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MONTHLY REVIEW
o Ce it a dB s e sCn it n
f r d n uin s o d io s
S e c o n d

F e d e r a l

R e s e r v e

D is tr ic t

A ugust 1,1942

Federal E eserve B ank, New Y ork

M o n e y M a r k e t in July
The declining tendency of member bank excess
reserves, which had been interrupted during June,
was resumed in July. At $2,070,000,000 on July 15,
excess reserves of all member banks were about
$700,000,000 below the level prevailing during most of
June. The drop was relatively much more pronounced
in New York City than in other parts of the country.
From a level in excess of $500,000,000 during the first
three weeks of June, excess reserves of the Central
Reserve New York City banks fell as low as $190,000,000
at the middle of July. As a result of a subsequent partial
recovery, excess reserves on July 29 amounted to
$2,200,000,000 for all member banks and to $255,000,000
for the New York City banks.
The dominant factor in the reduction in member bank
excess reserves during the latter part of June and the
first half of July was a rapid building up
of Treasury deposits with the Federal
Reserve Banks— to nearly $950,000,000.
By way of contrast, Treasury deposits with
Federal Reserve Banks had reached so low
a level on several days just after the middle
of June as to require ‘ ‘ overdrafts99 (cov­
ered by borrowing on special one-day cer­
tificates of indebtedness) at the Reserve
Banks. One of the largest factors in the
rise in Treasury deposits with the Federal
Reserve Banks was that of cash payments
for the $2,097,000,000 of 2 per cent bonds
of 1949-51 sold on July 15. Not only was
the issue of unusual size— representing
the largest single “ new money’ 9 offering
by the Treasury in twenty-three years—
but the percentage of cash payments, as
opposed to “ book credit” payments,
was greater than on other recent Treas­
ury offerings.
On the June issue of
$1,588,000,000 certificates of indebtedness,
for example, cash payments came to 34
per cent of the total, whereas on the July
issue of 2 per cent bonds the corresponding
figure was 43 per cent. The breadth of

FOR

VICTORY




★

Buy United

distribution of the new bonds, and general participation
in the issue in sections of the country where excess
reserves have been relatively largest, may have accounted
for the higher proportion of cash payments. The New
York City banks absorbed only an eighth, and weekly
reporting member banks throughout the country a third,
of the new bonds; in comparison, the New York City
banks took a fifth of the June certificates of indebtedness
and all weekly reporting member banks one half. Of total
allotments of $834,000,000 of the bonds to Second District
banks and their customers, only $219,000,000, or a quarter,
were paid for in cash— about the same proportion as on
other recent issues.
Also contributing to the building up of Treasury
deposits with the Reserve Banks were an enlarged volume
of Savings bond sales and the issuance of calls for
repayment of Government funds accumulated in com­
mercial bank depositaries on “ war loan account” . The
calls for repayment, during the period
June 29-July 10, reached a total of
$850,000,000.
Moreover, $300,000,000
Treasury bills were sold on July 1, and
again on July 8, dates when there were
no maturing bills. Weekly Treasury bill
offerings were further stepped up to
$350,000,000 on July 15, but the “ book
credit” method of payment was permitted
on the issues of July 15 and 22, and, since
there were $150,000,000 bill maturities
each week, these two bill offerings had
relatively little net effect on bank reserve
balances. Government expenditures, rep­
resented by Government checks drawn
upon Treasury deposits with the Reserve
Banks, were of record-breaking propor­
tions, but even so fell well short of the
cash receipts during the period from June
24 to July 15.
Between July 15 and July 22 Treasury
balances with the Federal Reserve Banks
were drawn down to $300,000,000, and
there was a partial recovery in member
bank excess reserves.
The Treasury
did not find it necessary, until July 24,

States

W ar

Savings

Bonds

and

Stamps

58

MONTHLY REVIEW, AUGUST 1, 1942

B IL L I O N S

R eserve B alances o f M em b er B an k s in the Second Federal R eserve
D istrict, and in A ll O ther D istricts

to call for further repayments of Government funds
in commercial bank depositaries, which were raised to a
total of over $2,500,000,000 as a result of book credit
payments for the 2 per cent bonds and Treasury
bills.
On July 24, 27, 30, and 31, however, calls
were made for repayment of more than $600,000,000
from the “ war loan” accounts, and these funds, together
with $200,000,000 realized from Treasury bills on July
29, and month-end enlargement of sales of Savings bonds
and tax anticipation notes, served to hold Treasury
deposits with the Eeserve Banks at a fair working level.
Rising reserve requirements and further expansion in
currency circulation, which for some time have been the
major factors in the downward trend in excess reserves,
played important parts in cutting into excess reserves
in July. Between June 24 and July 29, reserve require­
ments, through expansion in deposits associated with
additions to bank investment portfolios, increased by
$470,000,000, and over the same period net withdrawals
of currency from the Reserve Banks to meet payroll and
other requirements came to more than $400,000,000.
The principal offset to these factors tending to reduce
member bank excess reserves was provided by Federal
Reserve Bank purchases of Government securities for the
System Open Market Account. The net increase in
System Account holdings of Government obligations
amounted to about $525,000,000 during the five weeks
ended July 29. Purchases, largely concentrated between
June 24 and July 15 when excess reserves were rapidly
falling, were predominantly of certificates of indebted­
ness and Treasury bills, which were being offered by
banks, particularly in New York City, in the adjustment
of their reserve positions. With the improvement in
member bank positions after the 15th, the scale of open
market purchases for System Account was much reduced.
Treasury bond prices remained steady throughout July,
despite the shrinkage in excess reserves, and there was
little occasion for System Account operations in main­
taining stable markets for such obligations.
Between the first week in November, 1941, when legal
reserve requirement percentages were raised to their
statutory maxima, and July 29 of this year, System
Account holdings of Government obligations increased




