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O f Credit and Business Conditions
V ol.








19 46

No. 8

During the past month, there was a general tendency toward
higher rates on security loans, and on short term "open market
paper” other than Government securities. Several large New
York City banks announced increases in rates on loans to
brokers and dealers for purchasing or carrying Government
obligations, and to brokers on reloans to customers on Govern­
ment and other securities, effective July 22 and 31, respectively.
Although there were some variations in the rate schedules
posted by individual banks, in general the charges on loans
secured by Treasury certificates of indebtedness and other
Treasury securities maturing within one year were raised from
% to 7
/ s per cent, and those secured by longer term Treasury
issues from % to 1 per cent, while the rate on brokers’ borrow­
ings for customers’ accounts was advanced from 1 to \Vi
per cent.
In view of this tendency toward higher short term rates,
bankers acceptances became practically unsalable in the market
at rates corresponding to Vi per cent for 90 day bills, which
was the minimum buying rate of this bank, and on July 12
an increase of Vs to Va per cent was announced in the rates
at which this bank would buy bankers acceptances of less than
four months’ maturity. This action was followed almost
immediately by an advance in the buying and selling rates of
acceptance dealers. Finally, toward the close of the month,
commercial paper dealers raised their rates slightly to Ya-Vs
per cent for four to six months’ notes of well known borrowers.
Thus, the firming of short term interest rates during the
month, while moderate, was more general than at any time in
several years.
The upward revision of security loan rates was followed by
some recession in bond prices and a slight rise in their yields.
The higher rates on security loans to dealers and brokers and
their customers tended to reduce the income derived from
carrying Government securities on bank credit by narrowing
the margin between coupon and borrowing rates, and some
selling of the more speculative holdings was reported during
the latter half of the month. On Treasury certificates the
margin was eliminated altogether, and a substantial liquida­
tion of borrowings by Government security dealers was re­
flected in the weekly reports of New York City banks in ad­
vance of the effective date of the rate increase.

The advance in bankers acceptance and commercial paper
rates reflected principally an adjustment to the firmer short
term rate structure rather than any increased demand for
accommodation on the part of business organizations seeking
funds through these forms of credit. The increase in the
Reserve Bank buying rates for acceptances raised them slightly
above the open market quotations and checked the selling of
bills to the Reserve Banks, which had been increasing in
volume. Thus, the action represented an adjustment of this
bank’s rates to conform with the current market pattern and
promoted acceptance financing with private funds, rather than
with Federal Reserve credit.
M em ber Ba n k R eserve Po sitio n s

Member bank reserve positions were subject to moderate
pressure during July— in the first part of the month as a result
of heavy preholiday demands for currency and as a result of
Treasury transactions related to the retirement of maturing
securities which brought about large shifts of funds between
individual banks and communities; and in the latter part of
the month, as a result of Treasury receipts substantially in
excess of disbursements which more than offset the effects on
reserves of a return of currency to the banks and a decline in
reserve requirements. Although member bank reserves were
affected unevenly by these transactions, in the aggregate the
banks were in substantial need of reserve funds and sold short
term Government securities in the open market, large amounts
of which were absorbed by the Federal Reserve System.
On the first of July, the Treasury paid off 2 billion dollars
of a 4.9 billion dollar issue of maturing 0.90 per cent notes
and exchanged a new issue of certificates of indebtedness for
the remainder. Even though a large withdrawal of funds
from War Loan deposits in the banks was made, Treasury
disbursements were substantially in excess of receipts during
the first statement week of the month (ended July 3 ), but a
large part of the net expenditure was absorbed by the retire­
ment of Federal Reserve System holdings of the matured notes
and by the Treasury’s payment of its initial subscription to
the World Bank into the latter’s account with the New York
Reserve Bank. Thus, only a small portion of the net disburse­
ments reached member banks and this was insufficient to



meet the strain on reserves caused by a heavy seasonal demand
for currency prior to the Independence Day holiday and by
the increase in reserve requirements associated with Treasury
redemptions of notes held by nonbank investors.
In the following three weeks, Treasury receipts exceeded
disbursements by a wide margin. Expenditures in this period,
furthermore, included a deposit of 300 million dollars to
British account with the Federal Reserve Bank, the initial
instalment of the 354 billion dollar credit recently granted to
the United Kingdom by Congress. Thus, a considerable part
of the Treasury’s disbursements in this period did not immedi­
ately reach the commercial banks. The net effect of these
Treasury transactions more than offset the effects of the large
post-holiday return of currency from circulation and a sizable
reduction in reserve requirements. As a result, member banks
were compelled to sell short term securities directly and indi­
rectly to the Federal Reserve System to adjust their reserve
positions. New York City banks were subject to particularly
wide fluctuations in their reserve positions, which were attrib­
utable not only to the large-scale Treasury transactions, but
also to heavy movements of funds between New York and
other parts of the country. To a considerable extent New
York City banks adjusted their positions by buying and selling
Treasury bills, although their transactions in other Govern­
ment securities were also on a substantial scale.
M em ber Ba n k C redit

