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MONTHLY REVIEW
O f Credit and Business Conditions

FEDERAL
V ol.

27

RESERVE

BANK

A U GU ST

OF

NEW

YORK

19 4 5

No. 8

MONEY MARKET IN JULY
The money market during the past month has witnessed
a moderate reversal of the trends which prevailed during the
greater part of the first half of 1945. After showing a gen­
erally upward trend for several months, prices of Treasury
securities, which have been the dominant element in the
market for several years, receded somewhat after the open­
ing days of July, and yields rose correspondingly.
Demand for the new securities issued in the Seventh War
Loan drive proved active when trading started on July 2. All
the marketable securities were traded at premiums, which for
the l]/ 2 , 2l , and IVz per cent Treasury bonds were relatively
A
substantial. Bank demand for outstanding intermediate term
taxable bonds was strong, and was reported to have been met
by insurance companies and savings banks which switched
into the longer term taxable issues, including those offered
in the Seventh drive.
During the statement week ended July 11, some weakness
appeared in Treasury bonds which was accentuated after
July 16 and continued during most of the remainder of the
month. This weakness was attributed first to rumors of an
early peace in the Pacific, which also started a wave of selling
in the stock market, and then to discussions in the press of
the possibility that the differential rate at which the Federal
Reserve Banks advance funds to member banks on the security
of Government obligations maturing in one year or less might
be raised from Vz to 34 of one per cent, or eliminated, leav­
ing only the regular discount rate of 1 per cent. The feeling
that sizable amounts of Seventh War Loan securities carried
on bank credit might be overhanging the market was prob­
ably a factor also. The easing of prices extended to other
sections of the Government security market and Treasury
certificates of indebtedness and Treasury notes, which earlier
in July were particularly strong, also declined.
Premiums on the IVz per cent bonds issued in the Seventh
drive dropped from a high point of 1 11/32 on July 2 to
1 2/32 on July 27, on the new 2V4’s from 1 20/32 on July 16
to 30/32, and on the new IVi’s from 1 22/32 to 1 5/32
(based on closing bid prices). The quotation on the Aug­
ust 1, 1945 maturity of certificates fell from a premium of
20 cents per thousand dollars on July 16 to a zero yield on
the 23rd. For the most part, the recession in Government
security prices reflected a withdrawal of buyers from the




market rather than any substantial increase in selling, and
trading was light.
In the period of strength in the Government security market
during the early part of July, brokers and dealers and others
liquidated substantial amounts of securities purchased on
credit during the drive and so were able to reduce their bank
borrowings. The liquidation continued at a somewhat slower
pace in subsequent weeks. In the two weeks ended July 18,
the decline in loans on Government securities came to about
20 per cent of the increase during the drive. Of the approxi­
mately 500 million dollar reduction in such loans at all weekly
reporting member banks, brokers and dealers accounted for
about 300 million; more than 365 million of the total reduc­
tion occurred at weekly reporting member banks in New York
City, which reported further loan repayments of 142 million
in the week ended July 25.
Postdrive bank demand for Treasury bonds was active, and
in the three weeks ended July 18, the weekly reporting mem­
ber banks made net purchases amounting to 530, million
dollars. (Some part of the acquisitions in the first week,
however, probably reflected the limited bank purchases of
War Loan bonds which the banks were permitted to make
for investment of their time deposits.) These institutions
also acquired 141 million dollars of Treasury notes and
53 million dollars of certificates of indebtedness during the
week of July 3, but made small net sales in the two sub­
sequent weeks, probably reflecting adjustments in their reserve
positions.
The market for corporate bonds was somewhat irregular
during July. High grade bonds were steady until the latter
part of the month when they turned slightly easier, probably
reflecting in part the unusually heavy volume of flotations
of new securities. Lower grade issues moved somewhat in
consonance with stock prices.

Ba n k

C r e d it i n

the

Se v e n t h W a r L o a n

As usual a substantial volume of bank credit was used,
directly or indirectly, in payment for securities sold during
the recent War Loan drive. Net purchases of Government
securities by the commercial banks and Federal Reserve Banks
during the two calendar months of the drive (May and June)
are estimated to have amounted to about 8 billion dollars,

58

MONTHLY REVIEW, AUGUST 1945

or somewhat less than in the Sixth drive. Loans on Govern­
ment securities by commercial banks to brokers and dealers
and to others, however, expanded during the last drive by
about 2.5 billion dollars, compared with 1.4 billion in the
Sixth campaign. Altogether, it appears that the amount of
bank credit expansion related to the Seventh War Loan—
over 10.5 billion dollars— was somewhat greater than the
expansion in connection with previous War Loans. On the
other hand, it is estimated that net absorption of Government
securities by nonbank investors, after allowance for subscrip­
tions financed by bank loans, was greater than in the preceding
drive, and probably exceeded that of any of the earlier drives.
The final result, however, will depend upon the character of
the redistribution of securities which takes place in the months
following the close of the drive.
The unusually large expansion of bank loans on Govern­
ment securities in connection with the Seventh War Loan
is accounted for in part by a sizable amount of loans for bona
fide investment purposes, particularly to institutional in­
vestors such as insurance companies which will pay off the
loans out of future income in coming months. Borrowings
by institutional investors seem to have been incurred as a
precautionary measure against the possibility that the Treasury
might modify the terms of its future offerings of long term
bonds, either by eliminating bonds carrying IVz per cent
coupons, or by extending the maturity of bonds offered at
that rate. In addition, there appears to have been an expan­
sion of Government security loans to finance speculative pur­
chases of new issues for resale after the close of the drive.
To the extent that institutional and other investors antici­
pated their future investment needs by borrowing to enlarge
their subscriptions to Seventh War Loan issues, the ability
of such investors to absorb future offerings of securities will
tend to be reduced. The increase in deferred payment sub­
scriptions during the Seventh War Loan also points in that
direction.
M e m b e r B a n k R eser ve Po s it io n