by $925,000,000. This increase, of which half occurred
during the three weeks ended July 15, has had the effect
of moderating the decline in excess reserves. Despite
the effect of these purchases in replenishing bank reserves,
however, excess reserves of all member banks dropped
by about $1,200,000,000 over this nine months’ period.
Between November 5 and July 29, member bank excess
reserves were cut into to the extent of more than
$2,200,000,000 through expansion in currency circulation,
and almost $1,200,000,000 through rising reserve require­
ments resulting from deposit expansion.
During the nine months’ period, a major part of the
reduction in excess reserves has occurred at New York
City banks (although Central Reserve City banks in
Chicago also have had a similar loss of excess reserves).
Federal Reserve open market operations, mainly con­
ducted in New York, prevented a much more extensive
change in bank reserve positions in this District. In
addition to net currency withdrawals of $420,000,000,
and a rise in reserve requirements of $380,000,000, excess
reserves of Second District banks tended to be drawn
down by an outflow of funds from this area to other
parts of the country. As indicated in the accompanying
chart, reserve balances of the banks in the Second Federal
Reserve District have been showing a declining tendency
for more than a year, while reserve balances in other
Districts have been maintaining a general level somewhat
in excess of $7,000,000,000 since last September.
As excess reserves of the New York City member banks
dropped off during the first half of July, losses of reserve
funds were unevenly distributed among various institu­
tions and in consequence there was increased activity
in the market for ‘ ‘ Federal funds ’ ’. That is to say, banks
which might otherwise have been deficient in reserves
borrowed, on a day-to-day basis, reserve funds from banks
whose reserve balances were well in excess of their reserve
requirements. While such transactions were frequent
around the middle of July, the rate paid was unchanged
from its previous level of one-quarter per cent. Most
borrowings of Federal funds were repaid during the
third week of the month as aggregate excess reserves of
the New York City banks recovered and as the distribution
of excess reserves, among the individual banks, became
more balanced.
M ember B ank Credit
From June 24 to July 22 total loans and investments
of weekly reporting member banks in 101 cities increased
$1,809,000,000, reflecting primarily participation in mar­
ket offerings of new Government securities. Total Gov­
ernment security holdings of reporting New York City
banks expanded by $596,000,000 and for the banks in
the 100 cities outside New York the increase amounted to
$1,261,000,000. Over the four weeks’ period, holdings
of certificates of indebtedness rose $264,000,000 for New
York City banks and $520,000,000 for banks in the
other reporting centers, while holdings of Treasury
bonds rose $219,000,000 and $509,000,000, respectively.
Accompanying a $950,000,000 increase in the outstanding
supply of Treasury bills between June 24 and July 22,
reporting banks in New York City added to their holdings
of bills to the extent of $145,000,000, and banks in the
other centers enlarged their holdings by $222,000,000.

59

FEDERAL RESERVE BANK OF NEW YORK

During the four weeks ended July 22 total loans of
weekly reporting member banks in 101 cities increased
$46,000,000, a rise resulting from an expansion of
$175,000,000 in loans to brokers and dealers in securities
(practically all in New York City), offset to a large extent
by contraction in almost all the other loan items. Com­
mercial, industrial, and agricultural loans declined
$14,000,000 further in New York City and $61,000,000
in the out-of-town centers. Most of this decline in New
York City occurred in the week ended July 1 when pay­
ments on a long term loan were made by a large oil
company. Since the peak of March 18 such loans have
fallen off $231,000,000 in New York City and $374,000,000
in the 100 other cities.
As a result of extensive use of the book credit method
of payment for new Government securities sold during
the period, Government deposits held by reporting mem­
ber banks showed a net increase of $1,401,000,000 to
$2,053,000,000. About half of the increase was accounted
for by the New York City banks.
Adjusted
demand deposits rose $45,000,000 in New York City and
$320,000,000 in the 100 other centers.

BILLIONS

1942

O utstand in g V o lu m e o f T reasu ry B ills, Classified a s to O wnership

G overnment Security M arket

in

July

Only minor fluctuations disturbed the even tenor of
the Government security market during July, as trading
continued light. Thus, the average yield on long term
partially tax exempt Treasury bonds was 2.00 per cent
at the end of the month as at the beginning, while the
average yield on long term taxable Treasury bonds held
close to 2.34 per cent. The “ tap” issue, the 2 % per
cent taxable Treasury bonds of 1962-67 sold in May,
became negotiable (except that commercial banks are
not eligible to purchase this issue until 1952) for the
first time on July 6 and has been recently quoted at about
a Ys point premium, equivalent to a yield of 2.48 per cent.
Yields on intermediate term Treasury bonds generally
showed little change during July, although the Treasury
offering on July 8 of $2,000,000,000 of taxable 2 per cent
Treasury bonds of December 15, 1949-51 was reflected
in a slight rise in the yields of outstanding taxable Treas­
ury bonds of comparable maturity. Subscription books
on the new bonds, which were dated July 15, were kept
open for two days and primary distribution of this
new issue was wider than on several previous issues.
Subscriptions totaled $3,849,000,000 and were allot­
ted on a 52 per cent basis for amounts over $25,000.
Subscriptions in amounts up to and including $25,000,
totaling $196,000,000, were allotted in full. Allotments
totaled $2,097,000,000. The new 2 per cent bonds were
quoted slightly above par during the entire month
(100 3/32 bid on July 30).
The average yield on three to five year taxable Treas­
ury notes during the latter part of July rose to 1.23
per cent, a new 1942 high. Yields on most tax exempt
Treasury notes also rose somewhat.
For the third time in as many months, weekly offerings
of Treasury bills were increased during July. The
issues of July 1, 8, and 15 were in the amount of
$300,000,000; the two subsequent offerings were raised
to $350,000,000. Treasury bill maturities during the
month came to $450,000,000. Consequently, the Treas-