Reflecting the July 1 redemption of maturing 0.90 per cent
Treasury notes and intermittent pressure on member bank
reserves, total Government security holdings of the weekly
reporting member banks declined by 1.2 billion dollars in the
four weeks ended July 24, at which date they were approxi­
mately 6.4 billion dollars less than at the beginning of the
year. Of the decline in the four-week period, New York City
banks accounted for 345 million dollars. They not only lost a
sizable amount of Treasury notes through the redemption, but
also had a small net decline in their certificate holdings in spite
of receipts of certificates in exchange for that portion of the
Treasury notes not redeemed. Holdings of Treasury bills
fluctuated sharply, and at one time, bill holdings of the weekly
reporting banks in New York City dropped to 47 million
dollars, lowest since February 8, 1939 when holdings of Gov­
ernment obligations were first reported by types of issue.
Nevertheless, in the four weeks under review, holdings rose
about 80 million net. Net purchases of bonds amounted to
about 170 million dollars.
Government securities of the weekly reporting banks in
100 other cities fell 825 million dollars in the four weeks
ended July 24, again owing partly to the retirement of
Treasury notes. These banks made small net sales of bills and
substantial sales of certificates, and purchased a small amount
of bonds.
Total loans of the weekly reporting banks dropped 115
million dollars in the four weeks ended July 24, reflecting
chiefly a decline in Government security loans which was

heaviest among New York City institutions. Brokers and
dealers liquidated 454 million dollars of their borrowings on
Government obligations from New York City banks in the
two weeks ended July 24, presumably in advance of the
effective date (July 22) of the higher rates on loans secured
by short term Government issues, and there were smaller
repayments in other cities. Loans on Government securities
to other borrowers also were reduced gradually throughout the
period, both in New York and elsewhere. This liquidation
of security loans more than offset the gains in other kinds of
loans extended in this period. The tendency for security
loan repayments to exceed the extension of credits for other
purposes has been apparent among the New York City insti­
tutions since the beginning of the year and also prevailed in
the banks in 100 other cities until recent weeks.
In the four weeks ended July 24, however, the growth of
business and other kinds of loans outside New York was
greatly accelerated, and surpassed the liquidation of security
loans. The expansion of other than security loans has been
more vigorous during the current year at out-of-town weekly
reporting member banks than at New York City reporting
institutions. Commercial, industrial, and agricultural loans of
the reporting banks in 100 cities increased 525 million dollars
(or 12 per cent) between January 2 and July 24, 1946, and
more than half the gain took place in the last four weeks of
this period. Business loans of the New York City banks
fluctuated irregularly during 1946, but on July 24 showed a
net gain of about 200 million dollars or 7 per cent over the
amount outstanding at the beginning of the year. The increase
between June 26 and July 24 came to about 160 million.
But the difference in the rate of growth of loans between
the two groups of banks is even more striking for real estate
and "other” loans (largely personal or consumer loans and
loans to financial institutions other than banks and sales finance
Real Estate and “ Other” Loans of Weekly Reporting Member
Banks in New York City and 100 Other Cities*
Ml L L I O N S

* “ Other” loans include consumer loans and loans to financial institutions
except banks and sales finance companies, and exclude commercial, industrial,
agricultural, and real estate loans, and loans for purchasing or carrying
securities. (Latest figures are for July 17.)


companies, and to foreign governments), as illustrated in the
accompanying chart. In contrast to increases of approximately
200 million dollars each in real estate and 'other” loans among
the weekly reporting banks in 100 other cities during 1946,
the New York City banks reported no net gain in either
category. Outside New York City, the expansion of both
classes of loans appears to have been widespread among weekly
reporting banks in most Federal Reserve Districts and in the
remainder of the Second District.
As shown in the chart, the rise in "other” loans appears to
have got under way in April 1945. The total increase since
that month came to 160 million dollars for the New York
City institutions and to 450 million dollars for weekly report­
ing member banks in 100 other cities. While a considerable
part of this gain may be explained by the expansion of con­
sumer borrowing at commercial banks ( according to estimates
o f the Board of Governors of the Federal Reserve System total
consumer instalment credits by the commercial banks increased
by about 450 million dollars between April 1945 and May
1946), a sizable expansion of borrowings for miscellaneous
purposes has apparently taken place, including borrowings by
foreign countries. In fact, the relatively sharp decline of
"other” loans at New York banks during the week ended May
29, 1946 reflects chiefly the liquidation of a large loan to a
foreign government.
The expansion of real estate loans in the weekly reporting
member banks appears to be of more recent origin, having
begun toward the close of 1945. Undoubtedly, the increased
activity of the banks in the mortgage field is closely related
to the acute housing shortage which has compelled many
borrowers to purchase homes in order to find shelter. While
a large part of the new mortgage loans made by the banks
represent the exchange of ownership of existing structures,
construction loans probably comprise an increasing proportion
in view of the sharp rise in residential building.
Federal Government trust funds have become of increasing
importance in recent years because of the effect of their opera­
tions upon Treasury financing. The principal Federal trust
funds arose out of social insurance programs. These programs
were set up for the most part on a reserve basis rather than
on a pay-as-you-go basis, i.e., contributions to the funds were
fixed at a rate which would exceed expenditures in the early
years when benefit payments are low. These reserves, except
for a small amount of cash set aside to meet current expendi­
tures, are usually required by law to be invested in U. S.
Government securities. If at any time expenditures of a fund
exceed current receipts, as was the case with the Unemploy­
ment Trust Fund early in 1946, these reserves are drawn upon
by redeeming securities or selling them in the market.
1 Copies of a more extensive analysis made by this bank, upon which
this study is based, may be obtained upon request.