In the opening days of July, member banks were still ex­
periencing the easing effects on their reserve positions of the
War Loan drive. Payments for subscriptions on the final days
of the drive resulted in a considerable further shift of deposits
from private accounts, subject to reserve requirements, to War
Loan accounts which are reserve-exempt, and as a result of
this shift the required reserves of all member banks declined
by more than 400 million dollars in the week ended July 3.
Gains and losses of reserve funds largely balanced, so that
member bank excess reserves rose from about 1,300 million
dollars to roughly 1,700 million during the week. Member
bank borrowings from the Reserve Banks dropped substan­
tially to 39 million dollars, compared with a peak of 912
million on June 6, while other Reserve Bank credit ( including
"float” ) increased.
A fairly rapid absorption of member bank excess reserves
occurred during the following three weeks, and by July 25




the figure was reduced to approximately 1,150 million dollars.
In this period the Treasury resumed its withdrawals of funds
from War Loan Deposit accounts to meet Government dis­
bursements, which had the effect of increasing private deposits
again, and thus increasing the reserve requirements of member
banks. In the three-week period, required reserves of all
member banks increased by more than 500 million dollars.
Movements of funds between localities and between banks
resulted in wide differences in the reserve positions of indi­
vidual banks during this period, however. Some banks con­
tinued to have ample funds at their disposal and made sub­
stantial purchases of Government securities, including, in
some cases, purchases of Treasury bills, either from Federal
Reserve Banks to which they had sold bills previously, or
directly from the Treasury through bids for the new bills
offered each week. Other banks, including some of the large
New York City banks, sustained substantial losses of funds
in the clearings, however, and found it necessary either to
resume their borrowings from the Reserve Banks or to sell
securities in the market. Total member bank borrowings rose
to 230 million dollars on July 25, a larger amount than on
corresponding dates after previous War Loans.
C u r r e n c y C ir c u l a t io n

A continuing factor affecting the reserve position of member
banks is the public demand for currency. In the three weeks
ended July 11, the amount of currency outstanding increased
by nearly 400 million dollars, reflecting largely currency de­
mands for the month end, the Fourth of July holiday, and
vacations. This increase was somewhat greater than occurred
in the corresponding period last year, but for the first seven
months of the year the increase will probably be about 500
million dollars (or 22 per cent) less in 1945 than in 1944.
The most notable change in public demands for currency
in recent months has been the substantial falling off in the
demand for large denomination bills (denominations of $50
and u p), whereas the demand for bills of smaller denominaNet Currency Payments by the Federal Reserve
Bank of New York*
MILLIONS
OF OOLLARS

* Payments of paper currency to commercial banks and others in excess of
receipts, cumulated from Decem ber 31, 1 9 4 2 ; a downturn in the curves de­
notes an excess of receipts. July 1945 estimated.

FEDERAL RESERVE BANK OF NEW YORK

tions has accelerated. As shown in the accompanying chart,
receipts by this bank of paper money in such denominations
have exceeded payments in each month since February 1945.
Shipments of large denomination bills to banks in the District
in response to public demands have been much smaller than in
preceding months, and receipts from the banks of such bills
returned by their depositors have been abnormally large. At
the same time disbursements of small denomination notes
($20 and under) have tended to increase and receipts to
diminish. The gain in net payments of small denomination
currency has not been great enough, however, to maintain
the former rate of increase in circulation of currency issued
by this bank.
In its early stages, the reduced demand for large denomi­
nation notes apparently was an outgrowth of actions taken
in England— first to eliminate further issues of large denomi­
nation currency, and then to retire such currency from circu­
lation— which led to fears that similar action might be taken
in this country. Although no such steps have been taken here,
the unpopularity of large denomination notes has recently
been increased still further by the announcement at the end
of May that the Treasury had requested banks and other
financial organizations to report unusual currency transac­
tions of individual customers, in order to assist the Treasury
in its efforts to track down and prosecute tax evaders. In
July, receipts at this bank of large denomination currency
have tended to fall off and the demand also has been small.

SEVENTH WAR LOAN
The Seventh War Loan drive exceeded its announced goal
of 14 billion dollars by 88 per cent. Actual sales reached
26.3 billion dollars, a far larger total than was attained in any
of the preceding War Loans, and this figure does not include
subscriptions for Treasury investment accounts or the limited
purchases of certain Seventh War Loan securities which the
commercial banks were permitted to make for the investment
of time deposits.
The Seventh War Loan was directed particularly toward
sales to individuals. Total purchases by such subscribers
amounted to 8,681 million, an increase of more than one
third over the previous record which was attained in the Fifth
War Loan. Especially noteworthy was the sale of 3,976
million dollars of Series E War Savings bonds. This figure,
although slightly below the quota of 4 billion dollars, was
nearly 800 million above the previous record established in
the Fourth War Loan. Even though other quotas were over­
subscribed by wide margins, the record sale of Series E bonds
was the outstanding achievement of the drive. Such sales
represent vastly greater numbers of individual sales and much
greater effort on the part of the sales organization than do
sales of other types of Government securities. While the goal
of 3 billion for sales to individuals, other than sales of Series E
bonds, was exceeded by 50 per cent, this result reflected in part