ury obtained $1,150,000,000 in “ new money” through
its weekly bill transactions during July.
The Treasury bill rate in July continued stable and
close to the % per cent buying rate of the Federal
Reserve Banks. All five Treasury bill offerings during
July were of 91 day term.
As indicated in the accompanying chart, the substan­
tial enlargement of the outstanding supply of Treasury
bills, together with the more attractive rates prevailing
on them, has had the effect of inducing a substantially
broader interest in and market for these securities.
Between April 15 and July 22 the outstanding volume
of Treasury bills expanded from $1,950,000,000 to
$3,460,000,000, or $1,510,000,000. Of this increase, only
15 per cent ($219,000,000) was accounted for by enlarged
holdings of New York and Chicago banks; weekly report­
ing member banks outside these cities took $419,000,000
or 28 per cent of the increase, and banks not included in
the weekly reporting group, together with other investors,
took $398,000,000 or 26 per cent. Net purchases of Treas­
ury bills by the Federal Reserve Banks came to
$474,000,000 over this period, equivalent to 31 per cent
of the expansion in the outstanding supply.
M oney Rates in New York
July 31, 1941 June 30, 1942 July 30, 1942
Stock Exchange call lo a n s ........................
Stock Exchange 90 dav loans...................
Prime commercial paper—4 to 6 months
Bills— 90 day unindorsed..........................
Yield on % per cent Treasury note due
March 15, 1945 (tax exem pt)..............
Average yield on taxable Treasury notes
(3-5 yea rs)...................................................
Average yield on tax exempt Treasury
bonds (not callable within 12 years).
Average yield on taxable Treasury bonds
(not callable within 12 y e a r s )............
Average rate on latest Treasury bill sale
91 day issue.................................................
Federal Reserve Bank of New York dis-

1
*IM

I
*1%

1

X

V s -u

%

%

0 .3 4

0 .5 6

0 .6 3

1 .1 7

1 .2 2

1 .9 6

2 .0 0

2 .0 0

H -H
0 .5 6

* Nominal

t 85 day issue

2 .3 5

2 .3 4

0 .3 6 2 f

0 .3 6 9

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

2 .0 9
0 .0 9 4

1
X

1
X

X

60

MONTHLY REVIEW, AUGUST 1, 1942

Security M a rk e ts

W a r Savings B o n d s

As a result of some further advance during July,
added to that of the two preceding months, the major
portion of the decline in stock prices earlier in the year
has been erased. During the first half of July, Stand­
ard’s price index of 90 stocks rose 6 per cent to a point
only 3 per cent below the 1942 high set on January 5.
Little movement was shown by stock quotations subse­
quently until July 23 when the Treasury’s request for
more severe tax legislation had a depressing effect on
stock prices. For the month as a whole, the stock
price index recorded a net advance of 3 per cent, as
the volume of trading on the New York Stock Exchange
picked up somewhat.
Medium grade domestic corporate bonds moved
slightly higher during July to close the month at a
level about % of a point below the year’s high, measured
by Moody’s Baa index. The extreme range for the year
has been only 1 % points for these bonds. High grade
corporate bonds continued inactive at or near the year’s
high; interests which usually dominate this market have
turned increasingly to Treasury securities.
By July 29, according to Standard’s index, prices of
prime municipal bonds had canceled the sharp decline
which followed the Treasury’s recommendation to Con­
gress last January that income from outstanding, as
well as future, issues of municipal bonds be made sub­
ject to Federal taxation. The average yield on prime
municipal bonds computed by Standard and Poor’s
Corporation stood at 2.29 per cent on July 29, as
compared with 2.35 per cent on June 24.