H old in gs o f U . S. G overn m en t S ecu rities b y
Federal G overnm ent T ru st F u n d s*
(A s o f June 30 each y e a r ; in m illions o f d o lla rs)
Federal Old-Age and Survivors Insurance
Trust F und.....................................................
Unemployment Trust Fund...........................
National Service Life Insurance F und..........
Civil Service Retirement and Disability
U. S. Government Life Insurance F und........
Railroad Retirement Account .....................
Adjusted Service Certificate F u n d ...............
Miscellaneous small funds..............................


















* U. S. securities include also U. S. guaranteed securities.
** Estimated.
t Figures are rounded and do not necessarily add to totals.
Source: Annual Reports of the Secretary of the Treasury for fiscal years 1935,
1940, and 1945. Figures for June 30, 1946 from Daily Statement of the United
States Treasury.

Prior to inauguration of the Social Security program in
1936, Federal trust funds had accumulated only a small invest­
ment in Government securities, amounting to less than 500
million dollars on June 30, 1935. Only three trust funds
existing at that time were of any importance in Treasury
financing. The Civil Service Retirement and Disability Fund
established in 1920 accounted for 270 million dollars of the
total as a result of accumulated employee and Government
contributions in excess of benefits paid. The Adjusted Service
Certificate Fund, established in 1924 to receive annual appro­
priations to cover eventual payment of the veterans’ bonus,
held 156 million dollars of Government securities. Most of
the receipts to this fund from annual appropriations were
used to make loans to veterans during the depression against
their adjusted service certificates, so that the reserve available
for investment in Government securities was relatively small
in 1935. Similarly, the U. S. Government Life Insurance
Fund, established in 1920 to handle financing of converted life
insurance policies of World War I veterans, had employed
much of its reserve in loans to veterans, so that investments
on June 30, 1935 included only 61 million dollars of Govern­
ment securities.
With the start of the Social Security program in 1936, three
new trust funds came into being— the Unemployment Trust
Fund, the Federal Old-Age and Survivors Trust Fund, which
soon became the largest holders of Government securities
among the Federal trust funds, and the Railroad Retirement
Trust Fund. By the start of the defense program in July 1940,
reserves accumulated through excess of payroll tax receipts
over benefit payments were invested in Government securities
in the amount of more than 1,700 million dollars each for the
Unemployment and Old-Age Funds.
Among the older funds, the Civil Service Retirement and
Disability Fund invested 280 million dollars in Government
securities in the five-year period ended June 30, 1940, pri­
marily as a result of increased Government contributions. The
Government Life Insurance Fund increased its Government
security investments by nearly 770 million dollars, but most
of this represented the issuance of 500 million dollars of



special adjusted service bonds to the fund in cancellation of a
like amount of loans outstanding to veterans against their
adjusted service certificates at the time the bonus became
immediately payable in 1936. The Adjusted Service Certifi­
cate Fund virtually completed its operations in 1936, as a
result of this early payment of the bonus. Loans to veterans
by this fund were canceled against their rights to the bonus,
and Government security holdings of the fund were liquidated
except for a negligible reserve to cover bonus payments not
yet claimed.
During the defense and war period covering fiscal years
1941-45, reserves of the Federal trust funds were built up at
a much faster rate because of the expansion in payrolls, re­
duction in unemployment benefit payments, and establishment
of the National Service Life Insurance program for members
of the Armed Forces. Government security holdings of the
funds rose by more than 15.6 billion dollars to a total of nearly
20.6 billion on June 30, 1945. The annual rate of addition
to total holdings increased sharply from 1.3 billion dollars in
the fiscal year 1941 to 5.2 billion in fiscal 1945. The Unem­
ployment and Old-Age Funds continued to predominate,
adding 5.6 billion dollars and 4.8 billion, respectively, of
Government securities during the five-year period. Both funds
reached a peak annual increase in fiscal 1944 when the
Unemployment Fund invested 1.5 billion dollars and the
Old-Age Fund nearly 1.2 billion. Benefit payments of the
Unemployment Fund had declined to a negligible amount by
that year, reflecting the small number of unemployed workers.
Reserves accumulated in fiscal 1945 were slightly less for the
Unemployment Fund because a further decline in percentage
contribution rates, resulting from use of merit ratings by the
States, was not offset as in prior years by substantial increases
in payrolls subject to taxation. The Old-Age Fund also accu­
mulated a slightly smaller amount for investment in fiscal
1945 than in the previous year because payroll tax receipts
leveled off while benefit payments continued to rise.
A new large fund was added with the establishment of the
National Service Life Insurance Fund in the latter part of
1940. By June 30, 1945, this fund had invested nearly
3.2 billion dollars in Government securities. The bulk of
these investments were made in the fiscal years 1944-45,
amounting to nearly 0.9 billion dollars in fiscal 1944 and
2.0 billion in fiscal 1945. Premium receipts alone exceeded
benefit payments by 1.9 billion dollars up to June 30, 1945.
In addition the Federal Government contributed over 1.2 bil­
lion dollars, virtually all in the fiscal year 1945. The Govern­
ment contributes lump sum amounts sufficient to cover the
present value of all future payments arising from war risk
deaths. Premium receipts were based on the normal American
experience table of mortality. The large invested reserve of
this fund is to cover the continued benefit payments in future
years. Under present legislation payments to beneficiaries
are made only in instalments over several years rather than in
lump sum amounts.