59

subscriptions financed by bank credit, and hence is more
difficult to appraise.
In an effort to direct the main attention in the Seventh War
Loan to sales to individuals, the quota for corporations and
other investors was reduced to 7 billion dollars ( from 9 billion
in the Sixth War Loan), and subscriptions from corporations
were not accepted until the drive had been under way for
more than a month. Nevertheless, the total volume of sub­
scriptions of corporate and other investors (including insur­
ance companies, savings banks, and other corporations, as well
as security dealers and brokers, State and local governments,
etc.) reached a greater volume than ever before, exceeding the
quota by about 150 per cent. This result, however, has been
viewed with less satisfaction than the sales to individuals. It is
recognized that a substantial portion of the subscriptions were
financed with funds borrowed from the banks or obtained
through sales of securities previously held, which sales were
in excess of normal portfolio adjustments. These securities, in
large part, were purchased by commercial banks and represent
indirect bank participation in the drive totals.
The extraordinary oversubscription of the Seventh War
Loan reflects in substantial degree the effects of developments
in the Government security market since the close of the
Sixth War Loan, and fears that equally attractive securities
might not be offered in succeeding drives. Spurred by reports
that there would be no further offerings o f fully marketable
2 per cent Treasury bonds in future War Loans, the commercial
banks bought outstanding bonds of that type in considerable
volume after the Sixth War Loan, and market prices of the
latest issue of 2 per cent bonds o f 1952-54 rose to a premium
of well over 3 points; longer term bonds also made substantial
gains. This development encouraged the belief that substantial
profits, in addition to current interest, would be obtainable on
securities purchased in the Seventh War Loan, and stimulated
subscriptions of a speculative character. Furthermore, there
were rumors that the long term 2V5 per cent bonds of restricted
marketability might either be discontinued or, if continued,
their maturities might be considerably extended. The result
was that the 2 V2 per cent bonds offered in the Seventh War
Loan were purchased in record volume, partly with funds
borrowed from banks; total purchases of this issue were in
excess of 7 billion dollars, nearly double the greatest volume
of sales of securities of that type in preceding War Loans.
Even when full allowance is made for speculative subscrip­
tions and indirect bank buying, however, it seems fair to
conclude that the Seventh War Loan was successful in accom­
plishing its primary purpose, namely, obtaining the investment
in War Loan securities of a larger amount of the available
funds in the hands of the public than ever before.

BRITISH FINANCIAL AGREEMENTS WITH
WESTERN EUROPEAN COUNTRIES
Considerable interest has been evidenced in this country
with regard to the series of important bilateral financial agree­
ments which the British Government has concluded during

60

MONTHLY REVIEW, AUGUST 1945

the past nine months with various foreign countries, including,
in chronological order, Belgium, Egypt, Sweden, France,
Turkey, and Iraq. This article will examine the three agree­
ments with the Western European countries, which exhibit a
common pattern, while those with Egypt, Turkey, and Iraq,
which are of a somewhat different character, will be treated in
a later article.
The recent agreements with Belgium, Sweden, and France,
which are essentially an extension of somewhat similar finan­
cial pacts which Britain concluded with these countries early
in the war, are primarily designed to facilitate the resumption
of orderly commercial and financial relationships, long inter­
rupted by the German occupation of Europe, between Britain
and each of the countries concerned. This objective is to be
achieved in each case by: (1 ) the establishment of payments
machinery adjusted to the regime of close exchange controls
prevailing on each side; (2 ) commitments regarding ex­
change rates; (3 ) cooperation in common exchange control
problems and in the control of undesirable capital movements;
and, most important, (4 ) mutual provision of overdraft facili­
ties or credits to insure that trade between the parties will
not be impeded by shortages of each other’s currency or of
other acceptable means of payment, such as gold and dollars.
The agreement between Britain and France also contains a
special set of provisions, which will not be discussed here,
designed to settle the complicated mass of financial claims
between the two countries arising out of the prosecution of
the war. Included in the three agreements, it might be noted,
are not only the four principals, but also, in the case of Britain,
Belgium, and France, their respective monetary areas, i.e., the
countries of the sterling area, the Belgian monetary area, and
the French franc area.
In each agreement machinery is set up, in keeping with the
exchange control regulations on each side, to facilitate pay­
ments between the parties concerned, such payments to be
ultimately channeled through special accounts maintained by
each party on the books of the other party’s central bank. The
three agreements also reaffirm the existing official rates of
exchange, namely £1 = 176.625 Belgian francs, £1 = 16.90
Swedish kronor, and £1 — 200 French francs. N o changes in
these rates are to take place except after mutual consultation
(Belgium and France) or prior notice (Sweden), and all
transactions between the parties, so far as they involve a
relationship between sterling and each of the currencies con­
cerned, are to be settled on the basis of the official rates of
exchange. The participants also agree to cooperate closely
on exchange control matters affecting their common interests
and to assist each other in keeping capital movements 'within
the scope of their respective policies” and particularly in
preventing transfers "which do not serve direct and useful
economic or commercial purposes.” The Anglo-French Agree­
ment makes this cooperation more specific by providing that
the British and French Governments shall make available to
each other any information they may possess concerning assets
in the sterling area belonging to French nationals resident in