Owing to intensified sales efforts, in combination with
the raising of the limitation on purchases of Series F
and G bonds (from $50,000 to $100,000 effective July
1), total sales of War Savings bonds were sharply higher
in July. On the basis of reports through July 27, it is
estimated that total sales came to more than $900,000,000,
which would be within $100,000,000 of the amount set
by the Treasury early in May as the National quota for
July. This figure, which compares with $640,000,000
in June, and $342,000,000 in July, 1941, was exceeded
only in January, 1942, when numerous purchases of all
series of War Savings bonds were made in the full
amounts then permitted individual subscribers under
Treasury Department regulations. Secretary Morgenthau
recently announced that present plans of the Treasury
call for a continuance of the voluntary Savings bond
sales program coupled with a National quota of
$1,000,000,000 every month.
Sales of Savings bonds in the Second Federal Reserve
District by agencies other than post offices were, with
the exception of January, 1942, the highest on record.
For the period July 1 to 30, sales by or reported to this
bank amounted to $186,000,000, as compared with
$117,000,000 for the full month of June. From May 1,
1941, to date such sales have accounted for about one
fifth of the total (including post office sales) for the
entire country.
In addition to the pledge campaign conducted by the
Treasury Department during July, moves were initiated
to expand the number of outlets for the sale of Savings
bonds to the general public. Whereas post offices, banks,
and certain other financial institutions and corporations
were heretofore permitted to issue Savings bonds of Series
E to the public, hundreds of retail stores and radio sta­
tions have recently been invited by the Treasury Depart­
ment to become issuing agents, and regulations have been
liberalized to allow many organizations to obtain bond
supplies for sale without the necessity of posting collateral
or paying in advance for the bonds. On J uly 18, qualified
issuing agents for the sale of W ar Savings bonds num­
bered 23,800 (exclusive of post offices) for the entire
country; about 2,500 of these were located in the
Second Federal Eeserve District.

Foreign E xch anges

Fluctuations in the rate for the “ free” Swiss franc
marked an otherwise quiet New York foreign exchange
market during June. Quotations for the “ free” franc
turned upward on July 2 and advanced gradually until
July 15 when a rather abrupt rise occurred in an
extremely thin market. By July 16, a high of $0.3160
had been reached. Following the appearance of some
offerings of this type of exchange, the rate reacted
quickly and at the end of July was quoted at $0.3035, as
compared with $0.2910 a month earlier. Except for
some appreciation in the free rate for the Argentine peso
in the latter part of the month, other foreign exchanges
held steady vis-a-vis the dollar. On July 30 the Argentine N e w F inancing
peso was quoted in the free market at $0.2379, or 16
Reflecting a sharp decline in corporate flotations, the
points above the end of June quotation.
As to the Cuban peso, which continued to be quoted volume of corporate and municipal new financing fell
at par with the United States dollar, an agreement de­ off from $170,000,000 in June to $97,000,000 in July,
signed to assist the Cuban Government’s operations to the lowest level for any month in more than four years.
stabilize the peso vis-a-vis the dollar was signed on Corporate security issues during the month totaled only
July 6. Under the terms of the agreement, gold may $45,000,000, or about one third of the average monthly
Of this
be purchased from the United States by the Republic volume during the first half of the year.
of Cuba with payment to be made within 120 days corporate total, only $20,000,000 represented funds to
after delivery, provided the unpaid amount shall not be used for new capital purposes.
exceed $5,000,000 at any time.
The principal corporate offering during the month was
On July 10 the Chinese Stabilization Board lowered that of $35,000,000 Celanese Corporation of America
the rates for the Chinese yuan to 5 1/16 cents in terms 3 % per cent debentures due in 1962, priced at 99% to
of the United States dollar and 3 1/64 pence in terms of yield 3.54 per cent. The largest municipal award was
the pound sterling. This was the first change since that of $17,100,000 City of Detroit, Michigan, refunding
September, 1941, when the quotations of 5 11/32 cents bonds maturing from 1943 to 1962, priced to yield from
and 3 3/16 pence were established by the Board.
0.60 to 2.60 per cent.




6
1

FEDERAL RESERVE BANK OF NEW YORK

Temporary financing, not included in the above totals,
amounted to $166,100,000, nearly all of which was
accounted for by the following issues: $45,000,000 City of
New York revenue bills, $35,000,000 Federal Inter­
mediate Credit Bank consolidated debentures, and
$83,100,000 short term notes of several local housing
authorities.

PER CEN T

P rodu ction and T ra d e
During the first half of 1942 production of munitions
was one and one-half times as great as in the entire year
1941, according to a report issued by Chairman Nelson
of the War Production Board. In June, the output of
war material, including planes, ships, tanks, guns,
ammunition, and equipment, was nearly three times as
large as in November, 1941, the last month before our
entry into the war. According to present indications, a
further gain presumably occurred in July.
The War Production Board has approved the prin­
ciple of concentrating the production of essential civilian
goods in certain plants and regions to utilize the nation’s
industrial facilities more effectively. The W .P.B. will
select “ nucleus plants” to produce essential consumer
goods at or near capacity. As a general rule, small
plants, will be kept in operation on civilian work and
the larger ones will be devoted to war work. The
concentration plan will involve simplification and stand­
ardization of many products and consolidation of dis­
tribution channels. The plan was put into operation on
an experimental basis by the W .P.B. in the case of the
domestic cooking and heating stove industry last May.
On the basis of data now available for July, industrial
activity as a whole appears to have at least maintained
the record level reached in June. The steel mills con­
tinued to operate at virtually full rated capacity, and
electric power production and loadings of railway freight
during the first four weeks of the month averaged some1941
June

1942
April

M ay

June

Indexes of Production and Trade*
(100 = estimated long term trend)
Index of Production and T r a d e f ..............

112

114

113p

114p

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

115

121

121p

123p

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

122
125
119

146
163
126

148p
167p
125p

152p
175p
125p

Consumers’ goods— to ta l.....................
Consumers’ durable goods..............
Consumers’ nondurable goods___

108
115
105

89
47
103

87 p
4 5p
lO lp

88p
45 p
103p

Durable goods— total............................
Nondurable goods— t o t a l ...................

122
111

129
112

131p
lllp

137p
112p

Primary distrib u tion !...............................
Distribution to consum er........................
Miscellaneous services...............................