The Unemployment, Old-Age, and National Service Life
Insurance Funds accounted for 87 per cent of the 15.6 billion
dollar increase in all trust fund investments during the fiveyear period ended June 30, 1945. As in the previous period
the Civil Service, Railroad Retirement, and Government Life
Insurance Funds accounted for virtually all of the remainder.
Under present legislation, there will be a substantial drop
from the 5.2 billion dollars invested by trust funds in the fiscal
year 1945. In the fiscal year 1946, investments of the trust
funds increased 3.7 billion dollars, and a further decline is
likely in future annual increments. This drop reflected pri­
marily the changed position of the Unemployment Trust Fund.
The invested reserve of this fund increased only 0.1 billion
dollars in fiscal 1946 as compared with more than 1.4 billion
in fiscal 1945. The primary reason for this change was the
sharp rise in unemployment benefit payments following V-J
Day. It is unlikely that the reserve of this fund will be allowed
to increase more than a moderate amount beyond the present
7.4 billion dollars. If unemployment should stabilize at a low
level, it is likely that contribution rates would be lowered still
further or that benefits would be liberalized. Chairman
Altmeyer of the Social Security Board recently stated that the
reserve was adequate to meet expected levels of unemploy­
ment, and suggested a reduction in the standard contribution
The rate of increase in the Old-Age Fund tapered off only
slightly in fiscal 1946, amounting to 1.0 billion dollars, com­
pared with 1.1 billion in the previous year. Receipts of this
fund are likely to stabilize at about the present level, unless
Congress allows the payroll tax rate to increase or extends the
program to workers not now covered, as benefit payments are
rising gradually as more covered workers become eligible for
The National Service Life Insurance Fund invested nearly
2.1 billion dollars in fiscal 1946, largely as a result of Govern­
ment contributions amounting to 1.4 billion, but future
Government contributions will be relatively small since the
bulk of war risk death claims have now been settled. Further­
more, premium receipts have declined as some veterans
dropped or reduced their insurance coverage, while benefit
payments have increased sharply as claims were settled. In­
vestments of the Civil Service Retirement and Disability Fund
reached their largest annual increase of 400 million dollars
in fiscal 1945, and dropped to 300 million in fiscal 1946.
Some further decline in the annual accumulations is likely
because of the shrinkage in Federal payrolls. The Railroad
Retirement Account provided less than 200 million dollars of
investment funds even in fiscal 1945 and is likely to stabilize
at this annual rate or slightly more if pending legislation
increasing the contribution rates and eventual benefits is
passed. Reserves of the Government Life Insurance Fund
increase only about 50 million dollars annually.
The types of securities acquired by the trust funds are
determined largely by requirements set forth in the Acts

T y p es o f G overn m en t S ecurities H eld b y F ederal G overnm ent
T ru st F un d s June 30, 1948
(In m illions o f d olla rs)

Federal Old-Age and Survivors Insurance
Trust Fund.....................................................
Unemployment Trust Fund...........................
National Service Life Insurance F und..........
Civil Service Retirement and Disability
U. S. Government Life Insurance F und........
Railroad Retirement Account .....................
All other funds...................................................
Total X.............................................................













48 f

** Estimated.
f Includes one million dollars in Savings bonds.
j Figures are rounded and do not necessarily add to totals.
Source: D a ily Statement o f the United States Treasury.

creating the various funds. A breakdown by type of security
is shown in Table II. For the most part, these funds hold
special issues obtained directly from the Treasury. The special
certificates are of one year maturity but are redeemable on
demand, while the special notes have a five year maturity but
are redeemable after one year from date of issue. The only
special bonds were the adjusted service bonds issued to the
Government Life Insurance Fund in cancellation of loans to
veterans against their adjusted service certificates. These bonds
were redeemed in June 1946 and replaced by special
Only three of the principal trust funds hold marketable
Treasury bonds. The other three cannot obtain yields on
marketable issues equal to the interest basis on which the
funds were set up, which is 3 per cent for the National Service
Life Insurance and Railroad Retirement Funds, and 4 per cent
for the Civil Service Fund (except for a negligible amount of
additional voluntary contributions on a 3 per cent basis). The
Treasury issues to these funds special securities carrying the
required coupon rates. The Government Life Insurance Fund
is on a 3x/2 per cent basis, but acquired various marketable
issues in earlier years when interest rates were higher. Further­
more, the adjusted service bonds held by this fund until June
1946 carried a AVi per cent rate which offset the lower rates
on marketable holdings. Special issues to this fund have
generally carried a 3J/2 per cent rate.
In the original Social Security Act, all obligations acquired
by the Old-Age Fund had to yield at least 3 per cent, but the
1939 amendment dropped this requirement and provided that
special issues should carry a rate to the nearest one-eighth per
cent below the computed average rate on the entire public
debt. As a result of this provision, the rate on special issues
to the fund has been reduced to 1% per cent on new issues
since June 15, 1943. Special obligations are issued to this
fund only if the managing trustee (Secretary of the Treasury)
determines that the purchase of other interest-bearing obliga­
tions on original issue or at the market price is not in the
public interest. The fund had acquired 1.6 billion dollars of