the franc area, and assets in the franc area belonging to British
nationals resident in the sterling area, respectively.
The most important and distinguishing feature of the three
agreements lies in their provisions for the extension of mutual
financial aid. The Anglo-Belgian Agreement, for example,
provides that the Bank of England and the National Bank of
Belgium, each acting for its government, will sell the other
party sterling and Belgian francs, respectively (or, if need
be, the local currencies, other than sterling and Belgian francs,
of members of each monetary area), against payment in Bel­
gian francs and sterling, respectively, to meet payments which
residents of the one area have to make to the other and which
are sanctioned by the prevailing exchange control regulations.
The amount of Belgian francs to be held by the Bank of Eng­
land under this arrangement shall not exceed 883,125,000
Belgian francs, or the equivalent of £5 million, while the
amount of sterling which the National Bank of Belgium agrees
to hold similarly shall not exceed £5 million (except by the
net amount of sterling already owned by residents of the
Belgian monetary area on the date the agreement enters into
force). These sums set the limits within which the balance
of payments between the two areas may move, one way or
another, without any "foreign exchange problem” arising.
Over and above these limits, however, settlements must be
made in gold. The agreement is to run for three years, but
no provision is made for the ultimate settlement of any bal­
ances outstanding at the end of that time.
The Anglo-Swedish Agreement, which is to run for five years,
is framed on very similar lines, with one conspicuous excep­
tion. N o limits are formally placed upon the amount of the
other party’s currency that each party agrees to accumulate
under the mutual overdraft facilities and, theoretically at
least, the balance of payments between the sterling area and
Sweden may run up to any size in either direction without the
need for settlement arising. It is widely anticipated that for
several years after the war Sweden’s balance of payments with
the sterling area will be in Sweden’s favor and that the
Sveriges Riksbank will consequently accumulate sterling on
balance.
In the case of the Anglo-French Agreement, mutual financial
aid is to take the form of the provision of outright credits
rather than holding of currency. Thus, the British and French
Governments agree to make available to each other, through
their respective central banks, non-interest-bearing credits of
£100 million, or 20 billion francs, as the case may be, to
meet payments which the franc area has to make in the sterling
area, and vice versa, in the year ending February 28, 1946.
As these credits are drawn upon, the local currency involved
will be paid into special accounts at the Bank of England and
the Bank of France held on behalf o f the other party. Pro­
vision is made for possible upward adjustments in the size
of the credits, if need be, and also for partial or complete
settlement, according to a complicated formula involving
some payment in gold, of any net credits outstanding on

FEDERAL RESERVE BANK OF NEW YORK

February 28, 1946. It is generally anticipated that the bal­
ance of payments within the one-year period of the agreement
(which is subject to renewal) will be in favor of the sterling
area.
All three agreements are drawn on rather narrow lines in
that they specify that the currency of the one country held by
residents of the other (including currency made available
under the mutual financial aid provisions) can, in general, be
used only for transfers or payments within the country con­
cerned, although eventual multilateral convertibility of such
balances is looked forward to in the provision that, as oppor­
tunity offers, each party shall seek to permit its currency held
by the other party to be used for making payments in third
countries. Despite the restrictions imposed upon free con­
vertibility of balances and related provisions, however, these
agreements are in no way inconsistent with the Bretton
Woods Fund plan, at least so far as the "transitional period”
is concerned, since that plan specified that during this period
members may "maintain and adapt to changing circumstances
. . . restrictions on payments and transfers for current inter­
national transactions.” In this connection it is significant
that each of the British financial agreements provides that
if the participants adhere to a "general international monetary
agreement,” the terms shall be reviewed with a view to making
any amendments that may be required.
Essentially, agreements of this character will have the ben­
eficial effect of facilitating more normal commercial relation­
ships between the participants and their respective monetary
areas in the difficult transition period ahead, in the face of tight
exchange controls and (in Great Britain) limited monetary
reserves, and in this respect should be considered a useful step
in the reconstruction of world trade in general. Such agree­
ments can be of special benefit to Great Britain, whose
external financial position has seriously deteriorated during
the war, in that they offer the assurance that, within limits
at least, any current deficits which that country may face in
its trade with some of the other participants will be financed,
in effect, by borrowing from those countries, rather than by
paying them out of its limited gold and dollar reserves.
On the other hand, there is always the possibility that if
Britain’s balance of payments difficulties are not adequately
resolved, these agreements may be extended beyond the transi­
tion period for which they were designed, and perhaps coupled
with attempts to bilateralize trade between the participants
so as to prevent excessive claims from piling up on one side
or the other. Under unfavorable world economic conditions,
moreover, these agreements might even lay the basis for an
enlargement of the sterling area or for the eventual grouping
of Western European countries and their overseas monetary
areas in a closely integrated exchange and trading bloc which,
while permitting relative freedom of transfers within the
bloc, would maintain close controls and discriminations against
transactions with the rest of the world. These possible longrun implications of the recent British financial agreements




61

with Western European countries underline, therefore, the
need for appropriate international, as well as American, action
designed to create the conditions necessary for a gradual re­
laxation of the exchange controls and other restrictive trade
practices abroad which will prevail in the early postwar years,
and to minimize the possibility of their extension into more
undesirable forms.
EM PLO Y M E N T IN N EW JERSEY
DU RIN G TH E W A R
The 12 Northern New Jersey counties which are in the
Second Federal Reserve District1 provided in March 1940
over three fourths of total employment in the State. During
the war the number of persons engaged in manufacturing
in this area rose to a peak of about 800,000, an increase of
more than 75 per cent over the level of March 1940. The
accompanying chart indicates the percentage distribution of
manufacturing employment in Northern New Jersey in
1940 and 1944. The transportation equipment group of
industries, which includes shipbuilding and aircraft, accounted
for more than two fifths of the total increase between the
two dates, augmenting its working forces by almost 150,000
employees. The machinery group— one of the area’s leading
peacetime industries— required over 110,000 more workers
in 1944 than in 1940. Its principal wartime products are
various types of electrical equipment for military use. Metals
and ordnance manufacturers added about 50,000 persons to
their payrolls and producers of chemicals about 20,000. With
the exception of the stone, clay, and glass and rubber in­
dustries, which are included in the miscellaneous group, the
remaining three groups comprise largely consumers’ goods
industries. Material and labor shortages forced them to
operate with somewhat fewer employees in March 1944 than
they had four years earlier.
The more rapid growth of war industries in Northern New
Jersey than in neighboring New York City is reflected in data
1 Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris,
Passaic, Somerset, Sussex, Union, and Warren.
Distribution of Manufacturing Em ploym ent in Northern
New Jersey by Industry Groups, March 1940 and 1944*

* Covers the 12 northern counties in the Second Federal Reserve District.
Source:
Partly estimated by Federal Reserve Bank o f New York— for
1940 from Census o f P opu lation , for 1944 from data of the New Jersey
Unemployment Compensation Commission.