114
104
102

131
89
118

133p
85 p
120 p

133p
82p
119p

105

115

116

116

123

133

134p

63
93

57
85

66
88

Cost o f Living , Bureau of Labor Statistics
(100 = 1935-39 average)...............................

Wage Rates
(100 =

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

Velocity o f Demand Deposits*
(100 = 1935-39 average)
New York C it y .................................................
Outside New York C it y ................................

p Preliminary.
* Adjusted for seasonal variation.
t These indexes have been revised Jan., 1940 to date.
are available upon request.




61
85

The revised indexes

T otal Car Loadings and R evenue T o n -M ile s o f Freight H auled
b y the R ailroads, A d ju s te d for Seasonal Variation
( 1 9 3 9 a v e r a g e s 1 00 per cen t)

what higher than in June. The mining of bituminous
coal and the output of crude petroleum, however, appear
to have declined somewhat.
P roduction

and

T rade

in

June

The monthly index of production and trade computed
at this bank rose from 113 per cent of estimated long
term trend for May (revised) to 114 for June.
The
indexes for recent months have been revised to take
account of the substantial increase that has occurred in
ton-miles of railway freight carried in comparison with
the number of cars loaded.
The increase in the total index between May and June
was due to a rise in productive activity to a new peak.
Most of the gain in production during June was
associated with a further substantial increase in the
“ producers’ durable goods” group (which includes
much of the war production), as newly constructed or
converted plants swung into active operation on war
contracts.
There was a further slackening in the volume of retail
trade in June, seasonal factors considered, but the decline
was less pronounced than in the four preceding months.
Sales by department stores and mail order houses
declined more than usual in June, while sales by chain
store systems were relatively well maintained.
R evision

of

I ndex

For many years ton-miles of freight per car loaded
(i.e., the ratio between ton-miles of freight moved and
car loadings) increased gradually through such factors
as an increase in the proportion of long-haul freight
traffic and employment of larger cars. As the accom­
panying chart indicates, however, divergent tendencies
between the two series have increased rapidly during
the past year or two. The very rapid expansion in tonmiles per car loaded that has recently taken place reflects
a much more intensive use of railway equipment under
the pressure of the war emergency.
As long as ton-miles per car loaded increased gradually,
car loadings provided a satisfactory measure of railway
freight traffic for the purposes of this bank’s production

MONTHLY REVIEW, AUGUST 1, 1942

62

and trade indexes, since ton-miles expressed in terms of
per cent of their estimated long term trend showed a
fairly close resemblance to car loadings, similarly
expressed. But the disparity between the two series has
recently become so marked that the use of car loadings
figures has led to substantial understatement of the vol­
ume of freight being handled by the railroads. For this
reason the index of production and trade and the index
of primary distribution have been revised back to Janu­
ary, 1940, a series of data on revenue ton-miles of railway
freight carried being substituted for two series on railway
freight car loadings.

E m p lo y m e n t and P ayrolls
The total number of persons employed in the United
States during June, 1942 was 53,300,000 (exclusive of
members of the armed forces), the highest level on record,
according to estimates of the Work Projects Administra­
tion. This represents an increase of 1,700,000 persons
over May, largely owing to the seasonal upswing in
agricultural employment, and a rise of 3,000,000 since
June, 1941. Unemployment in June was estimated at
2,800,000 persons (including public emergency workers),
only half the number unemployed a year previous and
only one-third the number out of work in June, 1940.
In recent months, manufacturing employment in the
United States has gradually risen, as is shown in the
accompanying diagram, and more persons have been
engaged in factory work than ever before. The large
additions to working forces at war plants have more
than offset layoffs due to normal seasonal movements or
to material shortages and curtailed employment during
plant conversion to war work. The average number of
hours worked per week has also been increasing, and, as
a result, the total number of man-hours worked in
United States factories, which measures labor “ input”
in manufacturing and hence represents a kind of over­
all measure of production, rose above the already high

level prevailing prior to the entrance of the United States
into the war. The increase in man-hours employed in
war production, of course, has been much greater, owing
to the shift from civilian to war work in many lines.
During the period of the National defense program, the
greater part of the rise in man-hours was due to increased
working forces, which showed a gain of 30 per cent
between June, 1940 and December, 1941; average work­
ing hours rose 10 per cent during the same period.
Since December, however, the percentage increase in
working hours has tended to be greater than the rise in
employment.
During June, employment in New York State factories
decreased 3 per cent from the May level and payrolls
were 3 % per cent smaller, according to the New York
State Department of Labor. Large layoffs in civilian
goods plants, especially those manufacturing apparel,
more than offset the continued hiring of new employees
by most war goods plants. The apparel industry laid off
one sixth of its previous working force during June;
the decline was largely seasonal in character, although
material shortages and uncertainty regarding Govern­
ment style and price control regulations were also
reported to have been factors.
Other employment
declines during the month occurred at textile mills, shoe
factories, and plants producing nonessential metal goods.
Compared with June, 1941, however, factory employment
was 8 per cent higher and payrolls were 27% per cent
greater.
In New York City factory employment dropped 9
per cent between May and June mainly in reflection of
large decreases in the apparel lines. Substantial curtail­
ment in employment was also reported by New York City
manufacturers of food products, textiles, and metals and
machinery. In Upstate New York as a whole there was
a slight increase in employment over May. Compared
with June, 1941, working forces in New York City were
only 2 per cent greater, while in the rest of New York
State employment gained 12 per cent during the year.