marketable Treasury bonds up to June 30, 1946, while special
issues amounted to 5.9 billion dollars.
Stipulations as to the issue of special obligations to the
Unemployment Trust Fund are similar to those of the Old-Age
Fund, without the provision, however, that such investment
be made only if it is not in the public interest to acquire
regular issues. On the other hand, marketable securities may
be bought by the Unemployment Fund only on such terms as
to provide an investment yield not less than that which would
be required at the time on special issues. At present, therefore,
the fund would be unable to acquire short term public issues.
In view of the nature of this fund, it would not be desirable
to invest a substantial amount in long term Treasury bonds
which might have to be liquidated at an inopportune time.
Investment holdings as of June 30, 1946 consisted of
6.7 billion dollars of special certificates and 0.7 billion of
Treasury bonds.
The foreign trade of the United States has, in the relatively
short period since the end of hostilities, undergone a number
of fundamental changes which had a far-reaching effect on
the character of the United States balance of international pay­
ments. During the war years, the huge merchandise export
surplus of the United States reflected largely heavy lend-lease
shipments which did not require concurrent payment of dollars
by the recipient countries. At the same time our wartime pur­
chases of foreign products either for import or stockpiling
abroad were for the most part paid for in cash. Consequently,
foreign countries as a whole were able to accumulate consid­
erable amounts of dollar exchange and gold as a result of their
wartime trade with this country.
This situation was reversed after V-J Day when "com­
mercial” and other cash exports began to exceed our imports
in increasing amounts. While total merchandise exports still
remain materially below wartime levels despite increases in
late 1945 and early 1946, the relative share of "commercial”
exports has risen sharply. Simultaneously, the nature of "lendlease” exports has changed fundamentally, as most of such
shipments since V-J Day have required either full cash pay­
ment or a substantial cash down payment with the balance due
over a number of years under credit arrangements. Inasmuch
as these shipments provide the United States with immediate
or deferred receipt of dollars from abroad, both commercial
exports and most post-armistice lend-lease shipments may be
combined under the common classification of "cash and credit”
exports. The steady increase in these cash and credit exports
was in direct contrast to the sharp reduction— in comparison
with the war period— in those post-armistice exports which
did not require payment of dollars by foreign importers. At
present this category consists of shipments under the UNRRA
program, private relief shipments, United States Government
exports, and a small amount of special lend-lease shipments.



Meanwhile, United States imports have remained close to
wartime levels. The large excess of United States cash and
credit exports over imports can be seen from the following
table, based on data published by the Bureau of the Census.
Dollar Value of United States Foreign Trade
(In millions of dollars)

Exports from United States

“ Cash and
“ Non-cash”

to U. S.

Excess of
“ cash and
credit” ex­
ports over

M onthly average






1945 O ctober...........
N ovem b er... .
D ecem ber. . . .
1946 January...........
M a rch .............
A p ril................






(а) Exports not resulting in receipt of dollars from foreign sources. Primarily
U N R R A exports, but also includes private relief shipments, U. S. Government
exports to its agencies abroad, some exports to Belgium in settlement of that
country’s net claim against the U. S. on lend-lease account, and certain special
lend-lease shipments to Italy.
(б) Exports resulting in immediate or deferred receipt of dollars from foreign

The data above indicate that the foreign trade of the United
States resulted in a total excess of cash and credit exports over
imports of more than 1Vi billion dollars during the first seven
full calendar months following the official date of termination
of hostilities with Japan. To this amount should be added
some part of such indirect exports as the sale of United States
surplus property abroad, from which a total of 345 million
dollars had been obtained in cash by the end of March, or will
be obtained eventually under special dollar credit arrange­
- !
W ith respect to the financing of this large excess of cash
and credit exports over imports, it is significant to note that
although there has been a decline in combined foreign hold­
ings of gold and dollar assets since V-J Day, this decline has
been far from commensurate with the excess of such exports.
From the end of September 1945 through April 1946 there
was a net foreign loss of gold to the United States of about
272 million dollars. This loss was supplemented by a reduction
in foreign-owned dollar assets during the same period.
An important source of funds required in settlement of the
remainder of our post-armistice surplus of cash and credit
exports has been the various types of dollar credits extended
under the United States Government’s coordinated foreign
lending program. This program, in fact, now has assumed a
position similar in some respects to the one occupied through­
out the war years by the lend-lease program, and it can be
credited with having contributed to the substantial increase
in United States merchandise exports from the low point
reached after the cessation of straight lend-lease shipments in
September and October 1945. Dollar credits made available
by the United States Government to foreign countries since
the end of hostilities have reached a total of about 8 billion
dollars, including the recently approved 3,750 million dollar

