n ty....................................
B ridgeport...........................................
• Lower Hudson River V alley...............
Upper Hudson River V alley...............
A lb a n y.................................................
Central New Y ork S tate.....................
Mohawk River V alley.....................
U tica.................................................
Northern New Y ork State..................
Southern New Y ork State...................
Bingham ton........................................
Elm ira..................................................
Western New Y ork State....................
B uffalo..................................................
Niagara Falls......................................
R ochester.............................................

+ 6
+ 9
+ 8
+ 2
+ 4
+ 3
+ 7
- 1
- 7
+ 6
+ 12
+ 15
+ 7
+ 7
- 1
+ 14

+ 5
+ 6
+ 6
- 2
+ 4
+ 2
+ 6
+ 2
- 4
+ 8
+ 12
+ 8
+ 5
+ 4
+ 8
+ 12
- 2
+ 13

— 5
+ 8
+ 5
- 3
+ 7
+ 7
+ 6
+ 7
- 1
+ 4
+ 17
+ 11
- 3
+ 6
+ 7
+ 3

those made by some other homefurnishings for which the
demand had been less pressing (since their production had

Apparel stores (chiefly New Y ork C ity ).







ter had been expected, but not to the extent realized. By the

never been completely discontinued). As a matter of fact, the
rate of sales increase achieved by the major appliances depart­
ment has narrowed so sharply that for the last month of the
fiscal year, January 1948, the year-to-year increase was a modest
2 per cent. For the entire quarter ended in January, the
increase was 11 per cent, as against almost 200 per cent for the
first quarter. Clearly, at the end of the fiscal year the supply
situation had improved considerably and the most urgent
needs had been filled. As shown in the table above, depart­
ment store stocks of major appliances, and of most other "big
ticket” hard lines, were substantially larger at the end of January
1948 than they were a year earlier. There have been numerous
reports of intensified competition among appliance and radio

Indexes of Department Store Sales and Stocks
Second Federal Reserve District

specialty shops. Spotty, but in some cases considerable, price

(1935-39 average = 100 per cent)

cutting has been reported, even on top-brand equipment, usually
through trade-in allowances.


This indicates that increased

inventories and lagging sales in hard lines were not limited






to department stores. January year-to-year changes in depart­

Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..





ment store furniture sales and stocks stood in sharp contrast

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





r Revised.

to the trends in the other categories of hard goods shown in
the table. Furniture stocks were slightly larger than a year
ago, but the increase in sales was substantially greater.


Indexes o f B usin ess


Industrial production*, 1935-39 = 100........
(Board of Governors, Federal Reserve
Electric power output*, 1935-39 = 100........
(.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 em ployment
United States, 1939 = 100.............................
(Bureau of Labor Statistics)
New Y ork State, 1935-39 = 100................
(New York State Department of Labor)
Factory payrolls
United States, 1939 = 100...........................
(Bureau o f Labor Statistics)
New Y ork State, 1935-39 = 100................
(New York State Department of Labor)
Personal Incom e*, 1935-39 = 100.................
(Department o f Commerce)
Composite index of wages and salaries*!,
1939 = 100.......................................................
(Federal Reserve Bank of New York)
Consumers’ prices, 1935-39 = 1 0 0 .................
(Bureau of Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100
(.Federal Reserve Bank of New York)
New Y ork C ity ..............................................
Outside New Y ork C it y ..............................






















156 p




131 p













183 p




301 p


The Board of Governors of the Federal Reserve
System has recently published a technical paper en­
titled Debits and Clearings Statistics, Their Back­
ground and Interpretation, prepared by George
Garvy, Chief of the Domestic Research Division
of the Federal Reserve Bank of New York. Broadly
stated, the purpose of the paper is to determine the
effectiveness o f two long established and widely
used series of banking statistics in reflecting basic
economic processes. The author has undertaken to
explain differences in the composition of the debits
and clearings series and has offered suggestions for
improvement of the debits series. This publication
is being sold at a price of 25 cents for single copies,
and at 15 cents per copy in quantities of 10 or





more. All orders should be addressed to the Divi­
sion of Administrative Services, Board of Gov­

* Adjusted for seasonal variation.
p Preliminary.
# Dollar figures for 1946 and 1947 and seasonal adjustment factors from 1942 to
date have been revised.
t A monthly release showing the 15 component indexes of hourly and weekly
earnings computed by this bank will be sent upon request Tabulations of the
m onthly indexes, 1938 to date, together with information on com ponent series,
sources, and weights, and reprints of articles describing the indexes may also
be procured from the Research Department, Dom estic Research Division.

ernors of the Federal Reserve System, Washington
25, D. C.



National Summary o f Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System, March 25, 1948)
of manufactures and minerals continued to show little change in February. Depart­
ment store sales increased by about the usual seasonal amount in February and the first half
of March. Wholesale prices generally showed little change following marked declines in farm
products and some other commodities from mid-January to mid-February.