P ER C E N T

B u ild in g

HOURS

) 1
I I I
AVERAGE HOURS
WORKED PER WEE?K

\
1939

1940

194 1

1942

Indexes ( 1 9 3 5 -3 9 = 1 0 0 ) o f M a n -H o u rs of E m p lo ym en t and N um ber
E m ployed in M an u factu rin g , and A v e ra g e H ou rs W o rk ed
P er W e e k (B a sed on B ureau o f L abor S ta tistic s
data, plotted on equ ivalent ratio s c a le s)




During the first half of 1942 the total volume of con­
struction contract awards reported by the F. W . Dodge
Corporation for New York State and Northern New
Jersey was about 20 per cent larger than in the corre­
sponding period of 1941. Compared with the first half
of 1940, at the start of the defense program, awards
in this region have increased about 55 per cent.
As the accompanying chart indicates, this latter
increase has not been evenly distributed throughout the
district. In Upstate New York the volume of awards
more than tripled between the first halves of 1940 and
1942, and in Northern New Jersey the gain between the
two periods amounted to 175 per cent. In contrast, the
volume of contracts awarded during the first half of
1942 in the Metropolitan New York City area was onethird below the corresponding period of 1940. While
in Upstate New York and Northern New Jersey the
increase in contracts awarded for public construction
connected with the war program has much more than
offset a falling off in private construction, in New York
City the influence of the war program has been relatively
slight.

FEDERAL RESERVE BANK OF NEW YORK

subsidy, effective August 1, however, will absorb part of
the increased cost of transporting petroleum products.
The added expense of moving refined sugar from the
West Coast is also to be met from Federal funds. The
O.P.A. issued on July 17 the first Commodity Practices
Regulation, which directs that the size and quality of
soaps be maintained. Beginning July 31, the buying
public can sue retailers for charging more than is allowed
by the O.P.A. New price ceilings were issued during
the month for men’s and boys’ tailored clothing and
women’s fur garments. A formula was announced by
O.P.A. for determining the manufacturer’s ceiling price
on new lines of specified building materials and con­
sumers’ goods (other than apparel) which were intro­
duced after April 1, and are not covered under other
price regulations. The order becomes effective August
1 for sales to civilians.

MILLIONS
D OLLA R S

O
F

1937

63

1938

1939

1940

1 94 1

1942

V a lu e of C onstruction C ontract A w ards in M etropolitan N ew Y o r k ,
U p sta te N ew Y o rk , and N orthern N ew Jersey
( F . W . D odge Corporation data)

For the 37 States included in the F. W . Dodge Corpo­
ration report, the total volume of contracts awarded in
the first half of 1942 was the largest half-year total on
record, nearly 50 per cent above the volume awarded in
the corresponding period of 1941, and more than double
the total for the first six months of 1940. During the
first half of the current year, restrictions on nonessential
building, together with growing shortages of certain
critical materials, have resulted in a marked contraction
in private construction. On the other hand, as a result
of our entry into the war, the size of the war construction
programs for such projects as manufacturing buildings,
utilities, airports, and public housing has been sharply
stepped up, and has more than offset declines in other
types of construction activity.
C o m m o d ity Prices
Continued steadiness in the general level of wholesale
commodity prices during July reflected not only the
off­
setting movements within the agricultural commodity
group. Stimulated by Lend-Lease and other Govern­
ment buying, hog prices advanced to new highs since
the fall of 1920 but spot cotton declined, accompanying
a delay in Senate action upon the parity loan bill. A
rise in cash wheat quotations during the first part of
the month was subsequently canceled. The Government
crop report, based on conditions as of July 1, indicated
a 1942-43 wheat supply equal to more than two years’
domestic requirements.
But the report indicated a
smaller corn crop than the trade had expected, and corn
prices were somewhat firmer.
During July, the Office of Price Administration estab­
lished several new practices and, in other instances,
modified certain price regulations to meet changing cir­
cumstances. The first important “ punctures” of civilian
price ceilings since the General Maximum Price Regula­
tion went into effect occurred during the month. Price
advances were permitted for fruit and vegetables pro­
cessed from the 1942 crop, for certain pigments, and for
gasoline and fuel oil sold in the East at retail. A Federal

ceilings widely affecting industrial prices but also




C on sum er C redit
It is now almost a year since the President on August
9,1941 announced that consumer instalment credit would
be subject to regulation by the Board of Governors of
the Federal Reserve System. On September 1, restric­
tions placed by the Board of Governors on the further
granting of consumer credit took their place alongside
other Governmental measures designed to combat infla­
tion. As a result of the application of the Board’s
Regulation W (covering consumer credit) and diminish­
ing supplies of consumers’ durable goods, the volume of
outstanding consumer instalment credit is estimated to
have declined by more than one quarter— or from some­
what under $7,000,000,000 to about $5,000,000,000— be­
tween August 31,1941 and May 31,1942. The President ’s
seven-point “ anti-inflation” program announced this
spring pointed out the desirability of further liquidating
consumer debt, since “ this promotes savings, retards
excessive buying and adds to the amount available to the
creditors for the purchase of War bonds” . Accordingly,
Regulation W was amended by broadening its coverage
and by tightening restrictions.
The extent to which the volume of outstanding credit
has declined among the various types of agencies engaged
in advancing consumer credit has shown marked varia­
tion. In general, outstanding credits of agencies making
personal cash loans have fallen off more moderately—
about 10 per cent on the average since the peak of last
August— than those of agencies advancing credit for the
purchase of consumers’ goods.
By far the largest
decline has occurred in the field of automobile financing,
owing primarily to drastic restrictions upon the produc­
tion and sale of automobiles. In the nine months follow­
ing August, 1941, the volume of retail automotive paper
held by sales finance companies fell almost 50 per cent.
Credits extended by household appliance stores declined
about one third during the same period, while furniture,
jewelry, and department stores showed considerably
smaller decreases in outstanding credits.
Sales and credit data collected by this bank from repre­
sentative groups of department and furniture stores in
the Second Federal Reserve District indicate that increas­
ing proportions of cash sales are a common experience
among these stores, that collections against outstanding
accounts are running definitely higher, and that