credit to the United Kingdom; only a relatively small fraction
of this total has been utilized to date, however.
Since the over-all purpose of many recent United States
Government loans is to aid in the reconstruction of wardevastated countries, it was necessary to restrict their use to
a well coordinated flow of capital goods and selected raw mate­
rials and foodstuffs to those countries. In this manner the
foreign lending program has had a strong bearing not only
on the financing but also on the composition of our cash and
credit exports. W ith the exception of the 3,750 million dollar
British credit, most foreign loans were tied to prescribed trans­
actions. For example, the Export-Import Bank has restricted
the use of most of its loans to the purchase of definitely desig­
nated types of products, while loans by other Government
agencies have usually consisted of credit arrangements for the
deferred payment of obligations for lend-lease supplies and
for purchases of United States surpluses and installations
Of similar importance has been the bearing of the United
States Government lending program on the geographical
distribution of our foreign trade. Many of the countries which
needed reconstruction materials most urgently, such as France
and the Netherlands, have suffered severe losses of gold and
foreign exchange reserves since 1939, or had been short of
such reserves even before the war. A large flow of foreign
loans has been directed to them in order to increase their
ability to make emergency purchases in this country.
Similar to the influence of United States Government for­
eign loans on cash and credit exports has been the effect of
United States relief contributions on the magnitude and direc­
tion of our so-called "non-cash” exports. For example, exports
by UNRRA, which comprise the largest part of non-cash
exports, accounted for about 14 per cent of the total value of
United States merchandise exports during the first quarter
of 1946.
Substantial export surpluses in this country’s foreign trade
may be expected to continue— at least during the transition
period— if the United States is to undertake to meet the huge
pent-up foreign demand for American capital and consumers’
goods at a time when exports to this country will be hampered
by low productive capacity in the war-devastated countries.
As a reserve to cover net imports from this country during
the coming years, foreigners now have, or may be expected
to have, at their disposal (aside from the wartime accumula­
tion of dollar exchange and gold by a number of countries)
the large unutilized portion of the United States Government’s
loans, together with any subsequent loans from this source;
the unutilized portion of the United States’ contribution to
UNRRA; loans from the newly organized International Bank
for Reconstruction and Development; and funds derived from
a possible revival of private United States lending abroad.
However, all these means of financing our trade surplus
during the coming years of transition can be considered only
as temporary expedients. The long-range problem is a dis­


tinctly different one, as it will become necessary eventually
for the borrowing countries not only to meet the costs of their
current imports of goods and services but also to meet the
service charges on debts incurred during the early postwar
years. The National Advisory Council on International Mone­
tary and Financial Problems estimates that the annual require­
ments for the servicing of United States Government foreign
loans, including loans which may be floated in the United
States by the International Bank, will amount to "less than
1 billion dollars”. This will constitute a substantial strain on
the balance of international payments of debtor nations, unless
they find means of obtaining additional dollar exchange
through sources other than United States capital exports.
In the long run, therefore, sustained large United States
exports will have to be financed through increased United
States imports of goods and services and, in a more general
way, through the maintenance of a large volume of multi­
lateral trade. A program of increased imports would, of course,
involve a partial reorientation of our foreign trade policies,
which would be in line with a possible depletion of some of
this country’s natural resources and the increased productive
capacity of foreign countries owing, in part at least, to United
States exports of capital goods. In recognition of the over-all
necessity for a large volume of multilateral trade, the United
States has been actively engaged in the sponsorship of an
International Trade Conference for the purpose of laying the
basis for international economic cooperation.
Following the long decline in factory employment from
the wartime peak, reflecting at first cutbacks in war produc­
tion, and then the layoffs incidental to reconversion, followed
by a succession of widespread strikes, the number of employed
workers once again is on the increase. During the first week
in June, total civilian employment was estimated by the Bureau
of the Census at 56.7 million persons, the highest level in this
nation’s history, and an increase of a million and a half over
May. When the 3 million members of the Armed Forces are
included, it can be seen that we are already rapidly approach­
ing the much publicized peacetime goal of "60 million jobs”.
Unemployment has declined from its postwar peak of 2.7
million persons, despite the summer influx of students and
seasonal workers into the labor market. By June nearly 12
million veterans of World War II had returned to civilian
life, and less than a million of them were unemployed. Except
for about a million and a half who were in school or not yet
looking for employment, the rest had returned to old jobs or
found new positions.
Industry, however, has not yet approached full capacity
peacetime production, and manufacturing employment is still
far below the record wartime level. Consequently, as hiring
in manufacturing, construction, and trade continues, it is now
expected that the country may be faced by fall with a labor
shortage instead of the widespread unemployment that was
anticipated at one time. Scattered shortages of skilled workers
and a gradual tightening of the labor market are already in
evidence, and the United States Employment Service estimates
that eventually the demand for workers may be great enough


to absorb those currently unemployed plus the returning vet­
erans and necessitate the recall of more than half of the 4
million workers (mostly women) who left the labor force
after V-J Day.
The number of construction workers in June was the great­
est since the end of 1942, and employment in the finance and
service industries reached an all-time high. The number of
civilian government employees had declined about three
quarters of a million from the wartime peak. Manufacturing
employment, however, dropped from a wartime peak of 17.2
million in November 1943 to a low of 11.4 million in Feb­
ruary 1946, and successive gains during the following four
months recovered less than one quarter of the loss.
During the first five months of 1946, 82 million man-days
were lost in industrial disputes, more than double the number
for the entire year 1945 and five times the 1935-39 annual
average. At present, prospects for a period of comparatively
peaceful labor-management relations appear more favorable
than at any time since V-J Day. Strike notices filed in the
first part of July showed a sizable decline, despite the ending
of price control.
In New York State, as in the rest of the country, manufac­
turing employment in June had not recovered to the level
prevailing at the end of the war, and was still 23 per cent
below the wartime peak. During the war the number of
manufacturing employees in New York State rose about 58
per cent above the 1939 average, compared with an increase
o f more than 80 per cent in the country as a whole. War
production leveled off earlier in this State and by V-J Day
employment had declined 21 per cent from the wartime peak.
After the end of the war, reconversion and then strikes cut
the number of employed workers 13 per cent further, com­
pared with 18 per cent in the entire country, but in recent
months the trend has been upward.
Indexes o f B u sin ess