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

Federal Reserve indexes. Monthly figures; latest
shown are for February.

Industrial production was maintained in February at the January rate of 193 per cent of
the 1935-39 average, according to the Board’s seasonally adjusted index.
Output of durable goods declined slightly in February, partly because unusually severe
weather conditions led to a curtailment of activity in a number of lines early in the month.
Steel production, however, was maintained at the January rate and scheduled operations were
increased in the first three weeks of March. Activity in the machinery and transportation equip­
ment industries declined somewhat in February. Automobile production was sharply reduced
in the first two weeks of the month but recovered to earlier postwar peak rates during the last
half, and has been maintained at a high level in March. Output of most other durable manu­
factures showed little change from the January level.
Activity in nondurable goods industries in February, after allowance for seasonal variation,
was slightly above the January rate. Textile mill activity was maintained at the record level
reached in January. Distillers’ output of alcoholic beverages is estimated to have increased
sharply in February, following the end of limitations on grain usage. Newspaper publishing
activity, as reflected in newsprint consumption, showed a substantial gain. Output of manufactured
food products was maintained at the level of recent months, notwithstanding a further decline
in meat production. Activity in most other nondurable goods industries continued at the January
rate or declined slightly.
Output of minerals in February was maintained at the January level. Bituminous coal pro­
duction declined 4 per cent, while output of anthracite, crude petroleum, and metals advanced.
In the middle of March bituminous coal output was sharply reduced by a labor-management









F. W . Dodge Corporation data for 37 Eastern
States. Other includes nonresidential build­
ings and public works and utilities.
Monthly figures; latest shown are
for February.


ploym ent

Employment in nonagricultural establishments in the middle of February was slightly below
the January level, after allowance for seasonal changes. The decline reflected mainly the effects
of unusually severe weather conditions on activity in industries manufacturing durable goods,
and also in mining and construction. The number of persons unemployed increased and was
150,000 larger than in February 1947.
C o n s t r u c t io n

Value of construction contracts awarded, according to the F. W . Dodge Corporation, rose
somewhat more than seasonally in February reflecting largely an increase of one-fourth in awards
for public types of construction. Private residential awards showed little change as an increase
in contracts for apartment buildings was offset by a decline in awards for single family homes.
According to Department of Labor estimates the number of dwelling units started was 50,000
in January and 47,000 in February, as compared with a total of 84,000 in the same two months
in 1947.

is t r ib u t io n

Department store sales increased seasonally in February and the early part of March but
the Board’s seasonally adjusted index of sales continued somewhat below the average level in
the fourth quarter of 1947.
Carloadings of railroad freight during February and the first half of March were somewhat
below year-ago levels. Shipments of grain and livestock products were 30 per cent smaller,
loadings of forest products and merchandise in less than carload lots were less by about 10 per
cent, while shipments of most other classes of freight were at the same levels as in the corre­
sponding period of 1947.
C o m m o d i t y P r ic e s

Federal Reserve indexes. Monthly figures; latest
figure for sales is February, latest for
stocks is January.

PER CENT______________________________________________________________________ PER CENT







Weekly averages of daily figures compiled by
Federal Reserve from data reported by U. S.
Treasury Department; latest shown are
for week ended March 20.

Prices of farm products rose somewhat from mid-February to mid-March, following the
sharp declines in the preceding four weeks. Prices of some industrial materials, like leather and
cotton fabrics, however, declined further, and prices of most types of finished industrial products
continued unchanged.
Prices of foods in wholesale and retail markets, which had generally been reduced by 3 to
5 per cent from mid-January to mid-February, showed little change through the middle of March.
In the third week of the month wholesale meat prices advanced, reflecting the effects of the
industrial dispute in the packing industry.
Ba n k

C r e d it

Tax receipts in February and the first half of March in excess of Treasury payments shifted
deposits from accounts of individuals and businesses at commercial banks to Treasury balances
at the Reserve Banks. As a result of these deposit transfers, over 1.5 billion dollars were drained
out of bank reserve balances. Banks received some new reserve funds from further gold inflows
and a small return of currency from circulation. Federal Reserve purchases of Government
securities in the market supplied the remainder of the funds required to maintain member bank
reserve positions.
Further purchases of Treasury bonds were made by the Federal Reserve in support of the
market prices of these issues, although after mid-February market conditions were stronger and
the volume of such purchases was greatly diminished. Total holdings of Government securities
at the Reserve Banks continued to decline, reflecting Treasury use of its current cash surplus
and of a part of its deposit balances to retire about 2.8 billion dollars of securities held by the
Reserve Banks.
Required reserves of member banks in New York and Chicago were increased by about
500 million dollars on February 27, the effective date for an increase in their reserve require­
ments against net demand deposits from 20 to 22 per cent.
Government security holdings at banks in leading cities declined during February and early
March. Real estate loans continued to expand. Commercial and industrial loans declined some­
what at banks in New York City and showed little change at banks in other leading cities.