62

MONTHLY REVIEW, AUGUST 1945

on commuter traffic, which show that the number of New York
residents working in New Jersey has doubled during the war,
while that of New Jersey residents commuting to jobs in
New York City declined slightly. Other wartime additions to
the New Jersey labor force have come from the ranks of
in-migrants and those women, young people, and older workers
normally not seeking employment.
Early in 1944 these sources of workers seem to have been
exhausted, however, and continued military inductions caused
serious labor stringencies in the District, despite some reduc­
tion in the total demand for factory workers. Since March 1944
the War Manpower Commission has classified several Northern
New Jersey areas in Group I (areas of acute labor shortages).
Since that time there has been some shrinkage in employment
in war industries, but the labor force also has been reduced
so that the labor supply situation has remained rather tight.
At present Paterson, Perth Amboy, and Plainfield-Sommerville
are the only Group I areas in the Second District. The remain­
ing labor market areas in Northern New Jersey are currently
designated as "areas of labor stringency.” Newark, where a
serious labor shortage existed earlier this year, was shifted to
this second group only in June.
Employment in the State as a whole expanded during the
war from 1,600,000 in the spring of 1940 to about 1,900,000
at the peak in the last half of 1943. In addition more than
300.000 men and women joined the Armed Forces. The war­
time employment increase in New Jersey, which amounts to
almost 20 per cent, is about as large, relatively, as that which
occurred in New York State during the same period (see the
June 1 issue of this Review), but munitions industries have
absorbed a larger part of the labor force than in New York.
In May 1944 New Jersey’s munitions manufacturers employed
566.000 workers, more than a fourth of the States working
population.
Consumers’ goods industries, unlike those in New York,
operated at lower levels in the spring of 1944 than in 1940.
Among the nonmanufacturing industries Federal Government
employment has shown the largest rise. The transportation,
communication, and public utilities group also expanded. The
other nonmanufacturing industries lost workers after their
earlier gains in 1940, 1941, and early 1942.
Between January 1944 and April 1945 manufacturing em­
ployment in New Jersey contracted by about 10 per cent. No
corresponding gain has occurred in nonmanufacturing indus­
tries, but employment in this group has been rather stable in
recent months.
SALES OF D E P A R T M E N T STORE T Y P E
M ERCH AN DISE IN P R IN C IP A L CITIES
Department store sales in New York City have increased
less than 50 per cent over the war period; this is one of the
smallest gains to be recorded for any large city in the United
States, as the first chart indicates. The record appears more
favorable, however, if total sales of department store type




Indexes o f D ep artm ent Store Sales in S elected L a rge C ities, 1925-44
(1 9 3 5 -3 9 a v e ra g e — 100 per ce n t)
PER CENT

PER C EN T

BALTIMOFJE

1

f
i

WASHING!roN'
,
1 1 1 JL- 1 1 1 I 1 J 1 i_lJ
1925
1930
1935
1940

It
ft
it

//
//
/ /
/ /
/ /

SAN FRANCIS CO

s

V

/ /

'

/

t

v

\ ~ ' / L O S ANG.Et_ES

1 1I 1 11.1 .J I
.1 1

1 .11 I.
I
1 9 4 5 1925
1930

~

1935

1940

1 11
1945

merchandise rather than department store sales alone are con­
sidered, and if the wartime decline in the civilian population
of New York City is taken into account.
In New York City department store sales are not an adequate
measure of the demand for department store type merchandise,
as less than one quarter of consumer expenditures for that type
of merchandise are made in such stores. As shown in the
second chart, this is the smallest percentage for any city with a
population of over 500,000. During 1944 apparel store sales
in New York City exceeded the department store dollar
volume, whereas in other large cities they usually reach less
than half of the department store sales volume. Men’s and
women’s wear "specialty” shops accounted for another fifth
of all department store type merchandise purchased. During
the war period sales of the apparel lines of merchandise have
registered the sharpest increases.1 Because in New York City
a relatively small proportion of total apparel sales is made in
department stores, a truer picture is obtained if comparison
with other cities in the country is made on the basis of total
department store type merchandise sold. Table I, which gives
1944 data by type of store, indicates that over the war period
the estimated 65 per cent increase in total New York City
sales of department store type merchandise has substantially
exceeded that for Chicago, Boston, Pittsburgh, and St. Louis,
and has almost equaled the Cleveland, Buffalo, Detroit, and
Philadelphia increases. During the war period the civilian
population of New York City has declined sharply, whereas
it has increased in many other large cities. After allowance
for population changes, the increase in per capita New York
City sales of department store type merchandise approximately
1An analysis of departmental sales was presented in the May 1945

Review.

63

FEDERAL RESERVE BANK OF NEW YORK
Table I
Estimated Sales of Department Store Type Merchandise and
Population Changes, United States and Selected Large Cities
1944 sales in millions
of dollars

Percentage change
1929-44

Percentage change
1939-44

Locality
All
stores*

De­
part­
Depart­
ment Popu­ All
ment Apparel All
stores stores stores* stores lation stores1

United States...........

20,904

6,215

3,979

New York C ity ...
Chicago................
Los Angeles..........
Philadelphia.........
Detroit.................
Boston..................
San Francisco
Washington..........
Cleveland.............
Pittsburgh............
Baltimore.............
St. Louis..............
Milwaukee...........
Buffalo.................