Industrial production*, 1935-39 = 100..
(Board of Governors, Federal Reserve
Electric power output*, 1935-39 = 100. .
(Federal Reserve Bank of New York)
Ton-miles of railway freight*, 1935-39 = 100
(Federal Reserve Bank o f New York)
Sales of all retail stores*f, 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, o f Labor)
Income payments*, 1935-39 = 100...........
(Department of Commerce)
Wage rates, 1926 = 100...............................
(Federal Reserve Bank o f New York)
Consumers’ prices, 1935-39 = 100.............
(Bureau of Labor Statistics)
V elocity of demand deposits*}:, 1935-39 = 100
(Federal Reserve Bank of New York)
New York C ity .........................................
Outside New York C it y ....................... ..



M ay



































179 p







Adjusted for sessonal variation.
p Preliminary.
Series revised beginning January 1945.
: Series revised beginning 1941; available upon request.


r Revised.



After adjustment for seasonal variation, department store
sales in the Second Federal Reserve District were higher dur­
ing June than in any previous period. Sales during July are
estimated to be at approximately the same level when season­
ally adjusted, but actual dollar sales, of course, are considerably
lower, as department store sales touch their seasonal low in this
month. At the end of June the seasonally adjusted index of
department store stocks had reached a new high of 204 for the
year, only a few points below the all-time high of 214 for July
1942 at the then prevailing lower price level. In spite of this
high level of stocks, outstanding orders continued to increase
during June; a part of this increase is undoubtedly seasonal.
W ith the recently inaugurated publication of the Monthly
Retail Trade Report series by the Bureau of the Census, Depart­
ment of Commerce, new and more inclusive data on the dollar
volume of retail sales are available for several areas within
the Second Federal Reserve District. For New York State,
releases are available beginning January on retail trade in New
York City and Westchester County combined, Orange and
Rockland Counties combined, Monroe and Wayne Counties
combined, and Erie County. For Northern New Jersey releases
are available for the predominantly agricultural Counties of
Hunterdon and Warren and the industrial Essex and Hudson
Counties. While for Hunterdon and Warren Counties only
total retail trade is shown, more detailed data are available for
the more populous areas. For the New York area, thirty-six
kinds of business are shown separately. The Bureau of the
Census is gradually expanding its reporting sample in each
locality, and as more firms are added, the Census will publish
local data in greater detail. The latest District data available,
through May of this year, are summarized in the accompany­
ing table. The Census data cover independent retailers only
and show percentage changes in sales from a year ago and from
the previous month, and sales for the year to date compared
with the same period a year earlier. The number of stores
reporting for each kind of business and their aggregate dollar
sales for the month are also indicated in the Census releases.
These figures provide the retailer with a basis for comparing
changes in his volume of business with average changes for
his locality. Each locality release carries on the facing page a
similar report for the United States as a whole.
As the Monthly Retail Trade Report covers independent
retailers only, changes shown for the kinds of business in which
chain stores are a major factor cannot be taken as representative
of total sales in those lines. However, the Department of
Commerce publishes monthly chain store figures for the United
States by kind of business.
Figures released by this bank on furniture store trade by
major localities differ somewhat from those published by the
Census because this bank’s report includes firms having four
or more stores (the Census definition of a chain).

D ep artm ent and A p parel Store Sales and S tock s, Second F ederal R e serv e
D is trict, P e rce n ta g e Change from the P re ce d in g Y ea r
Net sales
June 1946

Stocks on
Jan. through
June 1946 June 30, 1946

Department stores, Second District........



+ 16

New Y ork C ity ......................................
Northern New Jersey...........................

+ 36
+ 34
+ 31
+ 17
+ 10

+ 15
+ 21
+ 11
+ 8
+ 5

Niagara Falls......................................
R ochester............................................

+ 39
+ 41
+ 39
+ 36
+ 31
+ 19
+ 7

Apparel stores (chiefly New York C ity ).

+ 31



Westchester and Fairfield Counties. .
B ridgeport..........................................
Lower Hudson River V alley...............
Upper Hudson lliver V alley...............
Central New York S tate.....................
M ohawk River V alley.....................
Northern New Y ork State..................
So ithern New York State...................
Bingham ton........................................
Western New York State....................

+ 9
+ 14
+ 15
+ 9

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





M ay


Sales (average daily), unadjuste 1.................
Sales (average daily), seasonally a d ju sted ..





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





r Revised.

N et Sales o f Independent R etail S tores b y K in d o f B u sin ess,
U nited States and S econd D istrict L o ca litie s
Percentage change, January-May 1946 compared with
January-May 1945

Kind of business

New York
City and



Essex and

Total stores......................

+ 24


+ 27




Department stores..........

+ 22


+ 25

+ 24
+ 32


+ 32
+ 25

Food stores......................
Eating and drinking

+ 16

+ 13





+ 19

+ 6
+ 7

+ 17

+ 7
+ 11

+ 15

+ 13

+ 5


+ 24
+ 17

+ 20
-j- 50
+ 30

+ 16
+ 28
+ 37
+ 57

+ 47

Filling stations................
Fuel and ice dealers........
Farm and garden supply
Drug stores......................
Dry goods and general
merchandise stores. . . .
Apparel stores.................
Sporting goods stores___
Jewelry stores..................
Automotive stores..........
Furniture, household,
radio stores..................
Lumber, building, hard­
ware stores...................