64

MONTHLY REVIEW, AUGUST 1, 1942
Department and Furniture Stores in the Second Federal Reserve District

Percentage Breakdown, Cash and Credit Sales
June,
1941

June,
1942

Department stores
N et sales—to ta l..........................................................................
Cash sale s ................................................................................
Open book credit sales........................................................
Instalment credit sales........................................................

100
63
30
7

100
69
26
5

Furniture stores
N et sales—to ta l...........................................................................
Cash sales.................................................................................
Credit sales*............................................................................

100
11
89

100
18
82

The effective date of the Office of Price Administra­
tion’s general price ceiling regulation at the retail level,
May 18, coincided with a sharp reversal of the previously
favorable year-to-year comparisons of department store
sales in the Second District. As shown in the accom­
panying table, large year-to-year gains for the first four
months of this year were reported in total store sales
and in the major departmental classifications. However,
during May and June, when fear of rising prices for
many types of department store merchandise was dissi­
pated or at least lessened, substantially less favorable
year-to-year comparisons were shown.

Percentage of M ay 31 Accounts Receivable Collected during June
Percentage changes from
a year earlier
1941

1942

Department stores
Open accounts.................................................................................
Instalment accounts......................................................................

42
18

48
20

Furniture stores
Total accounts*................... ..........................................................

11

14

Percentage Change in Outstanding Accounts Receivable
June 30, 1941 to June 30, 1942

Open book
credit

Instalment
credit

— 12
*

— 11
*

Department stores.......................................
Furniture stores.............................................

Total
accounts
receivable
— 11
— 15*

* Separate data not generally available; predominantly instalment credit.

aggregate accounts receivable are falling off. These
tendencies are brought out in the accompanying tables.
One of the amendments to Regulation W adopted May
6, 1942, provided for the “ freezing” of unpaid charge
accounts after the tenth day of the second calendar
month following the purchase. Under this provision,
unless payment is made within the time limit, no further
purchases of listed items may be charged until the
original account is settled or placed on an instalment
basis for payment within six months. As a result, about
one fourth of all charge accounts of a representative
group of stores in this District were frozen on July 10.
In the case of women’s apparel and accessories stores, the
proportion frozen amounted to about one third, for
department and jewelry stores one fourth, and for men’s
clothing and furnishings stores one fifth.
D e p a r tm e n t Store T ra d e
For the four weeks ended July 25, total sales of the
reporting department stores in the Second District ran
slightly ahead of the corresponding 1941 period. Sales
comparisons with last year have tended to be improved
by the practice of keeping stores open one evening a
week, to facilitate shopping by employed persons;
moreover, in the week ended July 4 almost all of the
stores had one more shopping day this year than last.
The July, 1942 sales, on the basis of the four weeks’
figures, fell below the June average, but the decline was
substantially less than in other recent years.
In June, total sales of the reporting department stores
in this District were 3 per cent below June, 1941, and
after allowing for one more shopping day this year than
last, the decline (in average daily sales) amounted to
about 7 per cent.




January through
April, 1942
Grand total— entire store........................................
W om en’s and misses’ wear.................................
M en ’s and boys’ w ear...........................................
Homefurnishings.....................................................

M a y and June,
1942

+18
+16
+26
4-20

—3
0
—9
—7

Retail stocks of merchandise on hand in the reporting
department stores in this District at the end of June—
little changed from May— were 80 per cent higher than
a year earlier. Returns from a limited number of
department stores in this District indicate that at the
end of June outstanding orders for merchandise pur­
chased by the stores, but not yet delivered, were still
declining, and were only slightly higher than those at
the end of June, 1941.

Percentage changes from a year earlier
Net sales
Department stores

Stock on hand
end of month,
June,
1942

June,
1942
New York C ity ..............................................
Northern New Jersey..................................
Westchester and Fairfield Counties___
Lower Hudson River V alley....................
Poughkeepsie...........................................
Upper Hudson River Valley..................
Central New York State............................
M ohawk River V alley............................
Northern New York S tate........................
Southern New York State........................
Binghamton.................................................
Western New York State..........................
Niagara F alls.............................................
All department stores...................
Apparel stores.................................................

Jan.through
June, 1942

— 4
— 7
— 5
+ 3
+ 5
— 1
+ 3
— 12
— 19
+ 2
+14
— 2
— 7
4* 2
— 1
+10
+ 2
+ 4
+24
— 2

+10
+ 9
+ 10
+18
+20
+ 7
+10
+ 4
— 2
+15
+28
+11
— 4
+14
+11
+19
+ 16
+19
+37
+12

+ ’ 64
+ 62
+ 36
+ 74

— 3

+11

+

80

—

+13

+

58

1

++
+
+
+
+

85
87
87
49
63
34

+ '4 2
+ ‘ 84
+ 103
+ 78
+

53

Indexes of Department Store Sales and Stocks, Second Federal Reserve District
(1923-25 average = 100)
1942
1941
June
Apr.