1,984
811
554
522
448
320
305
302
276
244
237
232
185
160

421
332
214

490
156
103

201

88

184
131

19
0
105
132
134

67

77
57
54
59
37
27
46
37
30
30

De­
part­
ment Popu­
stores lation

+ 38 + 59

+4

+71

+75

+ 10

-

+65
+46
+92
+73
+73
+54
+99
+97
+69
+58
+87
+58
+80
+70

+47
+45
+90
+57
+80
+48
+84
+79

+ 1
6

2 + 15
+ 53 + 87
+ 16 + U
+ 27 + 40
-

+ 1

+ 54
+131
+ 23
+ 16
+ 67

+ 1
7

-

2

+ 59
+127
+ ,46
+ '2 5

+ 66

+ 28
+ 30 + 62
20 + 47

+

-

3

2
0

+37
+12

- 7
+ 9
+69
-

2

-

6

+16

- 1
+ 1
0

+66

+59
+90
+62
+87
+80

-1 0
-

2

+13

+ 1
+ 8
6
+ 9
+24
+ 1
6
+ 8
0
- 1
0

* Includes all stores selling primarily department store type merchandise.
Source: Estimated by the Federal Reserve Bank of New York from 1939 Census of Business
and percentage changes of sales by type of store from data collected by the Federal
Reserve System currently and in the annual Retail Credit Survey. Population by
cities in 1944 estimated from Census data on civilian population by counties for
November 1943»

equals that for San Francisco and Milwaukee, and substantially
exceeds the gains in Los Angeles, Washington, and Baltimore.
The size of this increase may be due in part to the large number
of transients in New York City who are not included in the
population data.
Although comparison over the war period shows that New
York City’s total dollar sales increase was close to the average,
and that the per capita increase was one of the highest, the in­
crease since the 1929 peak has been less than the average for
the country as a whole. In 1929 New York City accounted
for 12 per cent of all department store type merchandise sold
in the United States; by 1944, although it still headed the list
in dollar volume, its proportion had declined to 9Vz per cent.
This drop is probably attributable in part to the rapid growth
in population of other cities, especially during the war, and
may also be due partly to the growth of suburban shopping
centers during this period. Chicago and Boston also appear

to have been affected by much the same factors and department
store type merchandise sold during 1944 approximately
equaled the 1929 levels. In the accompanying table increases
by cities during this period are compared with population
changes. It will be noted that the exceptionally large gains
for Los Angeles, Washington, and Baltimore were largely due
to the population increases.
As shown in the second chart, department store sales in New
York City account for the smallest proportion of total depart­
ment store type merchandise sold in any of the large cities,
while Pittsburgh stores account for the largest. These cities are
at the two extremes for all types of merchandise except furni­
ture. For the various merchandise groups the proportion of
department store type merchandise sold in department stores
shows considerable variations from city to city. Thus, in
Chicago, Milwaukee, Philadelphia, and Boston the proportion
of women’s ready-to-wear clothing sold in department stores is
relatively low. For women’s accessories, St. Louis is far above
average while Philadelphia is much below. The proportion
of men’s clothing sold in department stores is exceptionally
high in Washington; in Buffalo and Milwaukee it is relatively
low. Men’s furnishings in all cities analyzed follow closely
the pattern of total department store type merchandise; this
is also true for homefurnishings other than furniture. New
York, Washington, and Philadelphia department stores get an
unusually large share of the furniture business, while St. Louis
and Cleveland figures are low.
In all cities the “specialty” stores account for substantial
proportions of women’s accessories, men’s furnishings, and
homefurnishings, while the apparel stores specialize in readyto-wear.2 New York City apparel stores sell 65 per cent of all
women’s ready-to-wear merchandise, and 76 per cent of men’s
clothing, a larger proportion than in any other city included in
this comparison. Specialty stores of this city also account for
a larger share in sales of women’s accessories and men’s fur­
nishings than in the other large cities.
2An analysis of department store type merchandise sold by indi­
vidual departments was presented in the January 1945 Review.

Percentage Distribution of Sales of Department Store Type Merchandise by Type of Store
and by Type of Merchandise for Selected Large Cities, 19*39*
D E P A R T M E N T STO R E S

F U R N IT U R E S T O R E S

APPAREL STORES

A L L OTHER S T O R E S

W OMEN’S
A C C E S S O R IE S

F U R N IT U R E

mm
m
m

NEW YORK
SAN FRANCISCO
WASHINGTON
LOS ANGELES
BUFFALO
DETROIT
BALTIMORE
CHICAGO
S t . LOUI S
MILWAUKEE
PHILADELPHIA
BOSTON
CLEVELAND
PITTSBURGH
P M CENT

0

WA
M'Z
M
Sill WI
S fp
i
H
i
m
i
0
m
.m
100 0

25

50

75

>

23

50

75

100 0

25

50

75

100 0

25

50

75

100

* Estimated from 1939 Census of Business data by Federal Reserve Bank of New Y o r k ; “ other stores” exclude retailers primarily engaged in selling
merchandise of types not largely sold by department stcfres.




MONTHLY REVIEW, AUGUST 1945

64
T a b le II

values) is now the highest since the close of 1942 and 20 per
cent below the all-time high reached in July of that year.

E stim a te d Sales of D e p a rtm e n t Store T ype M erch an d ise by
D e p a rtm e n ta l G ro u p s an d Per C ap ita, U n ited S ta tes an d
Selected Large C ities, 1939

D epartm ent and A p parel Store Sales and S to ck s, S econd F ederal
R e serv e D is trict, P e rce n ta g e C hange from the P reced in g Y ea r

In millions of dollars
Locality

Per
Other
home­ capita
Total Women’s Women’s Men’s Men’s
merchan­ ready- accesso­ cloth­ furnish­ Furni­ furnish­ sales in
ing
ries
ings
ture
dollars
ings
dise*
to-wear

United States............. 12,221
New York..............
Chicago............
Philadelphia...........
Los Angeles............
Detroit...................
Boston...................
Cleveland...............
Pittsburgh..............
San Francisco........
Washington............
St. Louis................
Baltimore...............
Milwaukee.............
Buffalo...................