+ 10

+ 26

+ 14

+ 34

+ 27

+ 15
+ 16




+ 16


+ 29
+ 11
+ 17
+ 15
+ 23

+ 37

+ 73

+ 4 8r

+ 66

+ 25

+ 28

+ 74

+ 33

+ 60


+ 60



+ 22



r Revised.
* Dry goods and general merchandise stores included with department stores.
Source: Monthly Retail Trade Report, Department of Commerce.


National Summary of Business Conditions
(Summarized by the Board of Governors of the Federal Reserve System)
settlement of major industrial disputes, output at factories and mines increased
sharply in June. Retail trade was in exceptionally large volume in June and the early

part of July. Prices of agricultural commodities rose sharply in the first half of July following
the lapse of Federal controls, and prices of industrial commodities showed some further rise.
In d u s t r ia l

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

P r o d u c t io n

The Board’s seasonally adjusted index of industrial production rose from 159 per cent
of the 1935-39 average in May to 170 in June. This compares with earlier post-war highs
of 168 in November and in March. Most of the increase from May to June reflected sharp
advances in output of coal and of iron and steel after settlement of the coal strike.
Output of durable manufactures increased about 10 per cent in June, reflecting chiefly
the recovery of iron and steel output from the sharply reduced May rate. Steel mill activity
advanced from 44 per cent of capacity at the end of May to 87 per cent of capacity at the end
of June and in July rose somewhat further to a rate of 89 per cent during the current week.
Output of nonferrous metals and of machinery showed moderate gains in June, largely
reflecting settlement of wage disputes in these industries, and production of stone, clay,
and glass products recovered from the low May level. Lumber production showed about
the usual seasonal increase.
Output of nondurable goods as a group showed little change from May to June, with a
further decline in manufactured food output offset in the total by moderate gains in most
other lines. Meat production under Federal inspection dropped further in June to a rate
about 80 per cent of the 1935-39 average, but rose sharply after the lapse of price controls
on June 30. Output at textile mills continued to advance slightly in June and was at a level
10 per cent above a year ago. There were slight gains in activity in the paper, chemical,
petroleum, and rubber products industries.
Minerals output rose 23 per cent as coal and metals production showed sharp gains with
the settlement of wage disputes, and crude petroleum production advanced further to a new
record rate under the pressure of exceptionally large demand for petroleum products.
C o n s t r u c t io n

Employment in Nonagricultural Establishments.
Bureau of Labor Statistics’ Estimates, Adjusted
for Seasonal Variation by Board of Governors.
“ Other” Includes Transportation, Public Util­
ities, Finance, Service, and Miscellaneous.
Proprietors and Domestic Workers

Value of construction contract awards, according to the F. W . Dodge Corporation, declined
in June, following a sharp rise during the past year. Residential awards were reduced by
one fourth from the record level reached in May, while those for nonresidential construction
showed only slight declines.

ploym ent

Employment in nonagricultural establishments continued to advance in June, after
allowance for seasonal changes, reflecting large increases in mining and construction and a
slight gain in manufacturing. The number of persons unemployed, other than students
looking for summer jobs, showed little change from May to June.

is t r ib u t io n

Department store sales in June, after allowance for seasonal changes, were the largest on
record, and in the first half of July sales showed about the usual seasonal decline.
Loadings of railroad revenue freight increased sharply in June, following interruptions to
shipments in April and May as a result of industrial disputes. All classes of freight shared
in the rise. After a temporary decline in the week of July 4, there was a further rise and in
the middle of the month coal, livestock, forest products, and less than carload lot shipments
exceeded those during the same period last year.
C o m m o d it y

Indexes of Wholesale Prices Compiled by Bureau of
Labor Statistics (1926 average=100 per cent;
latest figures are for July 20)

P r ic e s

Prices of farm products and foods advanced sharply during the first half of July after the
lapse of Federal price controls. Subsequently prices of grains and some foods declined some­
what while prices of livestock advanced further. Prices of hides, cotton goods, newsprint,
lumber, lead, and zinc also increased in July.

BILLIONS of dollars




B a n k C r e d it


----7^— 7*.


— _


V' * W v t




V' "



'-W nA*;KJ




m d



K \


RVEBALAN CES ---------


W v**



Member Bank Reserves and Related Items (Latest
figures are for July 17)

Treasury operations in connection with retirement of maturing obligations and quarterly
income tax collections dominated bank developments in June and the first half of July.
Member bank reserve positions fluctuated somewhat as Treasury balances at the Reserve Banks
were built up and drawn down around the security redemption dates of June 1, June 15,
and July 1. Reserve positions tightened generally during the period as a whole, however,
reflecting both the shift of deposits from Treasury balances to private accounts accompanying
security retirement and cash redemption of about 800 million dollars of Government
securities held by the Reserve Banks. Drains on bank reserves were met by purchases
of about 1 billion dollars of Government securities by the Reserve System.
Holdings of Government securities at reporting banks declined further by 3 billion dollars
in June and the first half of July, reflecting the sale of these securities to the Reserve Banks
as well as cash redemption by the Treasury. Loans for purchasing and carrying Government
securities showed further declines. Commercial and industrial loans expanded considerably
at banks outside New York City and real estate and other loans continued to increase.