M ay

June

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

97r
lOlr

106
110

99
103

92
96

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

85
90

152
149

160
156

158
167

r Revised

FE D E R A L RESERVE B A N K OF N E W Y O R K

M O NTHLY REVIEW , AUGUST 1, 1942

General Business and Financial Conditions in the United States
(Summarized by the Board of Governors of the Federal Reserve System)
Industrial activity continued to advance during June and the first h alf of July.
Volume of goods distributed to consumers continued substantially below a year ago
and commodity prices generally showed little change.

Index o f P h ysical V o lu m e o f Industrial P roduc­
tion, A d ju sted for Seasonal V ariation
(1 9 3 5 - 3 9 a v e r a g e s 1 00 per cen t)

io
o
90-

U . S. Bureau of Labor Statistics Indexes o f th e
C ost o f L iv in g ( 1 9 3 5 - 3 9 a v e r a g e s 10 0 per cen t)

1936

1937

1938

1939

1940

1941

1942

W ed n esd a y F igu res for R eporting M em ber B anks
in 101 Leading Cities (L a te s t figures
are for Ju ly 1 5 )

Wednesday Figures of Estimated Excess Reserves
of All Member Banks (Latest figures
are for July 15)




P roduction
Industrial output increased further in June and the Board’s seasonally adjusted
index rose from 174 to 177 per cent of the 1935-39 average. Production in the
machinery, transportation equipment, and other armament industries continued to
advance, reflecting further progress toward meeting the requirements of the war
production program. Steel production declined somewhat in June but increased to
earlier high levels in the first three weeks of July. Lumber production increased
seasonally in June, while in the furniture industry, where activity usually rises at
this time of year, there was a decline, reflecting in part the fact that a number of
plants in the industry are being converted to the manufacture of war products.
In industries manufacturing nondurable goods, output as a whole showed little
change from May to June. Textile production declined somewhat, reflecting a reduc­
tion in activity at cotton mills from earlier peak levels. Paperboard production
decreased sharply further and there was also a decline in activity in the printing
industry. On the other hand, output of manufactured food products increased and
shoe production showed less than the customary seasonal decline.
Mineral production continued large in June. Coal production was maintained at
peak levels; output of crude petroleum showed little change, following the sharp
decline that occurred during March and A p ril. Lake shipments of iron ore in June
amounted to 12,600,000 gross tons and at the month end stocks at lower Lake ports
totaled 31,000,000 tons as compared w ith 26,600,000 tons a year ago.
Value of construction contracts awarded, as reported by the F. W. Dodge Corpo­
ration, continued to increase in June and was 57 per cent above the previous record
high month of August, 1941. The sharp rise in June reflected a continued increase
in awards fo r public projects, which accounted fo r about 93 per cent of all contracts
let during the month.
D istribution
Distribution of commodities to consumers declined somewhat further in June.
Smaller sales were reported by both department stores and mail-order houses, while
sales at variety stores were maintained at about the May rate. In the first h a lf of
July department store sales showed less than the customary sharp seasonal decline.
Volume of railroad freight traffic was maintained in large volume during June
and the first half of July. The number of cars loaded was below the level that pre­
vailed a year ago, however, reflecting a sharp reduction in car loadings in less-thancarload lots as a result of orders by the Coordinator of Transportation which raised
the minimum permissible weights fo r such loadings and thereby effected a fuller
utilization of existing equipment.
Commodity P rices
Prices of most commodities both at wholesale and retail continued to show little
change from the middle of June to the middle of July. Prices of cotton, wool, and
some other agricultural commodities, which had declined in the early part of June,
advanced in this period.
About twenty additional maximum price schedules were announced covering a
wide variety of products and in some cases requiring price reductions. On the other
hand, Federal approval was given fo r higher prices on various processed fru its and
vegetables, textile products, petroleum products sold on the East Coast, and services
supplied to consumers.
Retail prices of uncontrolled foods advanced sharply from May to June and
the Bureau of Labor Statistics price index fo r all foods rose lMs points to 123 per
cent of the 1935-39 average—an increase of one fourth since the beginning of the
current advance in March, 1941.
B an k Credit
Member banks in leading cities increased their holdings of Government securities
sharply during the first ha lf of July. Purchases included portions of increased
Treasury b ill issues and of the new 2 per cent 7 to 9 year bond. This followed a
substantial growth in the second quarter of the year when member banks absorbed
about 3.3 billion dollars, or more than h a lf of the increase in Treasury open market
issues. A ll classes of banks showed large increases, the largest percentage increases
being in Chicago and at Reserve City banks.
Excess reserves of member banks have been at a lower level in July than in
June, because of increased need fo r reserves arising out of deposit growth, the con­
tinued currency drain, and a large temporary increase in Treasury deposits at Reserve
Banks. Substantial System open market operations partially offset the loss of reserves
from these sources. The decrease in excess reserves was concentrated in New York
and Chicago, reducing excess funds in those cities to low levels. Adjusted demand
deposits continued to rise at reporting banks in leading cities except in New York.
Yields on United States Government securities and other money rates have
shown little change in recent weeks.