1,203
555
301
288
259
208
163
154
153
153
147
127
103
94

1,515

2,263

824

1,006

739

2,355

206
81
43
36
37
37
25
24
24
22
21
19
16
14

234
102
56
51
46
40
32
28
27
28
25
24
18
18

96
46
23
19
19
17
13
12
10
12
11
9
7
8

98
46
26
22
19
17
12
12
12
12
11
10
8
8

65
27
17
17
16
10
10
11
8
8
12
9
6
5

196
96
54
62
45
33
30
29
27
27
26
23
20
17

161
163
156
192
160
270
186
230
242
231
180
148
176
164

* Includes all department store type merchandise sales.
Source: Estimated by Federal Reserve Bank of New York from 1939 Census of Business.

Table II gives dollar sales of department store type merchan­
dise in 1939 (no similar data are available for more recent
years), by principal groups for each large city. The percentage
distribution of sales by type of merchandise does not vary
greatly among the cities. In New York City women’s ready-towear accounts for 17 per cent, women’s accessories for 19 per
cent, men’s clothing and furnishings each for 8 per cent, furni­
ture for 5 per cent, other homefurnishings for 16 per cent, and
other lines of merchandise for 27 per cent.
Per capita sales of merchandise, also shown in Table II,
reflect both differences in the size of per capita income and in
the area served by the various cities. In such cities as San
Francisco, Los Angeles, and Washington, larger per capita
income payments, rather than the large number of out-of-town
shoppers, probably explain the high per capita sales. Pittsburgh
apparently ranks among the top four because it draws a large
number of customers from suburban communities. Among
the larger cities, New York reports one of the smallest per
capita sales of department store type merchandise, although it
is well above the national average. The varying number and
importance of suburban shopping centers have considerable
influence on the per capita sales figures for the different cities.
For this and other reasons the significance of per capita figures
is subject to serious limitations.3
3 Estimates on which the charts are based and additional statistical
data on sales by cities, may be obtained upon request.

D E P A R T M E N T STORE TR A D E
Department store sales in this District during July were
again at an unusually high level. The seasonally adjusted index
increased slightly from June to July and was the second highest
on record, about 10 per cent below the all-time peak of
last March.
The seasonally adjusted index of department store stocks at
the close of June had risen about 30 per cent since the
beginning of the year. The stock index (based on retail




Locality

93

Net i
sales

June 1945
Department stores, Second District . . . .
New York C it y ......................................
Northern New Jersey...........................
Newark................................................
Westchester and Fairfield Counties;.. .
Bridgeport...........................................
Lower Hudson River V a lley...............
Poughkeepsie.....................................
Upper Hudson River V alley...............

Stocks on
Jan.through
hand
June 1945 June 30, 1945

Western New Y
rork S ta t e ...................
B u ffa lo ................................................
Niagara F a lls ....................................
R o ch e s te r...........................................

+17
+16
+19
+ 21
+ 16
+12
+ 18
+20
+22
+ 31
+ 11
+20
+13
+ 15
+24
+ 17
+20
+24
+ 12
+17
+13
+ 17
+23

+14
+14
+14
+15
+10
+ 8
+ 16
+15
+14
+ 17
+12
+12
+ 6
+ 5
+15
+20
+14
+18
+ 8
+10
+ 8
+ 11
+ 13

+ 7
+ 8
+ 5
+15
+12
-1 1
+27

Apparel stores (chiefly New York City)

+ 26

+ 21

+14

S ch en ecta d y.......................................
Central New Y'ork S ta t e .....................
Mohawk River V a lle y .....................
Syracuse .............................................
Northern New York S ta t e .................
Southern New York S ta t e ..................
B in gh am ton .......................................

+17
+16
+26
+28
+13
+ 6
+ 2
+10
+ 4
+12
- 5
- 4
+20
—

Indexes o f D epartm ent S tore Sales and S tock s
Second Federal R e se rv e D istrict
(1 9 3 5 -3 9 a v e r a g e ^ 100 per ce n t)
1944

1945

Item
June

Apr.

M ay

June

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

133?*
144

143
150

148
156

156
169

Stocks, u n ad ju sted..........................................
Stocks, seasonally adjusted............................

143
149

166r
1641-

167
165

165
172

r Revised.
Indexes o f B u sin ess
1944

1945

Index
June
Industrial production*, 1935-39 = 100. .. .
(Board of Governors, Federal Reserve
System)
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 Employment
United States, 1939 = 100.........................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100...............
(New York State Dept, of Labor)
Factory Payrolls
United States, 1939 = 100..........................
(Bureau of Labor Statistics)
New York State, 1935-39 = 100...............
(New York State Dept, of Labor)
Income payments*, 1935-39 = 100...............
(Department of Commerce)
Wage rates, 1926 = 100
(Federal Reserve Bank of New York).
Cost of living, 1935-39 = 1 0 0 ........................
(Bureau o f Labor Statistics)
Velocity of demand deposits*, 1935-39 = 100
(Federal Reserve Bank of New York)
New York C it v .............................................
Outside New York C ity ..............................
* Adjusted for seasonal variation.

April

M ay

J une

235

231

226

222p
204p

201

207

207

232

248

236p

175

176

177p

166

155

151

149 p

148

141

138

134 p

335

317

303p

283

284

268

234

242

243p

165

170

170p

125

127

128

129 p

88
87

76
73

81
73

106
92

p Preliminary.

263p

FEDERAL RESERVE BANK OF NEW YORK
MONTHLY REVIEW, AUGUST 1945

General Business and Financial Conditions
(Summarized by the Board of Governors of the Federal Reserve System)
RODUCTION and employment at factories declined somewhat further in June reflecting
mainly reduced output of munitions. Value of department store sales in June and the
early part of July were considerably above year ago levels.

P

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

Index o f P h y sica l V olu m e o f Industrial P rod u ction ,
A d ju sted fo r S easonal V aria tion , 1 935-39 A vera g e
= 100 P er Cent (G rou p s show n are exp ressed in
term s o f p oin ts in the total in d ex)

Industrial production declined about 2 per cent in June and the Board’s seasonally
adjusted index was 222 per cent of the 1935-39 average as compared with 226 in May and
235 in March of this year.
Reduced activity in munitions industries accounted for most of the decrease. Aircraft
production in June was at a daily average rate 5 per cent below May. The volume of work
done on new ship construction continued to decline, while ship repair activity was maintained
at a high level. Total munitions production was about 10 per cent below the March level,
which was the last month under the full two-front war program. The decline is scheduled to
accelerate in July, with over-all munitions output planned at a rate about 15 per cent below
March.
Steel production in June and the first three weeks of July was down 7 per cent from the
May level, and was 5 per cent below the corresponding period a year ago. Output in the
nonferrous metal industries also declined, particularly at fabricating plants, owing primarily
to the large drop in military demand for most aluminum and copper products.
Production of most nondurable goods showed little change in June. Civilian supplies
of some of these goods such as butter and tobacco products have increased in July as a result
of reduced military purchases. Distilleries have been permitted to produce beverage alcohol
in July. Production of shoes and textile products for civilians is expected to increase by autumn.
Output of minerals rose 5 per cent in June, reflecting mainly a large rise in coal produc­
tion to the highest rate since last November. Crude petroleum production continued to
increase, reflecting even greater military demand for some petroleum products for the Pacific
War than for the two-front war prior to VE day.
Contracts awarded for most types of privately-owned construction increased considerably
in June. The total value of private awards was three times as large as the very low level
prevailing in 1944, while awards for Federal construction were generally smaller than last year.
D

Indexes o f V alue o f D epartm ent S tore Sales and
S to ck s, A d ju s te d fo r S easonal V ariation
(1 9 3 5 -3 9 a v e ra g e — 1001p er ce n t)

is t r ib u t io n

Department store sales, which usually decline from May to June, increased this year and
the Board’s seasonally adjusted index rose from 187 to 201 per cent of the 1935-39 average.
Sales in June were 15 per cent larger than a year ago and in the first half of July were 23 per
cent larger than in the corresponding period last year.
Freight carloadings were generally maintained in June and the early part of July. Ship­
ments of manufactured products, however, declined somewhat and, allowing for seasonal
changes, were about 5 per cent below the first quarter average. Loadings of coal in June and
the first two weeks of July were above the reduced level prevailing in April and May.
C o m m o d i t y P r ic e s

Prices of wheat and of fruits and vegetables declined somewhat from the middle of June
to the third week of July reflecting chiefly seasonal increases in supplies. Prices of most
other farm products showed little change after reaching a new peak for the wartime period
on June 15.
Steel scrap prices, which had declined somewhat in May, increased to ceiling levels in
the latter part of June and prices of most other industrial materials were maintained at
ceiling levels.
A g r ic u l t u r e

Indexes o f the C ost o f L iv in g as C om piled b y Bureau
o f L a b or S ta tistics. L a st M on th in E ach Calendar
Q uarter th rou gh S eptem ber 1940, M on th ly
T h erea fter (1 9 3 5 -3 9 a v e r a g e s 100' p er ce n t)

M em ber B anks in L ead in g C ities. D em and D ep osits
(A d ju s te d ) E xclu d e U . S. G overn m en t and In ter­
bank D ep osits and C ollection Item s. G ov ern ­
m ent S ecu rities Include D irect and Guaranteed
Issues (L a te s t figu res are fo r J u ly 11)




Production prospects for most major crops were generally favorable on July 1. Cotton
acreage reported in cultivation, however, was 10 per cent smaller than last year, and prospec­
tive corn production this year was indicated on July 1 to be 17 per cent smaller than last
season’s large harvest.
Milk production continued at a record level in June. The number of young chickens
on farms has increased rapidly this spring and on July 1 was 11 per cent greater than on
the same date in 1944. Marketings of cattle and sheep were larger in June than in the
same period last year, while the number of hogs marketed continued to be much less than
in 1944.
B a n k C r e d it

Reporting member banks in 101 leading cities increased their holdings of U. S.
Government securities by 4.5 billions of dollars in the eight weeks ended July 11, which
period included the major portion of the Seventh War Loan drive. This amount cor­
responds closely to increases for comparable periods of the two previous drives. During
the Seventh Loan banks added substantially to their holdings of bills, certificates, and notes,
and they have also continued to increase their holdings of bonds.
Loans for purchasing and carrying Government securities extended to customers other
than brokers and dealers by weekly reporting banks increased 1.6 billions during the four
weeks ended June 27, in contrast to 1.1 billions during the comparable period of the Sixth
drive, and 1.3 billions in the Fifth. Loans to brokers and dealers for purchasing or carry­
ing Government securities started increasing somewhat earlier and expanded more than in
preceding drives. Both categories of these loans at their peaks were above high points
reached in previous drives. Declines in these loans began in July.
Excess reserves expanded more and reached a higher level than in any drive since the
Third War Loan drive in September 1943. Owing to the great success of the Seventh
Loan in obtaining subscriptions from, nonbank investors, the shift of funds from deposits
subject to reserve requirements to reserve-exempt United States Government deposits and
the consequent decline in required reserves were larger than usual. Member banks used
a part of the funds thus made available to pay off borrowings at Reserve Banks, which had
risen to a high level of over 900 million dollars in June. Reserve Bank holdings of
Treasury bills showed less decline during and following the Seventh Loan than at the time
of the previous drive. Holdings of certificates and notes continued to increase.